Tax consolidation in Australia: When multi-entity groups should (and shouldn't) consolidate

Published 9 March 2026

Table of contents

• What is tax consolidation?
• Who can form a tax consolidated group?
• Costs and benefits of tax consolidation
• When consolidation works and when it doesn’t
• How to form a consolidated group
• Simplify consolidation with Xero
• FAQs on tax consolidation in Australia

Key takeaways

• Tax consolidation lets eligible groups lodge one consolidated tax return, which can reduce admin and tidy up group taxation – but the choice is permanent.
• You’ll need an Australian-resident head company and wholly owned subsidiaries before forming a tax consolidated group.
• Benefits include using group losses to offset profits, avoiding double taxation, and simplifying franking. But you should weigh these benefits against setup and ongoing compliance costs.
• To set up for consolidation, model the ROI, get your systems aligned, choose your effective date carefully, and notify the Australian Taxation Office to make the process smooth.

What is tax consolidation?

Tax consolidation is an Australian tax measure that allows eligible wholly owned business groups to be treated as a single taxpayer for income tax purposes. In practice, this means that instead of each company lodging its own return, the group files one consolidated tax return through a head company.

Tax consolidation is designed to simplify group taxation by helping businesses:

• pool assets and liabilities
• transfer tax attributes (like losses) to the head company
• avoid double taxation on transactions between group members

So if you run multiple entities – like a services business with separate trading, IP, and investment companies – consolidation can make your tax obligations a lot smoother.

Who can form a tax consolidated group?

To be eligible to form a tax consolidated group, you’ll need:

• an Australian-resident head company
• at least one subsidiary that is 100% owned (directly or indirectly) by the head company
• all entities in the group to be companies

Only companies can join a tax consolidated group. Trusts and partnerships can’t be members, even if they’re closely linked to the group. That said, they can still operate alongside the group – for example, by holding assets and employing staff, or providing services – they’re just taxed separately.

There are also specific rules for multiple-entry consolidated groups (MEC groups), usually for groups with foreign top-holding companies.

If you’re unsure whether your structure meets the requirements, check the ATO’s ‘what are consolidations’ guidance – like this pathway of key steps to forming a consolidated group – or ask your tax advisor.

Costs and benefits of tax consolidation

Before choosing tax consolidation, it’s worth understanding the pros and cons on both sides of the equation.

Benefits of tax consolidation in Australia

There are plenty of upsides to tax consolidation:

• By consolidating your group losses, you can use losses from one entity to offset profits in another.
• There’s no more intragroup double taxation, where unrealised gains between group members are ignored for tax.
• Franking is simpler – you can centralise credits in the head company to make dividend planning easier.
• There’s only one tax return, which means less duplication and clearer oversight of the group’s tax position and compliance obligations.

Costs of tax consolidation in Australia

Tax consolidation is a permanent choice – once you consolidate, you can’t back out. Here are some other costs to keep in mind.

• Financial costs to consolidation: There are setup costs (because you may need agreements and tax-adjusted balances) and ongoing compliance costs (because you need to keep detailed records of tax cost bases and membership changes).
• Asset reset calculations can affect your capital gains tax (CGT): See this guide on capital gains tax for more information.

When consolidation works and when it doesn’t

Tax consolidation can be a good choice once the admin load or restructuring activities start causing friction for you. But it doesn’t suit every business group.

It works well when:

• you have multiple trading or service entities with profits and losses that fluctuate
• you want clean, centralised franking account management
• you plan to restructure, merge, or divest and want simpler internal transactions
• your business is complex enough that you’ll save hours by completing only a single set of tax records

But tax consolidation might not suit you if:

• you only have two small entities with minimal tax activity
• your group adds or removes entities often (see ATO rules for when entities leave a consolidated group)
• you prefer to keep each company’s tax position separate
• you want to keep entity-level visibility for reporting or investor purposes

How to form a consolidated group

Here’s a breakdown of the Australian Taxation Office (ATO) process.

