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For the purposes of Division 721 of the Income Tax Assessment Act 1997 (ITAA 1997), is the 'head company's due time' for a liability to income tax the day the liability is due and payable specified in a notice of amended assessment for the 2004-05 (or subsequent) income year, where there was no liability to income tax for that income year prior to the service of the notice?

Yes. For the purposes of Division 721 of the ITAA 1997, the head company's due time for the liability to income tax is the day the liability is due and payable specified in the notice of amended assessment, where no liability to income tax for the income year arose prior to the service of the notice.

The taxpayer, the head company of a consolidatable group, made a choice under section 703-50 of the ITAA 1997 to consolidate the group from 1 July 2004.

On the basis of its original income tax return for its 2004-05 income year, the taxpayer had no taxable income and no liability to income tax for that year.

Subsequently, the Commissioner gave the taxpayer a notice of amended assessment in relation to its 2004-05 income year, raising a liability for income tax.

Under section 701-1 of the ITAA 1997 (the single entity rule), the head company of a consolidated group is the only entity of the group that is recognised under the income tax law. Consistent with that principle, the head company is liable, in the first instance, for all the income-tax related liabilities of the group.

The object of Division 721 of the ITAA 1997, set out in section 721-5 of the ITAA 1997, is to secure the payment of these 'group liabilities', should the head company fail to meet all such liabilities by the time they become due and payable. The time when a group liability is due and payable is called the 'head company's due time' for that liability. Division 721 operates if a group liability is not paid or otherwise discharged in full by that time.

Subsection 721-15(1) of the ITAA 1997 then makes the head company and those entities ('contributing members') that were subsidiary members of the group for at least part of the period to which the group liability relates jointly and severally liable to pay the liability. The joint and several liability arises just after the head company's due time for the group liability (subsection 721-15(4) of the ITAA 1997). However, subsection 721-15(3) of the ITAA 1997 states that this does not happen if the group liability is covered by a tax sharing agreement (TSA).

Section 721-25 of the ITAA 1997 specifies the requirements for a group liability to be covered by a TSA, including that the TSA must be in existence before the head company's due time for the liability. If the group liability is covered by a TSA, the contributing members that are party to the TSA become liable to pay their 'contribution amounts' under the TSA just after the head company's due time for the liability (section 721-30 of the ITAA 1997) if the liability has not been paid or discharged in full by that time.

In summary, the head company's due time for a group liability determines when Division 721 of the ITAA 1997 comes into operation, and therefore: • when the head company and contributing members become jointly and severally liable for the liability if there is no TSA covering the liability • when the TSA contributing members become liable for their contribution amounts under a TSA that covers the liability, and • the deadline for when a TSA must be in place in order to cover the liability.

In relation to the taxpayer's 2004-05 income year, subsection 166A(3) of the Income Tax Assessment Act 1936 (ITAA 1936) deemed the Commissioner to have made an assessment and served notice that there was no taxable income and that no income tax was payable, on the day the return was lodged. Because no liability to income tax arose, subsection 204(1A) of the ITAA 1936 would not have applied to fix the head company's due time for income tax.

However, once the Commissioner had amended the taxpayer's assessment for its 2004-05 income year and issued a notice of amended assessment, the taxpayer did have a liability to income tax for that income year. The head company's due time for that liability was fixed by subsection 204(2) of the ITAA 1936 to be the 21st day after the day on which the Commissioner gave the taxpayer notice of the amended assessment (or such later time as the Commissioner may have allowed under section 255-10 of Schedule 1 to the Taxation Administration Act 1953 ).

Therefore, for the purposes of Division 721 of the ITAA 1997, the head company's due time for the liability was the day the liability was due and payable specified in the notice of amended assessment. This was because no liability to income tax for the income year arose prior to the issuing of the notice of amended assessment.