House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter - 8 Pay as you go instalments

Outline of chapter

8.1 This chapter explains consequential amendments that will be made to the PAYG instalments legislation to ensure the efficient collection of income tax payable by entities that are members of consolidated groups or MEC groups during an income year. These amendments are in addition to, or complement, refine or modify, consequential amendments to the PAYG instalments legislation contained in the May Consolidation Act.

8.2 Unless otherwise noted, the sections referred to in this chapter are sections of Schedule 1 to the TAA 1953.

Context of reform

8.3 As explained in chapter 12 of the explanatory memorandum to the May Consolidation Act, the PAYG instalments legislation was amended to ensure that the liabilities of members of consolidated groups to pay PAYG instalments reflect the assessment liabilities of the members of a mature consolidated group. Generally, the head company of a mature consolidated group will bear the liability to pay PAYG instalments. In broad terms, a head company of a mature consolidated group, or mature head company, is a head company to which the Commissioner has given an instalment rate worked out from an assessment of the head company for the income year in which the consolidated group is formed.

8.4 The amendments included in the May Consolidation Act ensure that a mature head company will pay its instalments in much the same way as any other company. It will pay quarterly instalments and will generally work out the amount payable by multiplying its instalment income, as worked out according to the single entity rule, by its instalment rate. However, a head company with a base assessment instalment income of $1 million or less may pay an instalment worked out from its GDP-adjusted notional tax.

8.5 The May Consolidation Act also contains special rules that apply in relation to instalments payable before a head company becomes a mature head company. That is, these special rules apply in relation to instalments payable in the period before the Commissioner gives the head company an instalment rate worked out from an assessment of a head company of the group for the income year in which the consolidated group is formed. In that period, each member of the consolidated group remains liable to pay instalments as if it were not a member of a consolidated group. This is so even though each subsidiary member is treated as a part of the head company of the group for the purposes of determining the head company's income tax liability for that period.

8.6 Some of the PAYG instalments consequential amendments in this bill complement, refine or modify the way in which the May Consolidation Act amendments apply to members of consolidated groups. For example:

•

the application rule (that explains when the Subdivision that contains the rules for mature groups applies to a head company of a consolidated group) will be modified to take account of all the ways in which a consolidated group can start, or cease, to exist;

•

the exit rule (that applies when an entity ceases to be a subsidiary member of a consolidated group) will be modified to ensure it operates appropriately if an exiting entity immediately joins a mature MEC group; and

•

the Commissioner's power to issue a higher or lower instalment rate to the head company of a group where the membership of the group has changed will be amended to make it clear the power can be exercised more than once in relation to a particular membership change.

8.7 The amendments made to the PAYG instalments regime by the May Consolidation Act do not set out how the regime applies to the members of MEC groups. Nor do the mechanisms used to extend the primary rules of the consolidation regime to MEC groups contained in this bill apply for the purposes of the PAYG instalments regime. Therefore, this bill contains a number of consequential amendments that will extend the PAYG instalments rules for members of consolidated groups to the members of MEC groups.

8.8 There are also amendments that are consequential upon other measures contained in the September Consolidation Act or this bill. For example, there are rules that set out how the PAYG instalments regime applies when:

•

an interposed company becomes the new head company of a mature consolidated group;

•

a new provisional head company is appointed for a MEC group after an earlier provisional head company ceases to be eligible to be the provisional head company of the group; and

•

a head company of a group is treated as a life insurance company because a subsidiary member is a life insurance company.

8.9 There are also new rules that are intended to minimise the costs incurred by members of groups in complying with the PAYG instalments regime. They will apply when:

•

a mature head company is taken-over by a member of another group that is not yet mature; or

•

an entity ceases to be a subsidiary member of a mature group, and it chooses to consolidate a consolidatable group consisting of itself, as head company, and its wholly-owned subsidiaries.

Summary of new law

New rules for members of consolidated groups

8.10 A head company of a consolidated group will start to be treated as a mature head company, at the start of the instalment quarter in which one of the following events occurs:

•

the Commissioner gives the head company of the group an instalment rate worked out from an assessment of the head company of the group for the income year in which the consolidated group comes into existence as a result of a company's choice to form the consolidated group;

•

the consolidated group is created from a mature MEC group; or

•

a company is interposed between the head company of a mature consolidated group and that company's shareholders and the interposed company chooses to continue the consolidated group and becomes the head company of that group.

8.11 A head company of a consolidated group will stop being a mature head company at the earliest of the following times:

•

at the end of the instalment quarter in which the group ceases to exist (but a MEC group is not created from it);

•

at the end of the instalment quarter in which a MEC group is created from the consolidated group if the Commissioner is notified of the creation of the MEC group in that quarter;

•

just before the instalment quarter in which the Commissioner is notified of the creation of a MEC group from the consolidated group if the MEC group was created in an earlier quarter; or

•

just before the instalment quarter in which a company is interposed between the head company and its shareholders and the interposed company chooses to continue the consolidated group and becomes head company of that group.

8.12 When an interposed company chooses to continue a consolidated group, it will inherit, at the time the interposition occurs, the history of the company it replaces as head company of the group. The interposed company will become responsible for the PAYG instalments obligations as from the start of the instalment quarter in which the interposition occurs.

8.13 The Commissioner has the power to give a head company of a consolidated group a higher or lower instalment rate, or instalment amount, when the membership of the group changes. The Commissioner will be able to exercise that power in relation to:

•

the most recent instalment rate or instalment amount given to the head company before the first exercise of the power; or

•

a rate or amount that is worked out, after an exercise of the power, from an assessment of the income year in which the change occurred or an earlier income year.

Special rules for members of consolidated groups

8.14 A head company of a mature consolidated group may become a wholly-owned subsidiary of another entity that is a member of a group that is not yet mature. When that happens, the head company will be able to continue paying instalments as if it were still the head company of the mature group until the head company of the other group becomes mature or the head company ceases to be a member of the other group. Without this special rule, the PAYG instalments exit rule would apply and each member of the mature group would be required to pay separate instalments.

8.15 An entity may cease to be a subsidiary member of a mature consolidated group but, at that time, become the head company of a consolidatable group consisting of itself, as head company, and its wholly-owned subsidiaries. When that happens, and the entity chooses to consolidate the consolidatable group, that entity may be treated as if it immediately becomes the head company of a mature group as from the date of consolidation. If this were not the case, the PAYG instalments exit rule would apply and each member of the new group would be required to pay separate instalments until the entity is given an instalment rate worked out from its first assessment as the head company of that new group.

New rules for members of MEC groups

8.16 The PAYG instalments regime will apply to the members of a MEC group in much the same way as it applies to the members of a consolidated group. A rule that applies to a head company of a consolidated group will generally apply to the provisional head company of a MEC group. A rule that applies to a subsidiary member of a consolidated group will generally apply to a member (other than the provisional head company) of a MEC group.

8.17 For example, the provisional head company of a mature MEC group will bear the liability to pay PAYG instalments. It will pay PAYG instalments in much the same way as any other company. It will pay quarterly instalments and will generally work out the amount payable by multiplying its instalment income, as worked out according to the single entity rule, by its instalment rate. However, if a head company of a MEC group has a base assessment instalment income of $1 million or less, the provisional head company of the group may pay an instalment worked out from its GDP-adjusted notional tax.

8.18 A provisional head company of a MEC group will become a mature provisional head company for PAYG instalments purposes at the start of the instalment quarter in which one of the following events occurs:

•

the Commissioner gives the provisional head company of the group an instalment rate worked out from an assessment of the head company of the group for the income year in which the MEC group comes into existence as a result of the choice of the eligible tier-1 companies to form the MEC group;

•

the Commissioner is notified that a MEC group has been created from a mature consolidated group; or

•

a new provisional head company is appointed after a cessation event happens to a former provisional head company that is a mature provisional head company.

8.19 A provisional head company of a MEC group will stop being a mature provisional head company at the earliest of the following:

•

at the end of the instalment quarter in which the group ceases to exist (but a consolidated group is not created from it);

•

at the end of the instalment quarter in which a consolidated group is created from the MEC group; or

•

just before the instalment quarter in which another company is appointed as provisional head company of the MEC group.

8.20 When a provisional head company of a MEC group ceases to be eligible to be a provisional head company and a replacement provisional head company is appointed, the replacement provisional head company will inherit, at the time the replacement takes effect, the history of the company it replaces. The replacement provisional head company will become responsible for the PAYG instalments obligations of the group from the start of instalment quarter in which the replacement takes effect.

Instalment income of a life insurance company

8.21 All entities must include in their instalment income for an instalment period the ordinary income they derive in that period, to the extent to which it is assessable income of the income year that includes that period. The instalment income of a life insurance company for an instalment period will also include any part of its statutory income that is both reasonably attributable to that period and included in the complying superannuation class of its taxable income for the income year that includes that period. This will apply to an entity that is itself a life insurance company, and a head company of a consolidated group or provisional head company of a MEC group that is taken to be a life insurance company because a subsidiary member of the group is a life insurance company.

This applies to an entity that is itself a life insurance company.

Detailed explanation of new law

Amendments to the general rules for consolidated groups

8.22 The explanation of the amendments under this heading (paragraphs 8.22 to 8.87) will generally refer to consolidated groups and their members. Some of the provisions, but not all, will also apply to MEC groups and their members because of the rules discussed in paragraphs 8.111 to 8.182 under the heading How the PAYG instalments regime applies to members of MEC groups .

When Subdivision 45-Q applies to a head company of a consolidated group

Introduction

8.23 The May Consolidation Act contains consequential amendments enabling the PAYG instalments regime to apply to members of consolidated groups. It contains rules that apply before a head company of a consolidated group is given an instalment rate worked out from its first assessment as a head company. These rules are found in Subdivision 45-R. In this period, the PAYG instalments regime does not treat the members of a consolidated group as a single entity and each member of the group is required to pay separate instalments as if it were not a member of a consolidated group.

