United We Stand: Benefits of SME Consolidation

“Divided we fall.”Many of you will be familiar with the common pitfalls encountered by your standard SME group when managing tax affairs. Tax losses and franking credits trapped in companies, keeping track of your inter-entity charges, handfuls of income tax returns to prepare, just to name a few.

As your business grows and your structure grows with it, the administrative burden required to maintain appropriate records and stay up-to-date on your lodgements whilst simultaneously ensuring you pay the correct amount can get crippling.

What many SME operators, and even many tax advisers, may not realise is this – there is an alternative method of lodgement SME groups can use which can both lessen administrative stress and improve a group’s overall tax position. This method is called consolidation.

“United we stand.”

The consolidation regime can be used by a group with an Australian resident head company and at least one eligible wholly owned resident subsidiary entity, which can be a company, trust, or partnership. The regime treats all entities within a consolidated group as a ‘single entity’ for tax purposes. The single entity concept gives rise to many of the benefits available under the regime.

Consolidation is a term often used by the big end of town, and its true large corporate groups do benefit hugely by lodging under the consolidation regime. However, there’s nothing stopping SME’s from yielding the same benefits, some of which include:

  • Only one income tax return needing to be lodged for the entire group, reducing administrative burden;
  • Only the head entity paying PAYG instalments for the entire group, reducing administrative burden and potentially improving cash flow;
  • Potential for the group to utilise franking credits & tax losses that otherwise may be trapped in a specific subsidiary;
  • Intra-group transactions, such as asset transfers or debt forgiveness arrangements, being ignored for tax purposes, allowing for increased flexibility; and
  • Potential for an increase in asset values & upfront revenue deductions via ACA calculations.

“The most effective way to do it, is to do it.” – Amelia Earhart

There are many intricacies surrounding entry into the consolidation regime, and a significant amount of upfront work is required to determine if consolidation would be beneficial for a particular group. However, the conversation is absolutely one worth having, as the tax savings and administrative relief potentially offered by the regime can be massive contributors to the success of your business.

If you are interested in learning more about how the consolidation regime can benefit your group, please don’t hesitate to contact your Hall Chadwick advisor, who can put you in touch with our resident consolidation experts.