1. Confirm your eligibility and head company

Check that your structure has an Australian-resident head company and all-company subsidiaries, with 100% ownership chains (meaning the head company ultimately owns every subsidiary, directly or through other group companies) and voting rights (so the head company controls decision-making across the group).

2. Model the tax impacts and ROI

It’s always best to run the numbers before you decide. Look at:

• Loss utilisation: whether losses in one company could be used to offset profits in another
• CGT asset resets: potential capital gains tax impacts when assets are brought into the consolidated group
• Future profits: how consolidation may change tax outcomes as the business grows
• Compliance time saved: fewer tax returns, reconciliations and deadlines to manage each year

Aligning your reporting can also help you forecast scenarios using cleaner data.

3. Prepare agreements and the effective date

You’ll need agreements that set out how the group shares tax liabilities and payments:

• A tax sharing agreement: to detail how each group member will contribute to the head company’s tax bill
• A tax funding agreement: setting out how members fund their share of tax liabilities, especially if profits and losses are shared unevenly
• Group member choices: each company decides whether to be a member of the consolidated group (usually done as a simple election that confirms they agree to join and be taxed under the head company)
• Documentation for the ATO effective date: providing the ATO proof of when the consolidation started for tax purposes

For more information on the specifics of becoming a tax consolidated group, check out the Australian Accounting Boards guide.

4. Standardise systems and charts of accounts

Bring all your entities onto consistent charts of accounts, accounting policies, and closing processes. This is a great time to align:

• tracking categories
• reporting formats
• bank rules
• chart templates

Once that’s done, you can expect much smoother consolidated reporting (and better bank reconciliation!).

5. Notify the ATO and lodge on time

Once ready, lodge the consolidation form through the ATO and file your first consolidated tax return for the head company.

Simplify consolidation with Xero

Getting multiple entities to work together smoothly starts with clear, consistent data. Xero helps you:

• Streamline reporting across entities. You can see all companies’ financials in one place with multi-entity dashboards.
• Standardise accounting processes. You’re able to apply shared charts of accounts and bank rules to keep each entity consistent.
• Create detailed reports and export data for deeper analysis. You can pull consolidated reports or export data for modelling and forecasts.
• Simplify your compliance workflows with clever automations. You can automate reconciliations and reminders, as well as tax reporting to stay on top of deadlines

Get one month free

FAQs on tax consolidation in Australia

Here are some common questions SME groups ask when deciding whether to consolidate.

What are the main benefits of tax consolidation?

The biggest wins include offsetting group losses, eliminating intragroup double taxation, and simplifying franking accounts and tax lodgements. You also get clearer visibility over whole-of-group performance. There are drawbacks, too – consolidation is generally permanent, and setup and compliance can be complex. Always talk to your tax advisor before committing to consolidation.

Who must file a consolidated tax return in Australia?

Only groups that choose to consolidate their taxes need to file a consolidated tax return. If you don’t elect to consolidate, each company files its own return.

Does consolidation affect franking credits?

Yes, and usually in a way that makes the admin load lighter. Franking credits are pooled in the head company, making dividend planning simpler and helping you avoid inconsistent balances between entities.

How are carry‑forward losses treated in a consolidated group?

Losses from subsidiaries transfer to the head company if they meet the ATO’s loss transfer rules. Some losses may be limited depending on ownership, continuity, or use tests. The ATO has more guidance on losses in consolidated groups.

Can trusts or partnerships join a tax consolidated group?

No, only companies can be members of a tax consolidated group. However, trusts and partnerships can still work with or provide services to the group and hold assets, as well as receive income from group entities – but their financial activity is reported separately on their own tax returns, rather than being included in the group’s consolidated tax return.

How far back can the ATO review a consolidated group?

Generally, the standard amendment periods apply, but certain consolidation events (like entities joining or leaving) can extend the review periods. See ATO guidance for specific details.