Issue
Has a head company made an effective choice to form a consolidated group if the public officer recorded the wrong date when completing the notice?
Decision
No - the choice to consolidate would not have effect in accordance with subsection 703-50(5) of the Income Tax Assessment Act 1997 (ITAA 1997) if the Commissioner is satisfied that it contains information that is incorrect in a material particular and the Commissioner does not give written notice under subsection 703-50(6) of the ITAA 1997 that the choice has effect despite the incorrect information.
The head company would need to make a new choice to consolidate in accordance with subsection 703-50(1) of the ITAA 1997.
Facts
The choice to consolidate was notified to the Commissioner on the day the head company lodged the consolidated group's first income tax return for the period after 1 July 2002.
The date of effect specified in the choice was the date on which the public officer signed and lodged the notice.
The head company has provided the following documents as evidence of the head company's decision to consolidate with effect from 1 July 2002, not the date specified in the choice:
Minutes of Directors' Meetings accompanied by statutory declarations from each of the Directors that the Minutes correctly reflect the Board's decision to form a consolidated tax group with effect from 1 July 2002
Professional advice provided to the head company on corporate restructuring, tax technical issues, and methodologies accompanied by recommendations that consolidation take effect from 1 July 2002
Working papers and a market valuation report prepared on the basis of a 1 July 2002 consolidation date, and
Consolidated accounts in respect of which the consolidated group's 2003 income tax return has been lodged.
Reasons for Decision
Subsection 703-50(1) of the ITAA 1997 sets out the conditions for making a choice to consolidate: • the choice must be made in the approved form • there must be a consolidatable group on the day specified in the choice • the choice must be provided to the Commissioner within the period specified in subsection 703-50(3) of the ITAA 1997, and • the company making the choice must be the head company of the consolidatable group on the day specified.
Subsection 703-50(2) of the ITAA 1997 provides that the choice cannot be revoked, and the specification of the day cannot be amended, once an effective choice to consolidate has been made in accordance with subsection 703-50(1) of the ITAA 1997.
Where a choice to consolidate has been made in accordance with subsection 703-50(1) of the ITAA 1997 but the Commissioner is satisfied that the choice contains information that is incorrect in a material particular, the combined effect of subsections 703-50(5) and (6) of the ITAA 1997 is that the choice has no effect unless the Commissioner gives the company written notice that the choice is effective. However, the Commissioner is not able to give effect under subsection 703-50(6) to a notice which does not satisfy the conditions of subsection 703-50(1) of the ITAA 1997.
In this case, the head company has met all of the conditions in subsection 703-50(1) of the ITAA 1997 for making a choice to consolidate.
However, the head company has provided documentary evidence that the date of effect stated in the notice was stated in error and is incorrect in a material particular. The date of effect recorded in the notice does not reflect the head company's decision and it is clear from the supporting evidence that the Public Officer made an inadvertent mistake when completing the notice. The Commissioner is satisfied, in the circumstances of this case, that the choice contains information that is incorrect in a material particular.
Having regard to the facts of this particular case, the Commissioner chooses not to apply subsection 703-50(6) of the ITAA 1997. To do so would result in the group coming into existence on a date that was not the intended date of consolidation. Subsection 703-50(5) of the ITAA 1997, therefore, prevents the choice from having effect and a new choice would need to be made in accordance with subsection 703-50(1) of the ITAA 1997.
To ensure that the choice to consolidate takes effect as intended by the head company's directors, the head company should request the Commissioner to defer the date by which the choice is to be given to the Commissioner in accordance with section 388-55 of Schedule 1 to the Taxation Administration Act 1953 . If the Commissioner defers the time within which the choice is required to be lodged, the head company may submit a new choice specifying the correct date of consolidation.