Consolidation - Multiple FDA declarations and MEC groups

Can a provisional head company of a multiple entry consolidated (MEC) group make multiple foreign dividend account (FDA) declarations on a particular day, under section 128TC of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes. A provisional head company of a MEC group can make multiple FDA declarations on the same day under section 128TC of the ITAA 1936.

A Co and B Co are Australian resident, wholly-owned subsidiaries of TC - the top company (a non-resident of Australia).

A Co and B Co are both eligible tier-1 companies.

On 1 July 2004, A Co and B Co form a multiple entry consolidated (MEC) group, jointly nominating A Co to be the provisional head company of the group.

A Co has a foreign dividend account (FDA) surplus and pays a dividend to TC on 1 April 2005. B Co also pays a dividend to TC on the same day.

Section 128TC of the ITAA 1936 provides that a resident company that has an FDA surplus is able to pay a dividend that consists of an FDA declaration amount. Sections 719-900 and 717-520 of the Income Tax Assessment Act 1997 (ITAA 1997) enable the provisional head company of a MEC group to set the FDA declaration percentage and determine the FDA declaration amount, in accordance with section 128TC of the ITAA 1936, for dividends paid on a particular day.

Section 717-520 of the ITAA 1997 enables a head company of a consolidated group to make FDA declarations in relation to dividends paid by a subsidiary member of the group. The head company is able to make the FDA declarations because it is taken to be the company that pays the dividends to the non-resident shareholders for that purpose. Where one or more dividends are paid on a particular day, section 717-525 of the ITAA 1997 will apply. That section provides that the FDA declaration amounts for all dividends paid on a particular day, worked out under subsection 128TC(2) of the ITAA 1936, are not to exceed the FDA surplus at the beginning of the day.

Section 719-900 of the ITAA 1997 ensures Subdivision 717-J of the ITAA 1997 applies to a provisional head company of a MEC group in the same way as it does for a head company of a consolidated group. Section 719-900 of the ITAA 1997 also provides that: • an eligible tier-1 company that is the provisional head company will not be taken to be a subsidiary member of the group at that time, and • each company that is a member of the group, other than the provisional head company at the time, will be taken to be a subsidiary member of the group at that time.

Accordingly, A Co will be the provisional head company at the time the FDA declarations are made, and B Co will be taken as if it were a subsidiary member of the group at that time.

As Subdivision 717-J of the ITAA 1997 applies to a provisional head company of a MEC group in the same way as it does for a head company of a consolidated group, sections 717-520 and 717-525 of the ITAA 1997 will have application with respect to FDA declarations made by a provisional head company. Consequently, a provisional head company can make multiple FDA declarations for dividends paid by MEC group members on the same day subject to the limitations on the FDA declaration percentage imposed by subsection 128TC(2) of the ITAA 1936.

Therefore, A Co is able to make multiple FDA declarations on 1 April 2005. The FDA declarations made by A Co will cover dividends paid to its shareholders as well as the dividends paid to the shareholders in B Co.