P has three wholly-owned subsidiaries S1, S2 and S3. All the four companies are incorporated in...

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P has three wholly-owned subsidiaries S1, S2 and S3. All the four companies are incorporated in Australia. P holds directly all the shares in S1 and S2. Shares in S3 are held through S4, another wholly-owned subsidiary of P incorporated in Bermuda. In this income year, P has a taxable income of $2 million. S1 has a tax loss of $10 million, in addition to its brought forward losses of $80 million. S2 has a taxable income of $60 million. S3 has a taxable income of $10 million. S4 has no income or loss. The group seeks your advice on its eligibility to consolidate for income tax purposes and the tax implications of such an election. Advise the group of the income tax implications with respect to consolidation, including: (a) (b) (c) (d) Is this corporate group eligible to consolidate? If so, will you recommend the group to consolidate and why? If the election to consolidate is made, what are the tax implications for the group, including the cost bases of assets in the group and the accumulated losses in S1? What will be the tax consequences if P sells all shares in S1 a year later for $20 million? P has three wholly-owned subsidiaries S1, S2 and S3. All the four companies are incorporated in Australia. P holds directly all the shares in S1 and S2. Shares in S3 are held through S4, another wholly-owned subsidiary of P incorporated in Bermuda. In this income year, P has a taxable income of $2 million. S1 has a tax loss of $10 million, in addition to its brought forward losses of $80 million. S2 has a taxable income of $60 million. S3 has a taxable income of $10 million. S4 has no income or loss. The group seeks your advice on its eligibility to consolidate for income tax purposes and the tax implications of such an election. Advise the group of the income tax implications with respect to consolidation, including: (a) (b) (c) (d) Is this corporate group eligible to consolidate? If so, will you recommend the group to consolidate and why? If the election to consolidate is made, what are the tax implications for the group, including the cost bases of assets in the group and the accumulated losses in S1? What will be the tax consequences if P sells all shares in S1 a year later for $20 million?

Answer rating: 100% (QA)

a Eligibility to consolidate To be eligible for tax consolidation a corporate group must satisfy certain criteria The group must have at least one who... View the full answer