ATO ID 2003/964: Consolidation: subsidiary in liquidation - membership of consolidated group
Date of decision: 1 October 2003
Year of income: 30 June 2004
Business line: Consolidation Centre of Expertise

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
Summary: 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: 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 .

Legislative references: Income Tax Assessment Act 1997 subsection 703-15(2) paragraph 703-15(2)(b) section 703-30 subsection 703-30(1)
Subject references: 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