8.24 The May Consolidation Act also contains rules that apply once the head company of a consolidated group is given an instalment rate worked out from its first assessment as a head company. Those rules are found in Subdivision 45-Q. Once Subdivision 45-Q applies to a head company of a consolidated group, the PAYG instalments regime treats the members of the group as a single entity, and the head company pays a single instalment on the basis that its subsidiary members are parts of it.

Note: The explanatory memorandum to the May Consolidation Act referred to a head company that had been given an instalment rate worked out from its first assessment as a head company of a mature consolidated group or a mature head company. The terms mature consolidated group and mature head company are used in a similar way in this chapter.

8.25 More specifically, section 45-705 states that Subdivision 45-Q applies to the head company of a consolidated group for the period:

•

beginning at the start of the instalment quarter during which the Commissioner gives the company its initial head company instalment rate; and

•

ending at the end of the instalment quarter during which the company ceases to be the head company of the group.

Initial head company instalment rate is defined to be the instalment rate given to the head company by the Commissioner that is worked out on the basis of that company's first assessment as the head company of the consolidated group.

8.26 Section 45-705 is fundamental to the application of the PAYG instalments regime to members of consolidated groups. That is because the operation of each of the other provisions of Subdivision 45-Q requires Subdivision 45-Q to apply to the head company of the group. That is, those other sections can only be applied to a member of a consolidated group if Subdivision 45-Q applies to the group's head company.

8.27 However, section 45-705 currently only takes account of the ordinary case where a consolidated group:

•

is formed by an entity's choice to consolidate a group under section 703-50 of the ITAA 1997; and

•

ceases because the head company ceases to be a head company.

8.28 Section 45-705 will be repealed and a new section substituted [Schedule 24, item 5, section 45-705] . The new section will take account of the fact that a consolidated group can come into existence because of an entity's choice to form a consolidated group under section 703-50 of the ITAA 1997 or can be created from a MEC group under section 703-55 of that Act. It will also take account of the fact that a consolidated group ceases to exist because the head company ceases to be a head company or because a MEC group is created from the consolidated group under section 719-40 of the ITAA 1997. It will also deal with the fact that the head company of a consolidated group changes when a company is interposed between the head company and its shareholders and that interposed company chooses to continue the group and becomes the head company of the group as provided for by Schedule 2 of the September Consolidation Act.

Period during which Subdivision 45-Q applies to a head company of a consolidated group

8.29 Subdivision 45-Q will apply to a head company for a period, the start of which will be determined under one of 3 mutually exclusive subsections. The period will end at the earliest of 4 different times. [Schedule 24, item 5, subsection 45-705(1)]

Subdivision 45-Q usually starts applying to a head company when it is given the initial head company instalment rate

8.30 Subdivision 45-Q will usually start applying to a company as the head company of a consolidated group at the beginning of the instalment quarter in which the Commissioner gives the head company its initial head company instalment rate. [Schedule 24, item 5, subsection 45-705(2)]

8.31 The current definition of 'initial head company instalment rate' will be repealed and replaced by a new definition. The amendment is necessary to take account of the fact that a consolidated group can come into existence through an entity's choice to form a consolidated group or can be created from a MEC group. The new definition will also define initial head company instalment rate for provisional head companies of MEC groups. [Schedule 24, item 22, subsection 995-1(1)]

8.32 The initial head company instalment rate for a head company of a consolidated group, that comes into existence as a result of an entity's choice to consolidate a group under section 703-50 of the ITAA 1997, will be an instalment rate worked out from the first assessment of a head company of the consolidated group for the income year in which the group comes into existence. This is, effectively, a replica of the existing definition. [Schedule 24, item 22, subsection 995-1(1), paragraph (a) of the definition of initial head company instalment rate]

8.33 There are two ways of identifying the initial head company instalment rate for a head company of a consolidated group that is created from a MEC group.

8.34 The first applies where a consolidated group is created from a MEC group that comes into existence under section 719-50 of the ITAA 1997. The initial head company instalment rate for the head company of the consolidated group will be an instalment rate worked out from the first assessment of the head company of the MEC group for the income year in which the MEC group comes into existence. [Schedule 24, item 22, subsection 995-1(1), subparagraph (b)(i) of the definition of initial head company instalment rate]

8.35 The second applies where a consolidated group is created from a MEC group that comes into existence under section 719-40 of the ITAA 1997. In that case, it is necessary to trace successively through the consolidated group (the later group) and any earlier MEC group or consolidated group, to determine which instalment rate is the initial head company instalment rate. The initial head company instalment rate for the head company of the later group will be the instalment rate worked out from the first assessment of an entity as head company of the earliest group for the income year in which the earliest group was formed. The earliest group may be formed as a consolidated group under section 703-50 of the ITAA 1997 or as a MEC group under section 719-50 of that Act. [Schedule 24, item 22, subsection 995-1(1), subparagraph (b)(ii) of the definition of 'initial head company instalment rate']

8.36 A consolidated group is created from a MEC group if the consolidated group comes into existence under section 703-55 of the ITAA 1997 at the time that the MEC group ceases to exist as mentioned in that section. [Schedule 24, item 21, subsection 995-1(1), paragraph (a) of the definition of 'created']

8.37 Subdivision 45-Q will only start to apply to a head company of a consolidated group when it is given the initial head company instalment rate if Subdivision 45-Q has not applied to:

•

that company or a previous head company of the group; or

•

a provisional head company of a MEC group if the consolidated group is created from that MEC group.

8.38 Diagram 8.1 shows how Subdivision 45-Q may start to apply to a head company of a consolidated group created from a MEC group when the head company of the consolidated group is given the initial head company instalment rate.

Diagram 8.1

When Subdivision 45-Q starts applying when a consolidated group is created from a mature MEC group

8.39 Subdivision 45-Q will start to apply to a company as head company of a consolidated group at the start of an instalment quarter (the starting quarter) if:

•

the consolidated group is created from the MEC group (i.e. it comes into existence under section 703-55 of the ITAA 1997 at the time that the MEC group ceases to exist) during the starting quarter;

•

the company is the head company of the consolidated group immediately after the consolidated group is created from the MEC group; and

•

either:

-

Subdivision 45-Q applied to the entity that was the provisional head company of the MEC group at the end of the previous quarter; or

-

the Commissioner gives the initial head company instalment rate to the provisional head company of the MEC group in the starting quarter.

[Schedule 24, item 5, subsection 45-705(3)]

8.40 This subsection effectively ensures that a head company of a consolidated group is immediately treated as a mature head company under Subdivision 45-Q if the provisional head company of the MEC group from which the consolidated group is created:

•

is a mature provisional head company at the end of the quarter before the starting quarter; or

•

would have become a mature provisional head company during the starting quarter (because it is given the initial head company instalment rate before the conversion) if the consolidated group had not been created.

In those cases, the head company will not be treated as a head company of a group in transition to which Subdivision 45-R applies.

8.41 Diagrams 8.2 and 8.3 show how Subdivision 45-Q may start to apply to a head company of a consolidated group created from a MEC group.

Diagram 8.2

Diagram 8.3

8.42 A consolidated group may be created out of a MEC group before Subdivision 45-Q starts to apply to a provisional head company of the MEC group. If that happens, Subdivision 45-Q will start to apply to the head company of the consolidated group when the head company is given an instalment rate worked out from the first assessment of the head company of the MEC group for the income year in which the MEC group comes into existence - see subsection 45-705(2) and paragraph (b) of the definition of initial head company instalment rate as discussed at paragraphs 8.30 to 8.38.

When Subdivision 45-Q starts applying when an interposed company becomes the head company of a group

8.43 The September Consolidation Act contains rules that ensure that a consolidated group can continue to exist even though a company (the interposed company) is interposed between the head company of the group (the original company) and its shareholders - see subsection 124-380(5) and section 703-70 of the ITAA 1997. If the interposed company chooses to continue the consolidated group and becomes the head company of the group, it is treated as if it were the original company and the original company is treated as if it were the interposed company at all times before the interposition occurs - see subsection 124-380(5) and section 703-75 of the ITAA 1997.

8.44 One practical effect of those sections is that the interposed company is assessed as if it were the head company of the consolidated group for all of the income year in which the interposition occurs (or at least so much of the year during which the consolidated group exists). A similar result to that arising under section 703-75 of the ITAA 1997 will apply for PAYG instalments - see section 45-740 and the discussion at paragraphs 8.66 to 8.77.

8.45 Subdivision 45-Q will start to apply to a company as head company of a consolidated group at the start of an instalment quarter (the starting quarter) if:

•

the company is an interposed company as mentioned in subsection 124-380(5) of the ITAA 1997, that is, the company is interposed between the head company of a consolidated group and the head company's shareholders;

•

the company chooses, under subsection 124-380(5) of the ITAA 1997, to continue the consolidated group at and after the time it is interposed;

•

the interposition is completed in the starting quarter; and

•

one of the following applies:

-

Subdivision 45-Q applied to the original company (i.e. the previous head company of the consolidated group) as head company of the consolidated group at the end of the previous quarter;

-

the Commissioner gives the initial head company instalment rate to the original company during the starting quarter;

-

the consolidated group is created from a MEC group during the starting quarter, and Subdivision 45-Q applied to the provisional head company at the end of the previous instalment quarter; or

-

the consolidated group is created from a MEC group during the starting quarter, and the Commissioner gives the initial head company instalment rate to the provisional head company of the MEC group in that quarter.

