Australia: Summary tables – Assistant Treasurer's 25 November 2011 announcement Consolidation changes to the residual tax cost setting and right to future income rules

Last Updated: 29 January 2012
Article by Tony Frost, Richard Hendriks and Andy Hirst

A Introduction

These summary tables are only intended as a general overview of the proposals outlined in the Assistant Treasurer's press release of 25 November 2011 and the associated material released on that day. Therefore, it is important to note that:

  1. significant changes may be made by the Government or the Parliament prior to the enactment of these proposals;
  2. the material released contains some ambiguities which may be reflected in this material;
  3. the following information should only be seen as a general summary, and therefore before any actions or decisions are taken it is essential that the actual material released by the Assistant Treasurer be considered in detail and specific advice be obtained.

If you have any queries or require any assistance, please contact either Ken Spence (, 03 9288 1451) or Richard Hendriks (, 02 9225 5971).

B Outline

The following table provides a very high level outline of the proposed changes, with more detailed summaries contained in tables E, F and G. As is apparent from the following table, outcomes can vary significantly depending on the period to which the joining time relates, with C below covering this aspect in more detail.

Joining time Key points
Pre-12 May 2010
  • Outcomes can vary significantly, depending on when the relevant assessment/amended assessment issued claiming relevant deductions. Where a private ruling has been obtained, tax outcomes will remain unchanged.
  • Generally, non-deductible goodwill status will be confirmed to apply to customer relationships, know-how and other accounting intangibles.
  • Outcomes in respect of rights to future income, life and general insurance in-force value, and mine improvements that are not depreciating assets will vary, depending on the date of issue of relevant notices of assessments (including the assessment for the year that includes the joining time, but also the date of assessments for subsequent tax years that may be impacted by the 'tail' of associated deductions or tax losses).
12 May 2010 to 30 March 2011
  • Where a private ruling from the ATO has been obtained, it will continue to apply without modification.
  • Generally, the provisions enacted on 3 June 2010 will continue to apply, with the only restrictions being in respect of:
    • customer relationship, know-how and other accounting intangible assets;
    • right to future income deductions relating to contracts that are required to be renewed, or that can be unilaterally cancelled by the customer; and
    • mine site improvements that are not depreciating assets.
Market valuation clarifications will also apply.
Post-30 March 2011
  • Deductions in respect of rights to future income will be limited in the scope of the current WIP provisions of s.25-95, being 'work (but not goods) that has been partially performed ... but not yet to a stage where a recoverable debt has arisen'.
  • In the application of the residual tax outcome provisions of s.701-55(6), impacts will be determined by applying a 'business acquisition' approach.
  • Assets that cannot be sold separately by the joining entity (stated to be non-contractual customer relationships, know-how and other accounting intangibles) will be specifically deemed to be goodwill.

A number of refinements to the interaction between the consolidations and taxation of financial arrangements (TOFA) regimes are also announced, which will have both retrospective and prospective application (refer table H).

C Key timing periods

As noted above and outlined in the following tables E, F and G, outcomes vary significantly depending on what 'period' classification (as outlined below) will apply. Therefore, it is essential to establish what period classification is likely to be relevant to any particular joining entity. In respect of the pre-12 May 2010 period classification, outcomes can also vary significantly depending on the date on which relevant assessments and amended assessments that include associated deduction claims have issued. Importantly, more restrictive deduction criteria will apply in the context of pre-12 May 2010 joining entities where assessments/amended assessments claiming relevant deductions have yet to issue.

D Categories of rights to future income

The material released breaks rights to future income into three broad categories, with different tax outcomes potentially applicable to each of them. The categories as described in the material are as follows.

Rights to future income categories

Category 1 Rights to receive income where the work has been done, or the goods or services have been provided, by the joining entity before the joining time.
Category 2 Rights to receive income where the work will be done, or the goods or services will be provided, after the joining time under a contract that was entered into before the joining time, excluding any rights to income that are contingent on the renewal of the contract (such as rights under a renewal clause which may give rise to the extension of an existing contract, or to a future contract, under which income would be receivable).
Category 3 Right to receive income arising from an expectation of future work or future provision of goods or services (due to, for example, existing customer relationships), including any rights to income that are contingent on the renewal of the contract.

It is important to note that there is some ambiguity as to whether Category 2 or Category 3 is intended to apply in the case of an existing non-cancellable contract where the level of expected work to be done under that contract is known and anticipated but not contractually determined. This aspect is under consideration by Treasury.

