Our key comments on the Paper are as follows:
- The proposed Division 230 rules should broadly align with the existing consolidation tax cost setting rules (not vice versa), as is the case for all other significant categories of assets such as depreciating assets, trading stock and capital gains tax assets.
- We agree that, broadly, where tax consolidated groups acquire entities having financial arrangements the tax consequences should be similar to those relating to the acquisition of financial arrangements. This is the proposed Principle 2 in the paper. However, in our view, proposed Principle 1 (as read together with proposed Subordinate Rule 1) is inconsistent with proposed Principle 2.
- The tax cost setting rules in proposed Subordinate Rule 1 produce inappropriate outcomes in terms of tax cost setting amounts, particularly where the joining entity has used the compounding accruals method.
- The scope of proposed Subordinate Rule 2 needs to be clarified.
- There is no sound policy reason for excluding deferred tax liabilities (DTLs) on financial arrangements from the consolidation tax cost setting process.
- Where the joining entity has chosen to apply Division 230 to pre- Division 230- commencement financial arrangements, further elaboration is required on the position of the joined consolidated group.