YET another tax change that threatens to create as much confusion as the introduction of the GST looms over business.
YET another tax change that threatens to create as much confusion as the introduction of the GST looms over business.
One positive is small business, which has already been ravaged by tax change, will probably not have to deal with consolidation.
From July 1, companies operating through group structures will need to come to terms with the Tax Consolidation regime.
Consolidation was supposed to be introduced in July 2001, but was deferred for a year and is unlikely to be deferred further.
Most wholly-owned groups will be forced to consolidate during the transition phase that runs from July 1 2002 to June 30 2003, because the current group relief rules will cease.
During the transitional phase, groups will have access to valuable depreciation treatments and the ability to reset the value of some assets. However, an error during this phase could cost a group millions.
Battle weary accountants only have an incomplete exposure draft to work with and some of the rules could still be changed before it becomes law – hopefully in May.
Under consolidation, groups will only file one tax return. They currently have to file a tax return for each company within the group.
They will also be able to transfer assets within the group more easily.
The Federal Government is pushing consolidation as a way of simplifying compliance.
However, it appears accountants will still have to gather and analyse the same information they needed to under the present system.
Tax experts believe the rules are being brought in to stop groups ex-changing losses between their companies to reduce tax.
However, there are a number of problems created by the consolidation.
The franking credits held by subsidiaries will be ceded to the head entity. This could devalue a subsidiary if the group looks to sell it later.
Tax experts recommend that businesses looking to sell or liquidate assets should do it before July.
There is also a concern for groups with offshore parent companies. The new Bill creates Multiple Entry Consolidation groups that allow them to consolidate under the company that is directly owned by the non-resident comp-any.
However, this could cause double-taxing problems if other member companies are sending funds back to the parent.
Market valuations are also expected to cause major headaches for companies tackling consolidation. Tax experts say groups should be thinking now about whether they can or if they should consolidate.
PricewaterhouseCoopers partner John Murray said only those businesses that could see a benefit from consolidation and the transition rules should consider it.
Mr Murray said businesses should be doing the “hard yards” now.
“They need to identify both the wins and losses at both a micro and macro level,” he said.
Ernst & Young partner Peter Hill said it was critical companies understood the impact of the legislation and identified tax planning opportunities.
“They need to know whether they should reorganise their group to make the most of the new law,” Mr Hill said.
Wesfarmers general manager taxation Luigi Mottolini said the consolidation regime would have a major impact on the agribusiness, retail, energy and transport conglomerate.
“It will greatly simplify how we account for,” Mr Mottolini said.
He said the company had been working on consolidation since it came in.
“There are some things we will need to put in place by June and others that can wait.
“We’re at the stage of planning and identifying which issues need to be dealt with first.”
One positive is small business, which has already been ravaged by tax change, will probably not have to deal with consolidation.
From July 1, companies operating through group structures will need to come to terms with the Tax Consolidation regime.
Consolidation was supposed to be introduced in July 2001, but was deferred for a year and is unlikely to be deferred further.
Most wholly-owned groups will be forced to consolidate during the transition phase that runs from July 1 2002 to June 30 2003, because the current group relief rules will cease.
During the transitional phase, groups will have access to valuable depreciation treatments and the ability to reset the value of some assets. However, an error during this phase could cost a group millions.
Battle weary accountants only have an incomplete exposure draft to work with and some of the rules could still be changed before it becomes law – hopefully in May.
Under consolidation, groups will only file one tax return. They currently have to file a tax return for each company within the group.
They will also be able to transfer assets within the group more easily.
The Federal Government is pushing consolidation as a way of simplifying compliance.
However, it appears accountants will still have to gather and analyse the same information they needed to under the present system.
Tax experts believe the rules are being brought in to stop groups ex-changing losses between their companies to reduce tax.
However, there are a number of problems created by the consolidation.
The franking credits held by subsidiaries will be ceded to the head entity. This could devalue a subsidiary if the group looks to sell it later.
Tax experts recommend that businesses looking to sell or liquidate assets should do it before July.
There is also a concern for groups with offshore parent companies. The new Bill creates Multiple Entry Consolidation groups that allow them to consolidate under the company that is directly owned by the non-resident comp-any.
However, this could cause double-taxing problems if other member companies are sending funds back to the parent.
Market valuations are also expected to cause major headaches for companies tackling consolidation. Tax experts say groups should be thinking now about whether they can or if they should consolidate.
PricewaterhouseCoopers partner John Murray said only those businesses that could see a benefit from consolidation and the transition rules should consider it.
Mr Murray said businesses should be doing the “hard yards” now.
“They need to identify both the wins and losses at both a micro and macro level,” he said.
Ernst & Young partner Peter Hill said it was critical companies understood the impact of the legislation and identified tax planning opportunities.
“They need to know whether they should reorganise their group to make the most of the new law,” Mr Hill said.
Wesfarmers general manager taxation Luigi Mottolini said the consolidation regime would have a major impact on the agribusiness, retail, energy and transport conglomerate.
“It will greatly simplify how we account for,” Mr Mottolini said.
He said the company had been working on consolidation since it came in.
“There are some things we will need to put in place by June and others that can wait.
“We’re at the stage of planning and identifying which issues need to be dealt with first.”
