Tax consolidation is a regime adopted in the tax or revenue legislation of countries which treats a group of wholly owned or majority owned companies and other entities (such as trusts and partnerships) as a single entity for tax purposes.

The Australian tax consolidation regime allows a head company and all its wholly owned companies, partnerships and trusts to be treated as one consolidated entity for tax purposes.

Where a wholly-owned group does not choose to consolidate, the income tax system treats each company (and entity) in the group as a separate entity. Taxing member entities separately means that each member must separately account for all intra-group transactions and debt and equity interests.

The advantages of tax consolidation include:

  • Only one single tax return is required for the wholly owned corporate group.
  • Intra-group transactions between the Head Company and subsidiaries are eliminated for tax purposes so compliance costs are reduced.
  • Losses of one group company are available for the whole consolidated entity.

Factors to consider before forming a tax consolidation group include:

  • The choice to form a tax consolidation group is voluntary but irrevocable (so once done cannot be cancelled).
  • If a head company chooses to form a tax consolidation group, all subsidiaries must be included.

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