Australia

Details

  • Service: Tax, Corporate Tax
  • Type: Regulatory update
  • Date: 1/08/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Geoffrey Yiu

Geoffrey Yiu
Partner, Tax

+61 8 8236 3267

gyiu@kpmg.com.au

Understanding your Tax Consolidation asset outcomes 

by Geoffrey Yiu, Corporate Tax Specialist

 

A key feature of the Tax Consolidation regime is the asset cost setting process, which was founded on a principle that a purchaser should be indifferent from an income tax perspective between buying the shares in a company and the assets of that company. 

The asset cost setting process is complex, with the allocable cost amount (ACA) calculation involving 8 main steps, many sub-steps, asset categorisation issues, as well as a raft of special rules. The complexity has increased with the recent rights to future income changes, and will continue to increase with the likely adoption of over 20 Board of Tax recommendations. Working with ACA spreadsheets and detailed financial information also presents its own challenges.

 

However, despite the complexity, the ultimate outcomes should be intuitive and able to be determined at the outset. For example, in a 100 percent share acquisition, the expectation is that the assets will be reset equal to their market value. If the model produces a different result, the difference must be understood and explained – if the assets are reset to below or above market value:

 

  • is it a quirk of the rules?
  • is there an error in the calculation?
  • should the value of goodwill be adjusted for the 'tax elements' of the ACA calculation (eg capitalised incidental costs; and reductions for liabilities and tax losses)?
  • is the expectation of a market value outcome appropriate in the circumstances?

 

 

If the acquisition is a 'creeping' acquisition, it is often appropriate for the asset outcomes to be below market value, particularly where the company increases in value over time. The acquisition of multiple, un-consolidated entities can also give rise to non-market value outcomes due to ACA 'skewing' effects.

 

Seeking to understand the expected ACA outcomes is critical to structuring and pricing deals, and to testing the accuracy of the detailed calculations.

 

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