[Schedule 24, item 5, subsection 45-705(4)]

8.46 This subsection effectively ensures that an interposed company is immediately treated as a mature head company under Subdivision 45-Q if the original company:

•

is a company to which Subdivision 45-Q applies at the end of the instalment quarter before the quarter in which the interposed company becomes the head company of the consolidated group, whether the Subdivision applies to the original company in its capacity as a head company of the consolidated group or provisional head company of a MEC group from which the consolidated group is created; or

•

would have become a company to which Subdivision 45-Q applies during the quarter in which the interposition is completed (whether that would be in its capacity as a head company of the consolidated group or provisional head company of a MEC group from which the consolidated group is created) if the interposition had not happened.

The interposed company will not be treated as a head company of a group in transition to which Subdivision 45-R applies in these circumstances.

8.47 Diagrams 8.4 and 8.5 show how Subdivision 45-Q may start to apply to an interposed company as head company of a consolidated group.

Diagram 8.4

Diagram 8.5

8.48 A company may be interposed before Subdivision 45-Q starts to apply to the original company. If that happens, Subdivision 45-Q will start to apply to the interposed company when it is given the initial head company instalment rate - see subsection 45-705(2) and the discussion at paragraphs 8.30 to 8.38.

8.49 The exit rule in section 45-760 will apply to the subsidiary members of a consolidated group at the time an interposition is completed if the interposed company chooses not to continue the consolidated group under subsection 124-380(5) of the ITAA 1997. Further, Subdivision 45-Q will stop applying to the original company at the end of the instalment quarter in which the interposition is completed because the consolidated group will cease to exist - see paragraph 45-705(5)(a) as discussed at paragraph 8.51.

When Subdivision 45-Q stops applying to a head company of a consolidated group

8.50 Subdivision 45-Q will stop applying to a head company of a consolidated group at the earliest of any of 4 different times. [Schedule 24, item 5, subsection 45-705(5)]

8.51 First, Subdivision 45-Q will stop applying to a head company of a consolidated group at the end of the instalment quarter in which the consolidated group ceases to exist (but a MEC group is not created from it). [Schedule 24, item 5, paragraph 45-705(5)(a)]

8.52 A MEC group is created from a consolidated group if:

•

the MEC group comes into existence, under section 719-40 of the ITAA 1997, when a special conversion event happens to a potential MEC group derived from an eligible tier-1 company of a top company; and

•

the eligible tier-1 company was the head company of the consolidated group (that is mentioned in paragraph 719-40(1)(b) of that Act) immediately before the special conversion event happened.

[Schedule 24, item 21, subsection 995-1(1), paragraph (b) of the definition of 'created']

8.53 Secondly, Subdivision 45-Q will stop applying to a head company of a consolidated group at the end of the instalment quarter during which the Commissioner is notified that a MEC group has been created from the consolidated group if the MEC group is created during that quarter [Schedule 24, item 5, paragraph 45-705(5)(b)] . The Subdivision stops applying to the head company in its capacity as head company of a consolidated group at the end of the quarter in which the MEC group is created. However, when this happens, Subdivision 45-Q will generally start to apply to that entity in its capacity as provisional head company of the MEC group at the start of the instalment quarter in which the MEC group is created - see subsection 45-915(3) and the discussion at paragraphs 8.132 to 8.136. This overlap in the application of Subdivision 45-Q ensures that the single entity rule applies appropriately.

8.54 Diagram 8.6 shows how Subdivision 45-Q may stop applying to a head company of a consolidated group when the Commissioner is notified that a MEC group is created from the consolidated group in the same instalment quarter that the group is created.

Diagram 8.6

8.55 The Commissioner is notified of the creation of a MEC group from a consolidated group when the Commissioner receives a written notice, from the entity that was head company of the consolidated group, stating that the MEC group is to come into existence. The notice must be in accordance with subsection 719-40(1) of the ITAA 1997. [Schedule 24, item 5, subsection 45-705(6)]

8.56 Thirdly, Subdivision 45-Q will stop applying to the head company of the consolidated group just before the quarter during which the Commissioner is notified that a MEC group has been created from the consolidated group if the Commissioner is notified of the MEC group's creation after the instalment quarter in which the MEC group is created. [Schedule 24, item 5, paragraph 45-705(5)(c)]

8.57 Diagram 8.7 shows how Subdivision 45-Q may stop applying to a head company of a consolidated group when the Commissioner is notified that a MEC group is created from the consolidated group in an instalment quarter later than the one in which the group is created.

Diagram 8.7

8.58 This means that Subdivision 45-Q continues to apply to the company as head company of the consolidated group, even though the consolidated group has ceased to exist. This is necessary because, under section 719-40 of the ITAA 1997, the head company does not need to notify the Commissioner of the creation of the MEC group until lodgment of the return for the income year in which the MEC group is created. The consequence is that Subdivision 45-Q must continue to apply to the head company of the consolidated group until just before the instalment quarter in which the Commissioner is notified of the creation of the MEC group.

8.59 A new subsection will provide for the application of Subdivision 45-Q in these circumstances. It will ensure that the PAYG instalments rules have effect for the head company of the consolidated group, and the other members of the consolidated group, as if:

•

the consolidated group had continued to exist until just before the start of the quarter in which the Commissioner is notified of the creation of the MEC group; and

•

the company were the head company of the group until just before the start of that quarter.

[Schedule 24, item 5, subsection 45-705(7)]

8.60 When the Commissioner receives notice of the creation of the MEC group in accordance with subsection 719-40(1) of the ITAA 1997, Subdivision 45-Q will start applying to the entity that is the provisional head company of the MEC group - see subsection 45-915(3) and the discussion at paragraphs 8.132 to 8.136.

8.61 Fourthly, Subdivision 45-Q will stop applying to a head company of a consolidated group (the original company) that is replaced by an interposed company that chooses to continue the group. The Subdivision will stop applying to the original company just before the instalment quarter in which the interposed company becomes head company of the consolidated group [Schedule 24, item 5, paragraph 45-705(5)(d)] . As explained in paragraphs 8.43 to 8.49, the Subdivision will generally start to apply to the interposed company at the start of the instalment quarter in which it becomes head company of the consolidated group.

8.62 If an interposed company does not choose to continue a consolidated group, Subdivision 45-Q will stop applying to the original company at the end of the instalment quarter in which the interposition occurs because the consolidated group ceases to exist - see paragraph 45-705(5)(a) and paragraph 8.51.

Observations about the application of Subdivision 45-Q

8.63 As mentioned in paragraph 8.26, section 45-705 is fundamental to the application of the PAYG instalments regime to consolidated groups. That is because the operation of each of the other provisions of Subdivision 45-Q requires Subdivision 45-Q to apply to the head company of the group. That is, those other sections can only be applied to the members of a consolidated group if Subdivision 45-Q applies to the group's head company.

8.64 One consequence of using this approach is that Subdivision 45-Q can apply to an entity as head company of a consolidated group for all of a particular instalment quarter even though the entity is not a head company for all of that quarter. For example, if an interposed company becomes the head company of a consolidated group part-way through an instalment quarter, Subdivision 45-Q applies to the interposed company from the start of the instalment quarter in which the interposition happens. Subdivision 45-Q does not just apply for the period the interposed company is actually the head company. [Schedule 24, item 5, subsection 45-705(9)]

8.65 In limited circumstances, the combined operation of section 45-705 and section 45-915 (about how Subdivision 45-Q applies to a provisional head company of a MEC group) may, at first, appear anomalous. One rule may state that Subdivision 45-Q stops applying to a particular entity just before a particular instalment quarter but another may state that it starts applying to the same entity at the beginning of that quarter. This will only happen if two or more events occur in the same quarter. For example, there may be both a conversion of a group from one kind to another and the interposition of a head company or change of provisional head company as a result of a cessation event in the same quarter. Subdivision 45-Q will not, and is not intended to, apply to an entity if the Subdivision stops applying to the entity before it starts applying to the entity. In these circumstances, there will be another entity to which the Subdivision applies for the relevant instalment quarter. [Schedule 24, item 5, subsection 45-705(8)]

Interposed company treated as substituted for previous head company

8.66 The September Consolidation Act contains rules that will ensure that a consolidated group can continue to exist even though a company (an interposed company) is interposed between the head company of the group (the original company) and the original company's shareholders - see subsection 124-380(5) and section 703-70 of the ITAA 1997. When the interposed company chooses to continue the consolidated group, it is treated as if it were the original company and the original company is treated as if it were the interposed company at all times before the interposition occurs - see subsection 124-380(5) and section 703-75 of the ITAA 1997. However, those rules only apply for certain purposes, such as assessing the interposed company for income years ending after the interposition. The rules do not apply for PAYG instalments purposes.

8.67 A new section will be inserted in Subdivision 45-Q to ensure a similar outcome is achieved for the PAYG instalments regime. Its object will be to ensure that an interposed company will inherit the history of the original company for the purposes of the PAYG instalments regime. Further, the interposed company will ignore its pre-interposition history when working out its instalments as head company of the consolidated group. [Schedule 24, item 7, subsection 45-740(1)]

8.68 The new section will apply to a head company of a consolidated group if:

•

it is an interposed company that chooses, under subsection 124-380(5) of the ITAA 1997, to continue the consolidated group at and after the time when it is interposed (which is called the completion time in that subsection); and

•

Subdivision 45-Q applied to the original company at the end of the quarter prior to the one that includes the completion time, or would have started applying to the original company during the quarter that includes the completion time had the original company remained as head company.

[Schedule 24, item 7, subsection 45-740(2)]

8.69 The new section will not apply if the interposition occurs before Subdivision 45-Q starts to apply to the original company. In the period before Subdivision 45-Q starts to apply to the original company as head company of a consolidated group, each member of the group is liable to pay instalments separately. As the interposition of a new company will not alter the liabilities of the members of the group to pay their instalments there is no need for this rule to apply before the original company is a mature head company.