E Pre-12 May 2010 joining times (plus post-12 May 2010 joining times where the relevant arrangement commenced before 10 February 2010)

F Transitional period: 12 May 2010 to 30 March 2011 joining times (also includes post-30 March 2011 joining times where the relevant arrangement commenced between 12 May 2010 and 30 March 2011, but excludes joining times where the relevant arrangement commenced before 10 February 2010)

Private Ruling or Advanced Compliance Agreement obtained Ruling or Advanced Compliance Agreement continues to apply.
PPLICATION OF AMENDMENTSA Normal four-year amended assessment period applies (ie no special protection from the amendments where an assessment has already issued). No interest or penalties will be payable on amended assessments resulting from these changes. Interest will, however, be payable to taxpayers on any associated refunds issued.
General position The provisions enacted on 3 June 2010 will continue to apply, subject to the following restrictions. (Note: it is confirmed that deductions in respect of consumable stores will continue to apply.)
Non-contractual assets akin to goodwill Deductions under s.701-55(6) will be precluded in respect of customer relationship assets, know-how, and other accounting intangible assets that are not regarded as separate CGT assets but are akin to or form part of goodwill. Deemed 'goodwill' treatment will apply.
Right to future income categories Deductions will be disallowed, and deemed goodwill treatment will apply to rights to future income where the value is contingent on the renewal or extension of the contract or the contract can be unilaterally cancelled without penalty by the customer. However, deductions will be confirmed in respect of Category 1 and Category 2 rights to future income.
Market valuation clarification In relation to s.701-55(6) and RTFI deductions, a market value clarification will be introduced prescribing that deductions cannot be claimed under a calculation where the relevant value can be regarded as forming part of the value of the underlying asset from which these income rights are derived.
Mine improvements To be excluded from deductions under s.701-55(6) (but it is noted that the ATO is currently determining whether a number of such mine improvements might more correctly be regarded as depreciating assets, and hence deductible under other provisions).

G Prospective period: post-30 March 2011 joining times (unless relating to an arrangement that commenced between 10 February 2010 and 30 March 2011)

Ability to amend assessments by either the ATO or taxpayers Normal four-year amended assessment period applies (ie no special protection from the proposed provisions where an assessment has already issued). As there is currently no statement regarding interest and penalties, presumably it is intended that they could apply to amended assessments increasing tax payable.
Limiting application of tax cost setting rules The tax cost setting rules will be limited to apply only to assets otherwise recognised for tax purposes (ie excludes s.40-880 deduction outcomes).
Consumables Deductions allowed (on an acquisition or usage basis, depending on taxpayers' circumstances).
Right to future income Deductions only to be obtained through a modified application of s.25-95, being 'work (but not goods) that has been partially performed ... but not yet to a stage where a recoverable debt has arisen'. In other circumstances, the right to future income asset will be taken to be a retained cost base asset – ie it will normally only have a low tax value.
Subsection 701-55(6): other applications In otherwise applying s.701-55(6), outcomes will be determined as if the relevant asset was being acquired directly as part of a business acquisition in determining whether such amounts are deductible, and if so over what period. Assets that cannot be separately sold by the joining entity (such as non-contractual customer relationships, knowhow and other accounting intangibles) will be specifically deemed to be goodwill.

H Consolidation/TOFA interactions (with retrospective application)

Clarifying that the head company is deemed to have acquired financial arrangements that are assets or liabilities from the joining entity at the joining time.
For TOFA liabilities of the joining entity the liabilities will be deemed to have been assumed for their accounting values (rather than original value). This will be the case irrespective of what TOFA methods the head company is subject to (i.e.accruals/realisation, financial reports, fair value, FX retranslation and hedging methods). The fundamental consequence of this change is to potentially deny the acquiring group deductions in relation to the TOFA liability assumed (i.e. up to the amount of the accounting value of the TOFA liability at the joining time). The consequences of this change are significant in relation to any corporate acquisitions from the commencement of the TOFA regime.
In calculating TOFA transitional balancing adjustment amounts (i.e. when a taxpayer enters TOFA) in relation to financial arrangements previously acquired as a result of a corporate acquisition only the "long-form" method will be able to be utilised (i.e. the "short-form" DTA/DTL method that is generally available to taxpayers that have elected to apply the financial reports method will not be available in relation to these financial arrangements). Furthermore, it is proposed that the various TOFA/consolidation interaction provisions will apply as part of calculating the transitional balancing adjustment amount under the "long-form" method. These changes have potentially significant implications in relation to pre-TOFA acquisitions for taxpayers that have elected to un-grandfather their existing financial arrangements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.