Issue
Does a subsidiary cease to be eligible to be a member of a consolidated group under subsection 703-15(2) of the Income Tax Assessment Act 1997 (ITAA 1997) when it is deregistered at the end of a voluntary deregistration process?
Decision
Yes. A subsidiary ceases to be eligible to be a member of a consolidated group under subsection 703-15(2) of ITAA 1997 when it is deregistered at the end of a voluntary deregistration process.
Facts
Company A, a head company, and its wholly-owned subsidiary, Company B, consolidate.
After consolidation all of Company B's assets, liabilities and deductions are transferred to Company A.
Company B's directors apply for deregistration after the transfer.
Company B satisfies all the requirements for a voluntary deregistration under section 601AA of the Corporations Act 2001.
Australian Securities and Investments Commission deregistered the company in accordance with the rules contained in Part 5A.1 of the Corporations Act 2001.
Reasons for Decision
The eligibility criteria to be a subsidiary member of a consolidated group are detailed in subsection 703-15(2) of the ITAA 1997. Broadly, to be a member of a consolidated group a subsidiary must be a wholly-owned resident company, trust or partnership. For example, if the member ceases to be a resident it is no longer eligible to be a subsidiary member. Equally, if it ceases to be wholly-owned it is no longer eligible to be a subsidiary member.
'Wholly-owned' is defined in section 703-30 of the ITAA 1997. A subsidiary company is wholly-owned if the head company beneficially owns all the membership interests in the subsidiary company.
In this case, Company A's beneficial ownership of its shares in Company B is not affected until Company B is deregistered and the shares cease to exist. Accordingly, Company B ceases to be eligible to be a member of the consolidated group at the time of deregistration and is consequently no longer a member.