8.70 When the section applies, everything that happened in relation to the original company before the completion time will be taken to have happened instead to the interposed company. These things will be taken to have happened just as if, at all times before the completion time:

•

the interposed company had been the original company; and

•

the original company had been the interposed company.

That is, the interposed company is substituted for the original company for the purposes of the PAYG instalments regime. [Schedule 24, item 7, paragraphs 45-740(3)(a), (c) and (d)]

8.71 Further, things that happened to the original company prior to the completion time because of the operation of either the consolidation regime or the PAYG instalments regime will be taken to have happened instead to the interposed company. [Schedule 24, item 7, subsections 45-740(3) and (4)]

8.72 Subsections 45-740(3) and (4) will ensure, for example, that the interposed company will be taken to derive the instalment income that is derived, before the completion time, by the original company according to the single entity rule.

8.73 However, the history of the interposed company that relates to periods prior to the completion time is effectively ignored. [Schedule 24, item 7, paragraph 45-740(3)(b)]

8.74 An original or amended assessment of the original company for an income year that ends before the income year that includes the completion time, will be taken to be something that happened to the interposed company regardless of when the assessment is made. This rule applies to ensure that such assessments can be used to calculate an instalment rate for the interposed company, if they would have been used to calculate an instalment rate for the original company had it remained the head company of the consolidated group. [Schedule 24, item 7, subsection 45-740(5)]

8.75 The interposed company will be substituted for the original company when applying the PAYG instalments regime to the members of the consolidated group for any instalment quarter that ends after the completion time. This section and subsection 45-705(4) ensure the interposed company becomes liable to pay instalments as head company of the consolidated group from the instalment quarter in which the completion time occurs. It will remain so liable until Subdivision 45-Q stops applying to it. [Schedule 24, item 7, subsection 45-740(6)]

8.76 To ensure that this section interacts appropriately with section 45-705 (which is about when Subdivision 45-Q applies to a head company of a consolidated group), subsections 45-740(1) to (6) will be disregarded in applying section 45-705. That means, the time when Subdivision 45-Q starts to apply to the interposed company will be determined under subsection 45-705(4). It will not be determined under subsection 45-705(2) on the basis that the interposed company will be taken, by section 45-740, to have been given the initial head company instalment rate actually given to the original company. [Schedule 24, item 7, subsection 45-740(7)]

8.77 The original company may become a subsidiary member of the consolidated group at the time the new head company is interposed - see section 703-70 of the ITAA 1997. If that happens, a PAYG instalments provision that applies when an entity becomes a subsidiary member of a consolidated group, such as the section 45-755 entry rule, will not apply to the original company. [Schedule 24, item 7, subsection 45-740(8)]

Extension of Commissioner's power to work out different instalment rate or amount for membership change

8.78 Section 45-775 gives the Commissioner a power to work out a higher or lower instalment rate or GDP-adjusted notional tax amount where there is a change in the membership of a mature consolidated group. Currently, the Commissioner can exercise the power once in relation to the most recent instalment rate or GDP-adjusted notional tax given to the head company.

8.79 Two new subsections will be added to section 45-775 to provide that the Commissioner can exercise the power more than once in relation to a particular change of membership. [Schedule 24, item 9, subsections 45-775(4) and (5)]

8.80 The new subsections will apply if the Commissioner:

•

has already given the head company of a consolidated group a new instalment rate or instalment amount under section 45-775; and

•

is subsequently required to work out an instalment rate (under section 45-320) or GDP-adjusted notional tax amount (under section 45-405) from an assessment of either the income year in which the membership change occurs or an earlier income year.

In these situations, the Commissioner may again determine whether it is reasonable to provide the head company with a higher or lower instalment rate or GDP-adjusted notional tax amount than the newly calculated rate or amount. In doing that, the Commissioner must still have regard to the membership change and the objects of the PAYG instalments regime. If the Commissioner does consider it is reasonable, he or she may again exercise the power to give a new rate or amount. [Schedule 24, item 9, subsection 45-775(4)]

8.81 The Commissioner may use the power to give a new instalment rate, or instalment amount, in respect of more than one assessment. For example, the Commissioner could exercise the power in relation to an instalment rate worked out from the assessment of the income year that ends before the membership change. The Commissioner may then exercise the power again in relation to an assessment of the income year that included the membership change. However, for a particular change in membership, the Commissioner cannot exercise the power more than once in relation to a particular instalment rate worked out under section 45-320 or a particular GDP-adjusted notional tax amount worked out under section 45-405. [Schedule 24, item 9, subsection 45-775(5)]

Example 8.1

There is a significant change in the membership of a mature consolidated group in the third quarter of the 2003-2004 income year. The Commissioner exercises the power to give the head company a new rate in the fourth quarter of that year. The head company continues to use the new rate in the 2004-2005 income year.

In the second quarter of the 2004-2005 income year, the head company's income tax return for the 2003-2004 income year is assessed. This assessment triggers the calculation of a new instalment rate for the head company. However, the Commissioner considers the instalment rate worked out from that assessment is inappropriate because the assessment covers periods both before and after the change in the group's membership.

The Commissioner considers that the new instalment rate previously worked out for the head company in the exercise of this power should continue to apply. The Commissioner may make that determination and is not required to give the head company the instalment rate worked out from the 2003-2004 assessment.

Instalment income of a life insurance company

8.82 Subsection 45-120(1) requires all entities to include in their instalment income for a particular instalment period the ordinary income they derive during that period, to the extent to which it is assessable income of the income year that includes the period.

8.83 However, under subsection 45-120(2A), a life insurance company is also required to include in its instalment income for an instalment period any part of its:

•

statutory income that is reasonably attributable to that period and is included in the complying superannuation class of its taxable income for the income year that includes that period; and

•

statutory income (other than net capital gains) that is included in the ordinary class of its taxable income for the income year that includes that period.

Note: A life insurance company has two classes of taxable income. This enables the taxable income arising from the company's superannuation business to be taxed at 15%, that is, the same rate as applies to complying superannuation funds. The balance of the company's taxable income is taxed at the ordinary company rate of 30%.

8.84 Section 713-505 of the ITAA 1997, as contained in this bill, will treat a head company of a consolidated group as a life insurance company for an income year if a subsidiary member is a life insurance company at any time during the year.

8.85 As such, the head company of a mature consolidated group that includes a life insurance company would be required to work out its instalment income according to both subsections 45-120(1) and 45-120(2A). That would effectively require the head company of the group to include in its instalment income the statutory income arising from the activities of the non-life insurance company members of the group and this would increase a group's compliance costs.

8.86 In order to avoid any such increased compliance costs, and to ensure that all life insurance companies are treated equally, whether they are members of a consolidated group or not, subsection 45-120(2A) will be amended. As a result of that amendment, a life insurance company will be required to include in its instalment income for an instalment quarter the statutory income that is reasonably attributable to that period and is included in the complying superannuation class of its taxable income for the income year that includes that period. [Schedule 24, item 1, subsection 45-120(2A)]

8.87 This amendment will apply in relation to an income year that begins on or after 1 July 2003. This will enable taxpayers to make the necessary adjustments to their instalment income recording systems and procedures and the Commissioner to adjust his or her instalment rate calculations procedures.

Amendments to the special rules for consolidated groups

Continued application of Subdivision 45-Q to the head company of an acquired group

8.88 A consolidated group will cease to exist if its head company becomes a wholly-owned subsidiary of an entity that is a member of another consolidated group or a MEC group - see sections 703-5 and 703-15 of the ITAA 1997. When a mature consolidated group ceases to exist, the section 45-760 exit rule will make each entity that ceases to be a subsidiary member of the group liable to commence paying PAYG instalments unless it immediately becomes a member of another mature consolidated group or mature MEC group.

8.89 This could mean that additional administrative and compliance costs would be incurred by the members of a mature consolidated group if the head company of the group is acquired by a member of another consolidated group or a MEC group, that is not yet a mature group. A new section will ensure that the compliance costs incurred by members of a mature consolidated group are not unnecessarily increased when this occurs. [Schedule 24, item 18, section 45-880]

8.90 The new section will apply to a company (the taken-over head company) if all of the following conditions are satisfied in relation to a particular time (the takeover time):

•

just before the takeover time, the taken-over head company is a mature head company (i.e. Subdivision 45-Q applied to it as the head company of a consolidated group at that time);

•

at the takeover time, the company becomes a wholly-owned subsidiary of a member of another consolidated group or MEC group (the new group);

•

the new group is consolidated, under section 703-50 or 719-50 of the ITAA 1997, at or before the takeover time;

•

not later than 28 days after the takeover time, or within such further period (if any) as the Commissioner allows, the Commissioner receives notice of the choice to consolidate the new group; and

•

Subdivision 45-Q does not apply to the head company, or provisional head company, of the new group at the takeover time.

[Schedule 24, item 18, subsection 45-880(1)]

8.91 The conditions identified in the third and fourth dot points in the previous paragraph ensure the new group is one of the following:

•

already a consolidated group or MEC group at the takeover time (in the sense that the head company of the consolidated group has, or all of the eligible tier-1 companies of the MEC group have, already decided to consolidate the group and the Commissioner has been notified of that decision);

•

a consolidatable group, or potential MEC group, before the takeover, and the Commissioner is notified, not later than 28 days after the takeover time (or within such further period, if any, as the Commissioner allows), of the decision to consolidate the group from the takeover time or an earlier date; or

•

a consolidatable group, or potential MEC group, that arises because of the takeover such that it can consolidate as from the takeover time and the Commissioner is notified, not later than 28 days after the takeover time (or within such further period, if any, as the Commissioner allows), of the decision to consolidate the group from the takeover time.

