• Service: Tax, Mergers & Acquisitions, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 10/9/2013

Australia - Tax consolidation rules and cap for privatised assets 

October 9: At issue in a case pending before Australia’s Federal Court is the definition of the term “just before the joining time” in the context of section 705-47 (concerning whether the consolidation tax cost-setting cap for privatised assets applies).

The critical factor for determining whether the cap will apply is whether the head company and the joining company were associates “just before the joining time.”

In the context of corporate acquisitions, it is possible (or even likely) that the target and the acquirer will become associates at some point prior to completion of the acquisition. This is particularly the case when, under an arrangement, the final share acquisitions may occur through compulsory acquisition or through staggered acceptance in a takeover bid.

In the pending case, the taxpayer submitted that the phrase “just before the joining time” must mean the point in time prior to the process of acquisition occurring—here, the takeover bid. The Commissioner countered that the meaning of the term is plain and inelastic. If the Commissioner is found to be correct, this could have potentially adverse consequences, particularly in relation to privatised infrastructure assets.

Read an October 2013 report prepared by the KPMG member firm in Australia: Tax consolidation rules – What do you mean, 'just before'?

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