ATO ID 2004/296: Consolidation - GST payable and assessable income
Date of decision: 25 March 2004
Year of income: 30 June 2003
Business line: Consolidation Centre of Expertise

Issue
Where GST is payable by a subsidiary member of a consolidated group, is section 17-5 of the Income Tax Assessment Act 1997 (ITAA 1997) taken into consideration by the head company in working out the amount of the income tax liability or loss of the head company?

Decision
Yes. The GST payable by a subsidiary member in these circumstances is excluded from the assessable income of the head company under section 17-5 of the ITAA 1997 in working out the amount of the head company's income tax liability or loss. The operation of the 'single entity rule' in section 701-1 of the ITAA 1997 treats the subsidiary as part of the head company for the head company core purposes.

Facts
Company A, a head company and its wholly-owned subsidiary company, Company B, are members of a consolidated group. Company B carries on an enterprise and is registered for GST. Company B makes taxable supplies, incurs GST liability and receives a credit for the GST paid on inputs ('input tax credits') as part of its normal operations.

Reasons for decision
Summary: The 'single entity rule' in section 701-1 of the ITAA 1997 operates to treat the subsidiary members of a consolidated group to be parts of the head company, for the core purposes of working out the amount of the head company's income tax liability or loss (see subsection 701-1(2) of the ITAA 1997). Subsidiary members of the group are consequently treated as parts of the head company rather than as separate income tax entities. In this case, Company B is treated as part of Company A for the purpose of working out Company A's income tax liability or loss. Section 17-5 of the ITAA 1997 specifically excludes the GST payable on a taxable supply from being included in the assessable income or exempt income of a taxpayer. Accordingly, the GST payable by the subsidiary company is excluded from the assessable income of the head company of the group for the core purposes of working out the amount of the head company's income tax liability or loss. Thus, the GST payable by Company B is excluded from Company A's assessable or exempt income.

Legislative references: Income Tax Assessment Act 1997 Section 17-5 Section 701-1 Subsection 701-1(2)
Subject references: Consolidation Consolidation - tax liabilities Goods and services tax Head company Single entity rule Assessable income