8.92 As indicated in the previous 2 paragraphs, the head company of the new group may apply to the Commissioner for an extension of the time in which the company must notify the Commissioner of its decision to consolidate the new group. The head company must apply for the extension not later than 28 days after the takeover time. The Commissioner may grant the extension if he or she considers it appropriate. [Schedule 24, item 18, subsection 45-880(6)]

8.93 When the section applies, it will have effect in relation to the taken-over head company and the other members of the group (the preserved group) of which it was the head company as if:

•

the preserved group had continued to exist as a consolidated group despite the fact that the head company is no longer eligible to be a head company and the group would otherwise be deconsolidated;

•

the taken-over head company were still the head company of the preserved group;

•

Subdivision 45-Q had continued to apply to the taken-over head company as head company of the preserved group; and

•

an entity, while being a subsidiary member of the preserved group, were not a member of the new group.

[Schedule 24, item 18, subsection 45-880(2)]

8.94 The section will have effect for the period that:

•

starts from the start of the instalment quarter that includes the takeover time; and

•

ends at the earlier of the following:

-

the end of the instalment quarter of the taken-over head company during which it ceases to be a member of the new group; or

-

just before the instalment quarter of the taken-over head company during which Subdivision 45-Q starts to apply to the head company, or provisional head company, of the new group because that company is given the initial head company instalment rate.

[Schedule 24, item 18, subsections 45-880(2) and (5)]

8.95 The purpose of the rules discussed in the previous 2 paragraphs is to ensure that the compliance costs incurred by the entities that become members of the new group are not unnecessarily increased. They do this by allowing the taken-over head company to keep doing what it is required to do before it joins the new group, that is, to continue paying instalments as a single entity on the basis that its wholly-owned subsidiaries are a part of it.

8.96 However, subsection 45-880(2) does not stop the taken-over head company from being a member of the new group during the instalment quarters covered by subsection 45-880(5). This means the provisions of Subdivision 45-R can still be applied to it as a member of the new group until that group becomes a mature group, even while the provisions of Subdivision 45-Q are taken to apply to it as the head company of the preserved group. [Schedule 24, item 18, subsection 45-880(3)]

8.97 In this regard, it is necessary to specify how the single entity rule in section 701-1 of the ITAA 1997 applies to the taken-over head company so that it can work out its instalment income. The taken-over head company must:

•

assume that it will be assessed as head company of the preserved group under section 701-1 of that Act on the income derived by the members of the preserved group; and

•

ignore the fact that the income of the members of the preserved group will actually be assessable to the head company of the new group under that section.

[Schedule 24, item 18, subsection 45-880(4)]

8.98 This will mean, for example, income arising from transactions between members of the preserved group is ignored in working out the instalment income of the taken-over head company. However, income derived by a member of the preserved group from a transaction between that member and a member of the new group will be included in the instalment income of the taken-over head company.

8.99 The entry and exit rules in sections 45-755 and 45-760 will continue to apply in relation to the subsidiary members of the preserved group while that group is taken to continue to exist. [Schedule 24, item 18, subsection 45-880(7)]

8.100 This section ensures that the single entity rule continues to apply to the members of the preserved group so that none of the members of the group are required to pay separate PAYG instalments. The section will apply automatically from the takeover time if the Commissioner has already been notified that the new group is consolidated.

8.101 If the Commissioner has not already been notified of the decision to consolidate the new group, the head company, or provisional head company, of the new group effectively has a choice as to what compliance costs it is prepared to bear in relation to the subsidiary members of the taken-over head company. It can ensure that the taken-over head company pays a single instalment for itself and its subsidiary members by notifying the Commissioner of its decision to consolidate the new group not later than 28 days after the takeover (or within such further period, if any, as the Commissioner allows).

8.102 If the head company, or provisional head company, of the new group does not notify the Commissioner of the consolidation of the new group within the required time, the section 45-760 exit rule will apply, at the takeover time, to the subsidiary members of the group that would have been the preserved group. Therefore, they will be required to pay an instalment for the instalment quarter that includes the takeover time and each subsequent instalment quarter until the quarter in which Subdivision 45-Q starts to apply to the head company, or provisional head company of the new group.

Early application of Subdivision 45-Q to head company of a new group

8.103 A consolidated group may cease to exist or it may sell off a subsidiary member in circumstances where a former subsidiary member of the group or the member that is sold off has one or more wholly-owned subsidiaries. If the consolidated group is a mature group when either of these events occur, the exit rule contained in section 45-760, as amended by this bill, will make:

•

all the subsidiary members of the group (if the group ceases to exist); or

•

the particular entity that is sold off and each of its wholly-owned subsidiaries (in the other case),

liable to commence paying PAYG instalments unless they immediately become members of another mature consolidated group or mature MEC group. Each entity would be required to pay its instalments using the most recent instalment rate given to the head company of the group before the end of the instalment quarter in which it ceases to be a member of the group.

8.104 This could mean that additional administrative and compliance costs would be incurred by the former subsidiary members of a mature consolidated group if a former subsidiary member is eligible to form a new consolidated group. A new section will ensure that the compliance costs incurred by such entities are not unnecessarily increased when this occurs. [Schedule 24, item 18, section 45-885]

8.105 The new section will apply to a company if all of the following conditions are satisfied in relation to a particular time (the starting time):

•

just before the starting time, the company is a subsidiary member of a consolidated group or a member of a MEC group;

•

just before the starting time, the consolidated group or MEC group was a mature group (that is, Subdivision 45-Q applies, at that time, to its head company or provisional head company);

•

at the starting time, either:

-

the company ceases to be a subsidiary member of the consolidated group or a member of the MEC group; or

-

the consolidated group or MEC group ceases to exist (other than because the head company or provisional head company is acquired by a member of another mature group or because another group is created from it);

•

at the starting time, the company is the head company of another consolidated group; and

•

within 28 days after the starting time, or such further period (if any) as the Commissioner allows, the Commissioner receives the choice to consolidate that other consolidated group at and after the starting time under section 703-50 of the ITAA 1997.

[Schedule 24, item 18, subsections 45-885(1) and (4)]

8.106 As the last dot point of the previous paragraph indicates, the company that is making the choice to consolidate the other group may apply to the Commissioner for an extension of the time in which the company may notify the Commissioner of the decision to consolidate the group. It must apply for the extension within 28 days of the starting time. The Commissioner may grant the extension if he or she considers it appropriate. [Schedule 24, item 18, subsection 45-885(3)]

8.107 When new section 45-885 applies to the company, the instalment rate that company is taken to have been given by the Commissioner under paragraph 45-760(2)(a) (the exit rule) will have effect as if it were the initial head company instalment rate of the company. That will mean that Subdivision 45-Q will start to apply to the company, as the head company of the consolidated group, at the start of the instalment quarter in which the starting time occurs. [Schedule 24, item 18, paragraph 45-885(2)(a)]

8.108 Further, an instalment rate that would otherwise be the initial head company instalment rate of the company will not be treated as the initial head company instalment rate. [Schedule 24, item 18, paragraph 45-885(2)(b)]

8.109 This section effectively gives the former subsidiary member of the mature group a choice as to what compliance costs it is prepared to bear in relation to the members of its new consolidated group. It can ensure that it pays a single instalment for itself and its wholly-owned subsidiaries as a mature group by notifying the Commissioner of its decision to consolidate the new group not later than 28 days after the starting time (or within such further time as the Commissioner allows).

8.110 If the company does not notify the Commissioner of the consolidation of the new group within the required time, the section 45-760 exit rule will apply, at the starting time, to the entities that have ceased to be subsidiary members. Therefore, they will be required to pay an instalment for the instalment quarter that includes the starting time and each subsequent instalment quarter until the quarter in which Subdivision 45-Q starts to apply to the head company of the new group. Of course, the section 45-760 exit rule would also apply if the company chooses not to consolidate the group.

How the PAYG instalments regime applies to members of MEC groups

8.111 Currently, the PAYG instalments regime does not set out how it applies to the members of MEC groups. Nor do the mechanisms used to extend the provisions of Part 3-90 of the ITAA 1997 to MEC groups discussed elsewhere in this explanatory memorandum apply for the purposes of the PAYG instalments regime. Therefore, this bill will insert a new Subdivision into Part 2-10 (PAYG instalments) of Schedule 1 to the TAA 1953. The objects of the new Subdivision are to extend the existing rules of the PAYG instalments regime to members of MEC groups, and modify the PAYG instalments regime so that its extended operation takes account of the special characteristics of MEC groups. [Schedule 24, item 18, Subdivision 45-S and section 45-905]

Extended operation of PAYG instalments to cover MEC groups

8.112 The PAYG instalments regime will have effect for the members of a MEC group in the same way as it has effect for members of a consolidated group. [Schedule 24, item 18, subsection 45-910(1)]

8.113 However, that general rule is subject to certain modifications. [Schedule 24, item 18, subsection 45-910(2)]

8.114 One modification is that a reference in Part 2-10 (PAYG instalments) to a consolidated group will be taken to be a reference to a MEC group. [Schedule 24, item 18, subsection 45-910(2), Table item 1]

8.115 A second modification is that a reference to the head company of a consolidated group will be taken to be a reference to the provisional head company of a MEC group. This will ensure that the PAYG instalment obligations of a mature MEC group are borne by the provisional head company of the group. The modification is necessary because:

•

the head company of a MEC group is defined to be the entity that is the provisional head company of the MEC group at the end of the income year (or when the group ceases to exist) - see sections 719-25 and 719-75 of the ITAA 1997; and

•

the PAYG instalments responsibilities arise from time to time during the income year when it is not possible to determine, with absolute certainty, which entity will be the head company of the MEC group at the end of the income year.

