Contact: David Prichard, ESV (New South Wales, Australia)
Businesses could be hit with significant increased tax liabilities and additional compliance costs if changes to an obscure tax law are ultimately enacted. The change in the tax law was flagged back in May 2013, however, draft legislation was not released until recently.
The proposed changes introduced by the Tax And Superannuation Laws Amendment (2015 Measures No 4) Bill 2015 are slated to have retrospective effect. The changes are focused on one of the steps in the tax consolidation process.
The changes are as a result of the historical Board of Taxation review and focus on the potential for companies to obtain a “double deduction” as a result of tax consolidation. Essentially, the “double deduction” can arise when companies’ tax consolidate or an existing tax consolidated group acquires another entity.
Under current laws the acquiring entity is entitled to a tax deduction for superannuation, accrued leave and sick leave entitlements when they are subsequently paid out (ie the physical payment of cash). The “double deduction” occurs due to the tax consolidation process utilising the liabilities of the acquired entity (adjusted for various items) when calculating the tax cost of the acquired entity’s assets.
The tax consolidation process was amongst other things designed to remove some of the perceived differences between acquiring a business and acquiring a company. Should the change be enacted, it could see a change in the approach for businesses when looking to expand by way of acquisition.
If enacted in its current form, it would mean that tax consolidated groups that have formed since 13 May 2013 or acquired an entity since that date would need to revisit their historical calculations and recalculate the position in line with the revised law.
The draft bill has been the subject of submissions, the outcome of which is yet to be determined. Should you have any questions in relation to the proposed application of the law and its impact please contact your ESV Engagement Partner.
