Is it possible to pay $nil?

Is it possible to pay $nil?

Peter Mallyon, Corporate Tax Partner, discusses the context of clear exit payments and the possibility of a $nil payment.

Partner, Tax

KPMG Australia


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There has been some uncertainty for a number of years as to whether it is possible make a payment of $nil. In the context of clear exit payments, an entity can leave a tax consolidated group clear of any group liability if, before the leaving time, the leaving entity pays to the head company an amount equal to the leaving entity’s contribution amount.

In Practice Statement PS LA 2013/5, the Commissioner seems to acknowledge the uncertainty of whether it is possible to make a payment of $nil by stating:

If the contribution amount … that otherwise would be required to be paid to the head company under section 721-35 of the Income Tax Assessment Act (ITAA) 1997 is determined to be 'nil', then no payment is necessary to allow the exiting entity to leave the group clear of the relevant group liability. However, documentation demonstrating the calculation of the 'nil' amount would need to be retained to support the assertion of a clear exit should that claim later need to be proved to the Commissioner or a court.

There appears to be legislative acknowledgment in the foreign resident capital gains withholding provisions that $nil is “an amount” and that prima facie, there could be an obligation to “pay” that amount.

Section 14-200 of the Tax Administration Act (TAA) 1953 creates an obligation to pay the Commissioner 10 percent of (broadly) the purchase price of taxable Australian property that has a market value of greater than $2 million. Failure to pay “the amount” (even if nil) could prima facie result in strict liability penalties under Division 16 of the TAA 1953. However, section 14-200(4) negates the obligation to pay the amount if the amount that would otherwise be payable is nil.

Section 14-200(4) may amount to legislative acknowledgement that it is possible to pay a nil amount. If so, this may provide additional comfort that a legislative clear exit can be obtained under section 721-35 through a nil “payment” (in addition to the administrative comfort provided by the Commissioner). However, in the absence of making a clear exit payment of at least $1, taxpayers are likely to remain reliant on the Commissioner’s administrative practice.

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