[Schedule 24, item 18, subsection 45-910(2), Table item 2]

8.116 The third modification is that a reference to a subsidiary member of a consolidated group will be taken to be a reference to a member (other than the provisional head company) of a MEC group. It will ensure that the rules that apply to a subsidiary member of a consolidated group can be applied through the course of the income year to members of MEC groups. It is not possible to determine, with absolute certainty during the income year, which entities are the subsidiary members of a MEC group because a subsidiary member of a MEC group is defined to be all the members of the group other than the head company. The head company can only be determined at the end of the income year (or when the MEC group ceases to exist). [Schedule 24, item 18, subsection 45-910(2), Table item 3]

8.117 However, there are a number of exceptions when one or another of those modifications does not apply. Generally, these exceptions are needed because particular provisions of the PAYG instalments regime will deal with the special characteristics of MEC groups and their members or do not apply to members of MEC groups. [Schedule 24, item 18, subsection 45-910(3)]

8.118 For example, section 45-705, which specifies the period during which Subdivision 45-Q applies to a head company of a consolidated group will not apply to a provisional head company of a MEC group. A separate rule will specify the period during which Subdivision 45-Q applies to a provisional head company of a MEC group. Similarly, section 45-740 about an interposed company becoming head company of a consolidated group, will not apply to a provisional head company of a MEC group because the interposed company rules do not apply, for income tax assessment purposes, to MEC groups. However, there will be a special rule that deals with the appointment of a new provisional head company of a MEC group when a cessation event happens to an existing provisional head company. [Schedule 24, item 18, paragraph 45-910(3)(e) and section 45-913]

When Subdivision 45-Q applies to a provisional head company of a MEC group

Introduction

8.119 The May Consolidation Act contains consequential amendments enabling the PAYG instalments regime to apply to members of consolidated groups. It contains rules that apply before a head company of a consolidated group is given an instalment rate worked out from its first assessment as a head company. These rules are found in Subdivision 45-R. In this period, the PAYG instalments regime does not treat the members of a consolidated group as a single entity and each member of the group is required to pay separate instalments as if it were not a member of a consolidated group.

8.120 The May Consolidation Act also contains rules that apply once the head company of a consolidated group is given an instalment rate worked out from its first assessment as a head company. Those rules are found in Subdivision 45-Q. Once Subdivision 45-Q applies to a head company of a consolidated group, the PAYG instalments regime treats the members of the group as a single entity, and the head company pays a single instalment on the basis that its subsidiary members are parts of it.

8.121 Section 45-705 specifies the period during which Subdivision 45-Q applies to a head company of a consolidated group. It is fundamental to the application of the PAYG instalments regime to consolidated groups. That is because the operation of each of the other provisions of Subdivision 45-Q requires Subdivision 45-Q to apply to the head company of the group. That is, those other sections can only be applied to a member of a consolidated group if Subdivision 45-Q applies to the group's head company.

8.122 However, section 45-705 does not take account of the special characteristics of MEC groups, either as currently enacted or as amended by this bill. Consequently, a new section (section 45-915) will explain when Subdivision 45-Q will apply to a provisional head company of a MEC group. Section 45-915 will perform the same function for MEC groups as section 45-705 does for consolidated groups and will be fundamental to the application of the PAYG instalments regime to the members of a MEC group.

Period during which Subdivision 45-Q applies to a provisional head company of a MEC group

8.123 Subdivision 45-Q will apply to a provisional head company for a period, the start of which will be determined under one of 3 mutually exclusive subsections. The period will end at the earliest of 3 different times. [Schedule 24, item 18, subsection 45-915(1)]

Subdivision 45-Q usually starts applying to a provisional head company when it is given the initial head company instalment rate

8.124 Subdivision 45-Q will usually start to apply to a provisional head company of a MEC group at the beginning of the instalment quarter in which the Commissioner gives the company, as provisional head company of the group, the initial head company instalment rate. [Schedule 24, item 18, subsection 45-915(2)]

8.125 The initial head company instalment rate of a provisional head company of a MEC group will generally be an instalment rate that is worked out from the first assessment of a head company of the MEC group for the income year in which the MEC group comes into existence. However, this will only be the case if the MEC group is formed by the choice of the eligible tier-1 companies of a potential MEC group to consolidate the group under section 719-50 of the ITAA 1997. [Schedule 24, item 22, subsection 995-1(1), paragraph (a) of the definition of 'initial head company instalment rate']

8.126 There are two ways of identifying the initial head company instalment rate for a provisional head company of a MEC group that is created from a consolidated group.

8.127 The first applies where a MEC group is created from a consolidated group that comes into existence under section 703-50 of the ITAA 1997, the initial head company instalment rate for the provisional head company of the MEC group will be an instalment rate worked out from the first assessment of the head company of the consolidated group for the income year in which the consolidated group comes into existence. [Schedule 24, item 22, subsection 995-1(1), subparagraph (b)(i) of the definition of 'initial head company instalment rate']

8.128 The second applies where a MEC group is created from a consolidated group that comes into existence under section 703-55 of the ITAA 1997. In that case, it is necessary to trace successively through that MEC group (the later group) and any earlier consolidated group or MEC group, to determine which instalment rate is the initial head company instalment rate. The initial head company instalment rate for the provisional head company of the later group will be the instalment rate worked out from the first assessment of an entity as head company of the earliest group for the income year in which the earliest group was formed. The earliest group may be formed as a consolidated group under section 703-50 of the ITAA 1997 or as a MEC group under section 719-50 of that Act. [Schedule 24, item 22, subsection 995-1(1), subparagraph (b)(ii) of the definition of 'initial head company instalment rate']

8.129 A MEC group is created from a consolidated group if:

•

the MEC group comes into existence under section 719-40 of the ITAA 1997 when a special conversion event happens to a potential MEC group derived from an eligible tier-1 company of a top company; and

•

that eligible tier-1 company was the head company of the consolidated group immediately before the special conversion event happened.

[Schedule 24, item 21, subsection 995-1(1), paragraph (b) of the definition of 'created']

8.130 Subdivision 45-Q will only start applying to a provisional head company of a MEC group when it is given the initial head company instalment rate if Subdivision 45-Q has not applied to a:

•

previous provisional head company of the group; or

•

head company of a consolidated group if the MEC group is created from a consolidated group.

8.131 Diagram 8.8 shows how Subdivision 45-Q may start to apply to a provisional head company of a MEC group created from a consolidated group when the provisional head company of the MEC group is given the initial head company instalment rate.

Diagram 8.8

When Subdivision 45-Q starts applying when a MEC group is created from a mature consolidated group

8.132 Subdivision 45-Q will start to apply to a company as provisional head company of a MEC group at the start of an instalment quarter (the starting quarter) if:

•

during the starting quarter, the Commissioner receives a notice of the creation of the MEC group from a consolidated group under subsection 719-40(1) of the ITAA 1997; and

•

the company is the provisional head company of the MEC group when the Commissioner is so notified; and

•

either:

-

Subdivision 45-Q applied to the head company of the consolidated group at the end of the previous quarter; or

-

the Commissioner gives the initial head company instalment rate to the head company of the consolidated group during that quarter.

[Schedule 24, item 18, subsections 45-915(3) and (5)]

8.133 This subsection effectively ensures that once the Commissioner is notified of the creation of the MEC group, a provisional head company of a MEC group is treated as a mature provisional head company under Subdivision 45-Q if the head company of the consolidated group from which the MEC group is created:

•

is a mature head company in the quarter before the Commissioner is notified of the creation of the MEC group; or

•

would have become a mature head company during the quarter in which the Commissioner is notified of the creation of the MEC group (because it is given the initial head company instalment rate in that quarter) if the MEC group had not been created.

In those cases, the provisional head company will not be treated as a provisional head company of a group in transition to which Subdivision 45-R applies.

8.134 The Commissioner may be notified of the creation of a MEC group before Subdivision 45-Q starts to apply to a head company of the consolidated group. If that happens, Subdivision 45-Q will start to apply to the provisional head company of the MEC group when the provisional head company is given the initial head company instalment rate - see subsection 45-915(2) and paragraphs 8.124 to 8.131.

8.135 Subdivision 45-Q may not start to apply to an entity as provisional head company of a MEC group until an instalment quarter that is after the instalment quarter in which the MEC group comes into existence under section 719-40 of the ITAA 1997. Subdivision 45-Q does not stop applying to the head company of the consolidated group as head company of the consolidated group from which the MEC group is created until the Commissioner is actually notified of the creation of the MEC group - see paragraphs 8.53 to 8.60.

8.136 Diagrams 8.9 and 8.10 show how Subdivision 45-Q may start to apply to a provisional head company of a MEC group created from a consolidated group.

Diagram 8.9

Diagram 8.10

When Subdivision 45-Q starts applying when a new provisional head company is appointed

8.137 The September Consolidation Act contains rules that ensure that the tax position of a MEC group is not affected by the departure or change in membership status of a provisional head company of the MEC group. When a provisional head company of a MEC group stops being eligible to be a provisional head company (that is, a cessation event happens to the provisional head company), the MEC group membership rules require the remaining eligible tier-1 companies to appoint a replacement provisional head company. That ensures the group continues in existence.

8.138 The September Consolidation Act rules ensure that the history of a head company of a MEC group is transferred to the new head company of the group by treating a new head company of a MEC group as if it were the former head company of the MEC group at all times before the cessation event occurs - see section 719-90 of the ITAA 1997. However, that rule only applies for certain purposes, such as assessing the new head company, for income years ending after the cessation event happens. The rule does not apply for PAYG instalments purposes.

