In Australia consolidation of companies for taxation purposes commenced operation in 2002. There are several advantages to consolidation. The most significant advantages include that:

• the entire group lodges a single income tax return so that under the single entity rule compliance costs will drop;
• transactions between group members are ignored and entities in the group may be able to restructure without tax consequences;
• losses, franking credits and foreign income tax offsets are pooled and remain with the head company even if the relevant member leaves the group;
• if one company has losses but is unable to offset them against profits because it does not make any profits then consolidation will help you transfer the losses to the head company of the group which may be able to use the losses against the profits of the group; and
• if the head company pays a premium to acquire shares in the subsidiary in order to consolidate with the subsidiary then the ability to reset the value of assets of subsidiaries may be useful.

The following disadvantages must also be kept in mind when deciding whether to consolidate:

• there may be loss of a joining subsidiary's pre-Capital Gains Tax (CGT) status. Although expenditure incurred by the subsidiary in purchasing the asset may be claimed by the head company the act of joining the group may trigger a CGT event which has the potential to nullify the pre-CGT status;
• any increasing tax cost of depreciating assets may decrease after consolidation; and
• the cost of consolidation can be high.

This Legal Guide on Consolidating Companies Law provides general information about the relevant law for consolidating companies and what you should consider before making the decision to consolidate. Before making important decisions it is advisable to obtain legal advice specific to your situation. LegalEagle’s™ free directory profiles all lawyers in Australia. You can use it to Find a Lawyer near you.

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Warning: Information provided through LegalEagle™ is for general guidance. It is not legal advice. Laws and procedures referred to may change and differ between states, territories and nationally. There may also be important exceptions or qualifications. Only a lawyer providing formal legal advice can assess your particular circumstances to determine how the law will apply.