Restoring integrity to the consolidation regime

On 6 November 2013 the Government announced that it would proceed with amendments to strengthen the integrity of the tax consolidation rules.

The Board of Taxation conducted a post‑implementation review of the consolidation regime and provided reports to the former government in June 2012 and April 2013.  The Board concluded that the consolidation regime is generally working well, but considered that a number of loopholes should be addressed to ensure the ongoing integrity of the consolidation regime. 

The attached exposure draft legislation‑covers five measures that were announced in the 2013‑14 and 2014‑15 Budgets:

• remove a double benefit (or double detriment) that can arise in respect of certain liabilities held by a joining entity that is acquired by a consolidated group;
• remove anomalies that arise when an entity joins or leaves a consolidated group where the entity has securitised an asset;
• prevent the tax costs of a joining entity's assets from being uplifted where no tax is payable by a foreign resident owner on the disposal of the joining entity in certain circumstances;
• clarify the operation of the Taxation of Financial Arrangements provisions when certain intra‑group assets or liabilities emerge from a consolidated group because a subsidiary member leaves the group; and
• remove anomalies that arise when an entity leaves a consolidated group holding an asset that corresponds to a liability owed to it by the old group because the value of the asset taken into account for tax cost setting purposes is not always appropriate.