Accounting for tax consolidation: an investigation into the development and associated reporting requirements under the Australian group taxation system

Abstract

This thesis examines the development of Australian tax-group provisions and the reporting requirements under the Australian Accounting Standards following the commencement of tax-consolidation for corporate groups in 2002. The optional, but irrevocable, regime provides for the formation of a tax-consolidated group consisting of a head company and all qualifying subsidiary members. Utilising the 2010 annual reports of all ASX-listed entities, this thesis attempts to address three areas: the rationale behind the election date; the disclosures of tax-consolidated groups under the accounting standards; and the interactions between the tax consolidation legislation and accounting standards both prior to, and following convergence with the International Accounting Standards. The tax consolidation regime appears to have a high degree of appeal to the largest ASX-listed corporate groups. The largest proportion having elected to tax-consolidate during the initial 12-month transitional period. However, in 2010 less than 50% of listed entities disclosed an election to tax-consolidate. Inconsistencies in reporting of tax consolidation, mainly relating to the absence of disclosure, were identified between the accounting standard requirements and the disclosures provided by ASX-listed entities. This disparity was found within the breadth of the ASX-listed entities, in terms of size and industry. Influenced by the prevailing Australian Accounting Standards, the legislative treatment of taxation was broadly consistent with the accounting standards. Under the single entity rule, a subsidiary is deemed to be a component of the head company rather than a separate legal entity. Following Australia’s convergence with the International Accounting Standards in 2005, taking a ‘substance over form’ approach and disregarding the legal form of a tax-consolidated group, the connection between the tax consolidation legislation and accounting treatment of income tax effects, was substantially lost.