Issue
Is a wholly-owned subsidiary company eligible to be a member of a consolidated group, under paragraph 703-15(2)(b) of the Income Tax Assessment Act 1997 (ITAA 1997), if it is in liquidation at the time that the consolidated group is formed?
Decision
Yes. A wholly-owned subsidiary company is eligible to be a member of a consolidated group, under paragraph 703-15(2)(b) of the ITAA 1997, even though it is in liquidation at the time that the consolidated group is formed.
Facts
An Australian resident head company and its wholly-owned resident subsidiary companies, Subsidiary A and Subsidiary B, consolidate.
Prior to the time of consolidation, a liquidator has been appointed to wind up Subsidiary B.
At the time of consolidation, the liquidation process was continuing.
Subsidiary B had not yet been deregistered.
Reasons for Decision
The criteria for eligibility to be a subsidiary member of a consolidated group are contained in item 2 of the table in subsection 703-15(2) of the ITAA 1997. One of the requirements for a subsidiary company to be a member of a consolidated group is that it must be a wholly owned subsidiary of the head company. To be a member of a consolidated group, a subsidiary company must be: • taxed at a rate equal to the general company tax rate • not excluded from being a member of a consolidated group • an Australian resident, but not a prescribed dual resident, and • a wholly-owned subsidiary of the head company
The definition of a 'wholly-owned subsidiary' is contained in subsection 703-30(1) of the ITAA 1997. A subsidiary entity is wholly-owned by the holding entity if all the membership interests in that subsidiary are beneficially owned by the holding entity, or its wholly-owned subsidiaries, or a combination of the holding entity and its wholly-owned subsidiaries.
The appointment of a liquidator to a company does not affect a shareholder's beneficial ownership of their shares in the liquidating company, although those shares may be worthless.
Accordingly, the appointment of a liquidator to Subsidiary B will not affect Subsidiary A's membership interests in Subsidiary B. Subsidiary B will satisfy the definition of 'wholly-owned subsidiary' contained in section 703-30 of the ITAA 1997, and is eligible to be a member of the consolidated group as it satisfies the criteria for eligibility contained in item 2 of the table in subsection 703-15(2) of the ITAA 1997 .