8.139 A similar result to that arising under section 719-90 of the ITAA 1997 will apply for the purposes of the PAYG instalments regime. However, the PAYG instalments rule will affect the respective provisional head companies before and after the cessation event happens - see section 45-920 and paragraphs 8.154 to 8.167.

8.140 Subdivision 45-Q will start to apply to a company as provisional head company of a MEC group at the start of an instalment quarter (the starting quarter) if:

•

the company is appointed as the provisional head company of the MEC group under subsection 719-60(3) of the ITAA 1997 following a cessation event that occurs during the starting quarter; and

•

one of the following applies:

-

Subdivision 45-Q applied to the former provisional head company of the MEC group (i.e., the provisional head company to which the cessation event happens) at the end of the previous quarter;

-

the Commissioner gives the initial head company instalment rate to the former provisional head company of the MEC group during the starting quarter;

-

the Commissioner receives notice of the creation of the MEC group from a consolidated group under subsection 719-40(1) of the ITAA 1997 during the starting quarter and Subdivision 45-Q applied to the head company of the consolidated group at the end of the previous instalment quarter; or

-

the Commissioner receives notice of the creation of the MEC group from a consolidated group under subsection 719-40(1) of the ITAA 1997 during the starting quarter, and the Commissioner gives the initial head company instalment rate to the head company of the consolidated group during the starting quarter.

[Schedule 24, item 18, subsections 45-915(4) and (5)]

8.141 This subsection effectively ensures that a new provisional head company is immediately treated as a mature provisional head company under Subdivision 45-Q if a former provisional head company:

•

is a company to which Subdivision 45-Q applies at the end of the instalment quarter before the starting quarter, whether the Subdivision applies to it in its capacity as provisional head company of a MEC group or as head company of a consolidated group from which the MEC group is created; or

•

would have become a company to which Subdivision 45-Q applies during the starting quarter, whether that would be in its capacity as provisional head company of a MEC group or as head company of a consolidated group from which the MEC group is created, if the cessation event had not happened.

The new provisional head company will not be treated as a provisional head company of a group in transition to which Subdivision 45-R applies.

8.142 If the appointment of a new provisional head company occurs before Subdivision 45-Q starts to apply to the former provisional head company, Subdivision 45-Q will start applying to the new provisional head company when it is given the initial head company instalment rate - see subsection 45-915(2) and paragraphs 8.124 to 8.131.

8.143 Diagrams 8.11 and 8.12 show how Subdivision 45-Q may start to apply to a new provisional head company of a MEC group.

Diagram 8.11

Diagram 8.12

When Subdivision 45-Q stops applying to a provisional head company of a MEC group

8.144 Subdivision 45-Q will stop applying to a provisional head company of a MEC group at the earliest of 3 different times. [Schedule 24, item 18, subsection 45-915(6)]

8.145 First, Subdivision 45-Q will stop applying to a provisional head company of a MEC group at the end of the instalment quarter in which the MEC group ceases to exist (but a consolidated group is not created from it). [Schedule 24, item 18, paragraph 45-915(6)(a)]

8.146 Secondly, Subdivision 45-Q will stop applying to a provisional head company of a MEC group at the end of the instalment quarter in which a consolidated group is created from the MEC group [Schedule 24, item 18, paragraph 45-915(6)(b)] . In this case, the Subdivision stops applying to the company that is the provisional head company of the MEC group (in its capacity as provisional head company of the MEC group) at the end of the quarter in which the consolidated group is created. However, when this happens, Subdivision 45-Q will generally start to apply to the same company (in its capacity as head company of the consolidated group) at the start of the same instalment quarter- see paragraph 8.39 to 8.42. This overlap in the application of Subdivision 45-Q ensures that the single entity rule applies appropriately.

8.147 Thirdly, Subdivision 45-Q will stop applying to a provisional head company of a MEC group just before the instalment quarter in which a cessation event happens to that company and the appointment of a new provisional head company takes effect. A cessation event happens when a provisional head company ceases to exist or ceases to satisfy the conditions for being a provisional head company - see subsection 719-60(6) of the ITAA 1997. As explained in paragraphs 8.137 to 8.143, the Subdivision generally starts to apply to the new provisional head company at the start of the instalment quarter in which it becomes the provisional head company of the MEC group. [Schedule 24, item 18, paragraph 45-915(6)(c)]

Observations about the application of Subdivision 45-Q

8.148 As mentioned in paragraph 8.122, section 45-915 is fundamental to the application of the PAYG instalments regime to members of a MEC group. That is because the operation of each of the provisions of Subdivision 45-Q for members of a MEC group requires Subdivision 45-Q to apply to the provisional head company of the group. That is, those other sections can only be applied to the members of a MEC group if Subdivision 45-Q applies to the group's provisional head company.

8.149 One consequence of using this approach is that Subdivision 45-Q can apply to an entity as provisional head company of a MEC group for all of a particular instalment quarter even though the entity is not a provisional head company for all of that quarter. For example, if a new provisional head company becomes the provisional head company of a MEC group part-way through an instalment quarter, Subdivision 45-Q applies to the new provisional head company for the whole quarter. Subdivision 45-Q does not just apply for the period it is actually the provisional head company. [Schedule 24, item 18, subsection 45-915(8)]

8.150 In limited circumstances, the combined operation of section 45-915 and section 45-705 (about when Subdivision 45-Q applies to a head company of a consolidated group) may, at first, appear anomalous. One rule may state that Subdivision 45-Q stops applying to a particular entity just before a particular instalment quarter but another may state that it starts applying to the same entity at the beginning of that quarter. This will only happen if 2 or more events occur in the same quarter. For example, a conversion of a group from one kind to another and the interposition of a head company or change of provisional head company as a result of a cessation event may occur in the same quarter. Subdivision 45-Q will not, and is not intended to, apply to an entity if the Subdivision stops applying to the entity before it starts applying to the entity. There will be another entity to which the Subdivision applies for the relevant instalment quarter. [Schedule 24, item 18, subsection 45-915(7)]

Applying the single entity rule in relation to members of a MEC group

8.151 Section 45-710 states that an entity that is a subsidiary member of a consolidated group, and any other subsidiary member of the group, are taken to be parts of the head company of the group while they are subsidiary members. This ensures that the single entity rule applies for PAYG instalments purposes in the same way as section 701-1 of the ITAA 1997 applies for the core purposes covered by that section.

8.152 The operation of section 45-710 will be extended so that it also has effect for the members of a MEC group. That is, the other members of the MEC group will be taken to be parts of the provisional head company while they are members of the MEC group. [Schedule 24, item 18, subsections 45-910(1) and (2)]

8.153 Further, in applying section 45-710 to the members of a MEC group at any time during an income year, the provisional head company will be assumed to be the head company of the MEC group for that part of the company's income year during which the group exists. As this means that a provisional head company of a MEC group must assume that the income derived by the other members of the group will be assessable to it, it will be able to properly work out its instalment income for a particular quarter. (In this regard, note that an entity's instalment income for an instalment quarter is defined to be the ordinary income derived by the entity in that quarter, to the extent to which that income is assessable income of the income year that includes that quarter.) [Schedule 24, item 18, section 45-917]

New provisional head company treated as substituted for the former provisional head company

8.154 The September Consolidation Act contains rules that ensure that the tax position of a MEC group is not affected by the departure or change in membership status of a provisional head company of the MEC group. When a provisional head company of a MEC group stops being eligible to be a provisional head company (i.e. a cessation event happens to the provisional head company), the MEC group membership rules require the remaining eligible tier-1 companies to appoint a replacement provisional head company. That ensures the group continues in existence.

8.155 The September Consolidation Act rules ensure that the history of a head company of a MEC group is transferred to the new head company of the group by treating a new head company of a MEC group as if it were the former head company of the MEC group at all times before the cessation event happens - see section 719-90 of the ITAA 1997. However, the rules only apply for certain purposes, such as assessing the new head company, for income years ending after the cessation event happens. The rules do not apply for PAYG instalments purposes.

8.156 A new section will deal with the PAYG instalments implications of a change in provisional head company of a MEC group. Its object will be to ensure that a new provisional head company will inherit the history of the former provisional head company for the purposes of the PAYG instalments regime. Further, the history of the new provisional head company will be ignored. [Schedule 24, item 18, subsection 45-920(1)]

8.157 The new section will apply to a provisional head company of a MEC group (the new provisional head company) that is appointed as provisional head company under subsection 719-60(3) of the ITAA 1997 after a cessation event has happened to another provisional head company of the group (the former provisional head company). It will apply if:

•

the former provisional head company is one to which Subdivision 45-Q applies at the end of the quarter before the quarter in which the cessation event happens, whether the Subdivision applies to it at that time in its capacity as a provisional head company of a MEC group or as the head company of a consolidated group from which the MEC group is created; or

•

the former provisional head company would have become a company to which Subdivision 45-Q starts to apply during the quarter in which the cessation event happens, (whether as a provisional head company of a MEC group or as the head company of a consolidated group from which the MEC group is created) if the cessation event had not happened and whether or not Subdivision 45-Q actually applied to it for any period of time.

[Schedule 24, item 18, paragraph 45-920(2)(a)]

8.158 The section will also apply where a new provisional head company is appointed in the same instalment quarter in which the MEC group is created from a consolidated group but the Commissioner is not notified of the creation of the MEC group until a subsequent quarter. For the section to apply in this situation, either of the following must be satisfied:

•

the head company of the consolidated group from which the MEC group is created must be one to which Subdivision 45-Q applied at the end of the previous quarter; or

•

the Commissioner must give that head company the initial head company instalment rate during the quarter in which the MEC group is created.

