Tax Consolidation Products

Consolidated Groups (Non-MEC Groups)

The group consolidation provisions of the Income Tax Assessment Act 1997 (found in ITAA97 Pt 3-90) allow wholly owned groups of companies, eligible trusts and partnerships to consolidate for tax purposes.

By consolidating, a "head company" and all its wholly owned Australian subsidiaries can be treated as a single entity for tax purposes during the period of consolidation.

The benefits of consolidation include the filing of a single tax return for the group, the payment of consolidated income tax installments and the pooling of losses and franking credits.

Joint and Several Liability

The consolidation regime provides that the "head company" is liable for the tax debts of the consolidated group. However, the consolidation regime also provides that all subsidiaries are jointly and severally liable for any tax not paid by the "head company", regardless of the subsidiary's financial position or contribution within the consolidated group.

Tax Sharing Agreement - why have one?

A Tax Sharing Agreement (TSA), properly drafted in accordance with Division 721 of the Income Tax Assessment Act 1997, offers:

• protection for subsidiaries (and entering subsidiaries) of a consolidated group from joint and several liability when the head entity fails to pay, by limiting this liability through reasonably allocating the group's income tax liability amongst group members; and
• protection for subsidiaries exiting the consolidated group from being liable for future outstanding group tax liabilities to the Commissioner of Taxation that relate to the period in which the exited subsidiary was a party to the TSA.

The joint and several rule can be overcome by the "head company" entering into a TSA with all subsidiaries in the consolidated group.

Problems that can be encountered without a TSA include:

• a future sale of a subsidiary may be less attractive to a potential purchaser faced with possible exposure to a tax liability for a group of companies;
• more complicated financial recording and reporting will be required; and/or

• directors may be held to have breached their duties if losses are sustained by their company in paying income tax that would not have otherwise been payable.

Tax Funding Agreement - why have one?

A Tax Funding Agreement (TFA) is not a TSA. While it is an agreement voluntarily entered into between members of a consolidated tax group, the TFA is different to a TSA in that it provides a means by which the head company can be funded by the relevant subsidiaries in respect of the tax liability. 

A TFA provides:

• a mechanism for funding the head company in respect of group tax liabilities; and
• a mechanism for recognising and compensating subsidiaries for tax assets, liabilities, expenses and revenues that they contribute to the consolidated group on an ongoing basis, that would otherwise be prevented through accounting rules.

How can Cornwall Stodart help you?

Cornwall Stodart has developed a pro forma TSA that meets the requirements of the consolidation provisions of the ITAA and a TFA that meets the requirements of the relevant accounting standards.

We respect your personal information and will deal with all information submitted by you under our Privacy Policy.

Ordering Products

For further information about ordering products, please click on the relevant link below:

Tax Sharing Agreement

Tax Funding Agreement

TSA/TFA Package

Tax Consolidation Product Updates