ATO Interpretative Decision
ATO ID 2003/964
Income Tax
Consolidation: subsidiary in liquidation - membership of consolidated groupFOI status: may be released
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This ATO ID was amended to improve clarity
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a wholly-owned subsidiary company eligible to be a member of a consolidated group, under paragraph 703-15(2)(b) of the Income Tax Assessment Act 1997 (ITAA 1997), if it is in liquidation at the time that the consolidated group is formed?
Decision
Yes. A wholly-owned subsidiary company is eligible to be a member of a consolidated group, under paragraph 703-15(2)(b) of the ITAA 1997, even though it is in liquidation at the time that the consolidated group is formed.
Facts
An Australian resident head company and its wholly-owned resident subsidiary companies, Subsidiary A and Subsidiary B, consolidate.
Prior to the time of consolidation, a liquidator has been appointed to wind up Subsidiary B.
At the time of consolidation, the liquidation process was continuing.
Subsidiary B had not yet been deregistered.
Reasons for Decision
The criteria for eligibility to be a subsidiary member of a consolidated group are contained in item 2 of the table in subsection 703-15(2) of the ITAA 1997. One of the requirements for a subsidiary company to be a member of a consolidated group is that it must be a wholly owned subsidiary of the head company. To be a member of a consolidated group, a subsidiary company must be:
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- taxed at a rate equal to the general company tax rate
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- not excluded from being a member of a consolidated group
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- an Australian resident, but not a prescribed dual resident, and
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- a wholly-owned subsidiary of the head company
The definition of a 'wholly-owned subsidiary' is contained in subsection 703-30(1) of the ITAA 1997. A subsidiary entity is wholly-owned by the holding entity if all the membership interests in that subsidiary are beneficially owned by the holding entity, or its wholly-owned subsidiaries, or a combination of the holding entity and its wholly-owned subsidiaries.
The appointment of a liquidator to a company does not affect a shareholder's beneficial ownership of their shares in the liquidating company, although those shares may be worthless.
Accordingly, the appointment of a liquidator to Subsidiary B will not affect Subsidiary A's membership interests in Subsidiary B. Subsidiary B will satisfy the definition of 'wholly-owned subsidiary' contained in section 703-30 of the ITAA 1997, and is eligible to be a member of the consolidated group as it satisfies the criteria for eligibility contained in item 2 of the table in subsection 703-15(2) of the ITAA 1997 .
Date of decision: 1 October 2003Year of income: 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
subsection 703-15(2)
paragraph 703-15(2)(b)
section 703-30
subsection 703-30(1)
Keywords
Consolidation
Consolidation - formation
Liquidation
Member of a group
Ownership, interests, control & rights
Subsidiary member of a consolidatable group
Subsidiary member of a consolidated group
Voluntary liquidation
Wholly owned
Wholly owned subsidiary
ISSN: 1445-2782