Post-Implementation Review of Certain Aspects of the Consolidation Tax Cost Setting Process

Background

The Board of Taxation commenced a post-implementation review of certain aspects of the consolidation regime in June 2009. During the course of this review, the Board was requested to undertake a review of the consolidation rights to future income and residual tax cost setting rules in March 2011. The Board finalised this review and provided a report to the Government in May 2011. The Board’s report recommended that the Government investigate two further aspects of the consolidation regime: the tax treatment of liabilities in the consolidation regime; and whether the tax cost setting amount of assets should be capped.

On 25 November 2011, the Government requested that the Board include these two aspects in its consolidation post-implementation review. In this context, the Board split the consolidation post-implementation review into two stages. The first stage focused on the policy framework for the consolidation regime, the operation of the single entity rule, interactions between the consolidation regime and other parts of the law, and the operation of the consolidation regime for small business corporate groups. The Board has completed its consideration of these issues and provided its report to the Assistant Treasurer in June 2012.

In the second stage of the post-implementation review, the Board reviewed the tax treatment of liabilities and the capping of the tax cost setting amount of assets in the consolidation regime. The Board also looked further into some issues that were raised in the first stage of the post-implementation review that remained outstanding, such as the treatment of deferred tax liabilities and the interaction between the consolidation regime and certain parts of the CGT rules.

Discussion Paper

On 11 September 2012 the Board of Taxation released its Discussion Paper on the Post-Implementation Review of Certain Aspects of the Consolidation Tax Cost Setting Process. This discussion paper was intended to facilitate public consultation and the preparation of written submissions to the Board on these aspects of the consolidation regime.

On 16 September 2012, the then Chairman of the Board of Taxation, Mr Chris Jordan AO, announced the release of the Discussion Paper via a press release. The Board developed the Discussion Paper to invite submissions and facilitate stakeholder consultation on the issues raised. The closing date for submissions was 12 October 2012. As part of this process, the Board held consultation meetings in relation to this review in October 2012 in Melbourne.

Board’s report

The Board finalized its report on the Post-Implementation Review of Certain Aspects of the Consolidation Tax Cost Setting Process in April 2013 and submitted its report to the Assistant Treasurer. On 14 May 2013, the Assistant Treasurer and Minister Assisting for Deregulation, the Hon David Bradbury MP, announced the release of the Board of Taxation’s Post-Implementation Review of Certain Aspects of the Tax Cost Setting Process report. The Board’s report and transmittal letter are available for download.

Government response

In the Government’s announcement of 14 May 2013 it agreed to a number of recommendations in full, three recommendations were deferred for additional recommendations and the remainder were accepted in principle.

Later, the Abbott Government announced that the measures agreed to the by the former Government would not proceed on the ‘announced but unenacted’ measures in December 2013.

On 11 September 2017, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, released Exposure Draft legislation and a draft Explanatory Memorandum to implement a number of tax consolidation integrity measures. Many of these measures have been recommended by the Board of Taxation in its reports on Post-Implementation Review into Certain Aspects of the Consolidation Regime and Post-Implementation Review of Certain Aspects of the Consolidation Tax Cost Setting Process.

By way of follow-up to these reports, the Board provided additional advice to the Minister on implementation of the ‘deductible liabilities’ measures (see Part 1 of the Exposure Draft and draft Explanatory Memorandum) on 12 February 2016.

This revised approach was announced as part of the 2016-17 Budget. The Exposure Draft legislation released on 11 September 2017 reflects this revised approach.

Further information on this review can be obtained from the Board of Taxation Secretariat on (02) 6263 4366 or at taxboard@treasury.gov.au. Further information about the Post-Implementation Reviews of the Consolidation Regime are available here.

Submissions received