How to Use Holding Companies Under Division 615: A Guide for Accountants 

As accountants, you’re often tasked with helping clients optimise their corporate structures to ensure financial efficiency and tax compliance. One tool that can provide significant advantages is the holding company, especially under Division 615 of the Income Tax Assessment Act.  

Division 615 enables businesses to restructure without triggering immediate tax liabilities, making it a valuable strategy for clients looking to streamline operations or expand. 

In this guide, we’ll explore holding companies, their function in corporate restructuring, and how Division 615 can be leveraged to benefit your clients.  

 

Why your clients might establish a holding company 

A holding company is primarily formed to own shares in other companies rather than operate a business directly. 

It acts as the parent company, managing the assets and overseeing the operations of its subsidiaries while providing strategic control and financial oversight. 

For clients, setting up holding companies can bring advantages like streamlined management, tax consolidation, and asset protection. 

A holding group, meanwhile, is a network of businesses owned by a common holding company, enabling shared management, efficient operations, and consolidated tax responsibilities. This structure simplifies financial reporting and strengthens control over assets and liabilities. 

 

Why Division 615 is important for holding companies 

Division 615 facilitates corporate restructuring by allowing companies to form holding company groups without immediate capital gains tax (CGT) liabilities.  

This provision is essential as it enables smoother transitions and tax relief during consolidation. By deferring CGT when transferring shares or assets to a holding company, businesses can manage cash flow more effectively during restructuring. 

 

Key benefits of holding companies for your client 

When providing advice to clients about holding companies, it’s essential to emphasise the key benefits. As an accountant, your focus should be on: 

  1. Tax Efficiency: Holding companies under Division 615 consolidate tax liabilities, reducing the tax burden and improving cash flow during restructuring. 
  1. Simplified Management: Centralised management and reporting simplify financial statements and oversight. 
  1. Asset Protection: Isolating subsidiaries protects assets from business liabilities, minimising impact from financial difficulties. 
  1. Strategic Flexibility: Allows asset or share transfers between subsidiaries without immediate CGT, enabling strategic decisions without tax concerns. 
  1. Increased Investment Opportunities: Holding companies can facilitate investments in new ventures or subsidiaries, allowing accountants to guide clients in diversifying portfolios with minimal risk to existing assets. 

 

Applying Division 615: Key steps to follow 

For clients interested in restructuring under Division 615, the process is straightforward but requires careful planning. To qualify for the tax deferral benefits, your clients must meet specific criteria, such as: 

  • Ownership Continuity: The same shareholders must retain ownership across the original and restructured entities during the process, preserving tax benefits and compliance with Division 615 requirements. 
  • Asset Allocation: Assets or shares transferred must be part of a qualifying restructure to the new holding company, ensuring they remain within the structure without triggering immediate tax events. 
  • Corporate Structure: A compliant holding company group must be created, where the parent entity directly controls the shares of its subsidiaries, allowing efficient oversight and management. 

 

Common misconceptions about holding companies and Division 615 

A common misconception is that holding companies are only for large corporations. In reality, businesses of all sizes can take advantage of a holding company group to manage assets more effectively and improve tax efficiency. 

Some clients may question the efficacy of holding companies in mitigating financial risks. In reality, holding companies can effectively isolate risks within subsidiaries, thereby enhancing overall financial stability and protecting the parent company’s assets from potential liabilities. 

Clients might also think that creating a holding company is a complex process. However, with proper guidance, establishing a holding company group can be relatively simple and provide significant financial advantages. 

 

Legal considerations and compliance requirements for holding companies 

Accountants should be aware of several legal considerations and compliance requirements, including: 

  • Regulatory Compliance: Ensure that the holding company is established in accordance with the Corporations Act and other pertinent legislation, which involves proper registration and adherence to corporate governance standards. 
  • Liability Management: Understand the implications of maintaining distinct legal entities to effectively manage liability and mitigate risk exposure for the parent company. 
  • Tax Compliance: Advise on the tax implications associated with asset or share transfers, particularly concerning capital gains tax (CGT) deferrals under Division 615. 
  • Ongoing Obligations: Monitor compliance with statutory requirements, including accurate record-keeping, conducting regular audits, and adhering to corporate governance principles. 

 

Key takeaways 

Division 615 provides a unique opportunity to restructure without immediate tax penalties, offering a flexible and efficient way to manage business interests. 

Whether it’s reducing tax burdens, protecting assets, or simplifying financial reporting, a holding company group under Division 615 is a powerful tool for corporate restructuring. 

 

Total Compliance, Now with Prime Documents 

Our new Prime Documents platform makes incorporating a holding company seamless. Within minutes, you can establish a holding company and integrate compliance requirements using existing data. This streamlines the process, ensuring efficient restructuring while meeting Division 615 obligations. 

Reach out to us today to see how we can assist with your specific compliance requirements. 

 

Total Compliance. No one does it better.