[Schedule 24, item 18, paragraph 45-920(2)(b)]

8.159 This is necessary because:

•

until the Commissioner is notified of the creation of the MEC group in the later quarter, Subdivision 45-Q continues to apply to the head company of the consolidated group from which the MEC group is created; and

•

the new provisional head company must still inherit the history of the former provisional head company even if Subdivision 45-Q does not immediately start to apply to it in the quarter in which it is appointed.

8.160 When the section applies, everything that happened in relation to the former provisional head company before the starting time (which is the time at which the cessation event occurs) will be taken to have happened instead to the new provisional head company. These things will be taken to have happened just as if, at all times before the starting time:

•

the new provisional head company had been the former provisional head company; and

•

the former provisional head company had been the new provisional head company.

That is, the new provisional head company is substituted for the former provisional head company. [Schedule 24, item 18, paragraphs 45-920(3)(a), (c) and (d) and subsection 45-920(4)]

8.161 Further, things that happened to the former provisional head company prior to the starting time because of the operation of the consolidation regime or the PAYG instalments regime will be taken to have happened instead to the new provisional head company. [Schedule 24, item 18, subsections 45-920(3) and (5)]

8.162 Subsections 45-920(3) and (5) will ensure, for example, that the new provisional head company will be taken to derive the instalment income that is derived by the former provisional head company, before the starting time, according to the single entity rule (in its extended operation for members of MEC groups).

8.163 However, the history of the new provisional head company that relates to periods prior to the starting time is effectively ignored. [Schedule 24, item 18, paragraph 45-920(3)(b)]

8.164 An original or amended assessment of the former provisional head company, for an income year that ends before the income year that includes the starting time, will be taken to be something that happened to the new provisional head company regardless of when the assessment is made. This rule will apply to ensure that such assessments can be used to calculate an instalment rate for the new provisional head company, if they would have been used to calculate an instalment rate for the former provisional head company had it remained the provisional head company of the MEC group. [Schedule 24, item 18, subsection 45-920(6)]

8.165 The new provisional head company will be substituted for the former provisional head company when applying the PAYG instalments regime to the members of the MEC group for any instalment quarter that ends after the starting time. This section and subsection 45-915(4) ensure that the new provisional head company becomes liable to pay instalments as provisional head company of the MEC group from the instalment quarter in which the starting time occurs. It will remain so liable until Subdivision 45-Q stops applying to it. [Schedule 24, item 18, subsection 45-920(7)]

8.166 To ensure that this section interacts appropriately with section 45-915 (which is about when Subdivision 45-Q applies to a provisional head company of a MEC group), subsections 45-920(1) to (7) will be disregarded in applying section 45-915. That means, the time when Subdivision 45-Q starts to apply to the new provisional head company will be determined under subsection 45-915(4). It will not be determined under section 45-920 on the basis that the new provisional head company will be taken, under section 45-920, to have been given the initial head company instalment rate actually given to the former provisional head company. [Schedule 24, item 18, subsection 45-920(8)]

8.167 The former provisional head company may remain a member of the MEC group when a cessation event happens to it - see subsection 719-60(6) and sections 719-65 and 719-75 of the ITAA 1997. If that happens, a PAYG instalments provision that, in its extended operation for members of MEC groups, applies when an entity becomes a member (other than the provisional head company) of a MEC group will not apply to the former provisional head company. For example, the section 45-755 entry rule will not apply if the former provisional head company remains a member of the MEC group. [Schedule 24, item 18, subsection 45-920(9)]

Provisional head company taken to be a life company

8.168 Section 713-505 of the ITAA 1997, as contained in this bill, will treat a head company of a consolidated group or MEC group as a life insurance company for an income year if, during that year, the group contains a member that is a life insurance company.

8.169 A new section will ensure that this rule can be applied during an income year in relation to the members of a MEC group. A provisional head company of a mature MEC group will be taken to be a life insurance company for an instalment quarter if one or more life insurance companies are members of the group during that quarter or an earlier instalment quarter of the income year. [Schedule 24, item 18, section 45-922]

8.170 A provisional head company of a mature MEC group that is taken to be a life insurance company will work out its instalment income according to subsection 45-120(1) and new subsection 45-120(2A), which is discussed at paragraphs 8.82 to 8.87.

Extended operation of Subdivision 45-R rules

Sections 45-855 and 45-860

8.171 Section 45-855 ensures that until a head company of a consolidated group is a mature head company, each member of the group works out its instalment income without regard to the single entity rule in section 701-1 of the ITAA 1997. That is, when each member of the group works out its instalments, it ignores the fact that the head company will be assessable on the income derived by the subsidiary members of the group.

8.172 Section 45-860 applies in the unusual case where the instalment quarter or income year of a subsidiary member of a consolidated group differs from that of the head company. It ensures that a subsidiary member pays an instalment for its instalment quarter or income year that includes the day on which the head company becomes a mature head company.

8.173 Sections 45-855 and 45-860 will be amended by this bill. The amendments will insert several references to the particular provisions of section 45-705 (about when Subdivision 45-Q applies to a head company of a consolidated group) because that section determines the day on which a head company becomes a mature head company. They are explained in more detail below at items 12 to 16 of Table 8.1.

8.174 As stated in paragraph 8.122, section 45-705 will not apply to a provisional head company of a MEC group. Instead, new section 45-915 will specify when Subdivision 45-Q applies to a provisional head company of a MEC group.

8.175 The operation of sections 45-855 and 45-860 will be extended to apply to the members of a MEC group under the general modification rules in new section 45-910 - see paragraphs 8.112 to 8.118 for an explanation of that section. Further, a new section will effectively specify that the references, in sections 45-855 and 45-860, to provisions of section 45-705 are to be read as references to the equivalent provisions of section 45-915, which states when Subdivision 45-Q will apply to a provisional head company of a MEC group. [Schedule 24, item 18, section 45-925]

Sections 45-865 and 45-870 and subsection 45-30(4)

8.176 Section 45-865 makes the head company of a consolidated group entitled to a credit against its assessed income tax liability, for an income year that is a consolidation transitional year, for instalments payable by its subsidiary members. Subsection 45-30(4) is a related provision. It ensures that an amount credited to the head company cannot be taken into account again when working out a subsidiary member's own entitlement to a PAYG instalments credit for any part of the income year in which it was not a member of the consolidated group.

8.177 Section 45-870 makes the head company of a consolidated group liable to pay the general interest charge in relation to certain PAYG instalments variations made by its subsidiary members.

8.178 The new section 45-910 modifications that extend the operation of the PAYG instalments regime to MEC group members are not appropriate for these 3 provisions. That is because these provisions are concerned with events following the assessment of the members of a MEC group after the end of the income year and not instalment liabilities arising during the income year. Therefore, those modifications will not apply in relation to sections 45-865 and 45-870. [Schedule 24, item 18, paragraph 45-910(3)(h)]

8.179 Instead, a reference in those provisions to a consolidated group will be taken to be a reference to a MEC group and a reference to a MEC group will be taken to be a reference to a consolidated group. This will be enough to ensure that a reference in section 45-865 or 45-870 or subsection 45-30(4) to a head company, or subsidiary member, of a consolidated group will be a reference to the head company, or subsidiary member, of a MEC group rather than the provisional head company, or member (other than the provisional head company) of a MEC group. A reference in those provisions to a head company, or subsidiary member, of a consolidated group will not be taken to be to a provisional head company, or member (other than the provisional head company) of a MEC group. [Schedule 24, item 18, subsection 45-930(1)]

8.180 However, those modifications will not apply to subsection 45-865(4). That section itself modifies the operation of subsection 45-865(3) and therefore does not need to be modified further. [Schedule 24, item 18, subsection 45-930(2)]

Section 45-885

8.181 New section 45-885 will affect an entity that ceases to be a subsidiary member of a mature consolidated group and its wholly-owned subsidiaries. While the operation of that section will be extended to members of a MEC group through the new section 45-910 modifications to deal with MEC group members, further and more specific modifications are needed.

8.182 These further modifications ensure that:

•

paragraph 45-885(1)(e), which requires the Commissioner to be notified of the consolidation of a consolidated group under section 45-703-50 of the ITAA 1997, is replaced by a paragraph which requires the Commissioner to be notified of the decision to consolidate a MEC group;

•

the reference, in subsection 45-885(2) and in the note at the end of that subsection, to paragraph 45-760(2)(a) will be taken to be a reference to that paragraph as it applies in its extended operation to members of a MEC group; and

•

the reference to section 45-705 (about when Subdivision 45-Q applies to a head company of a consolidated group), in the note at the end of subsection 45-885(2), will be taken to be a reference to section 45-915 (about when Subdivision 45-Q applies to a provisional head company of a MEC group).

[Schedule 24, item 18, section 45-935]

Application and transitional provisions

8.183 All but one of the amendments discussed in this chapter will take effect from 1 July 2002, along with other aspects of the consolidation measures. [Schedule 24, subitem 19(2) and item 23]

8.184 However, item 1 of Schedule 24, which deals with the instalment income of a life insurance company, will apply in relation to an income year that begins on or after 1 July 2003. Paragraph 8.87 explains the reason for this. [Schedule 24, subitem 19(1)]

Consequential amendments

8.185 The amendments described earlier in this chapter are the more significant consequential changes that need to be made to the PAYG instalments regime so that it can operate consistently with the provisions of the consolidation regime. In particular, they ensure that the PAYG instalments regime operates appropriately for both consolidated groups and MEC groups.

8.186 However, there are other consequential amendments to the TAA 1953 and the dictionary to the ITAA 1997. They are discussed in Table 8.1 and Table 8.2 respectively.

8.187 Unless it is otherwise clear from the context, where the tables refer generally to a consolidated group, or a head company or subsidiary member of a consolidated group, the references should be read as appropriate references to a MEC group, or a provisional head company or other member of a MEC group.