GREIT12130 - Group conditions and rules: Financial Statements: G (property rental business) and G (residual): other entities treated as opaque
The activities of entities other than group members are
reflected in the financial statements for G (property rental
business) and G (residual) in one of two ways, depending on nature
of the vehicle and the level of influence members of the group have
over it. One way broadly treats the entity as opaque: the other
treats the wrapper as transparent and takes account of the
activities carried on by the entity (see
GREIT12135).
For entities that are treated as opaque, the value of the
group’s interest in the entity is shown as an asset of G
(residual) and payments made by the entity are shown as income of G
(residual). It does not therefore matter what activities are
undertaken or what kind of assets are owned by the entity.
This treatment applies to the following entities:
- any entity in which members of the group do not have ‘significant influence’ (broadly, owning 20% or less of the entity – see GREIT12145);
- companies other than
- members of the group, as defined in section 134(2) FA 2006 (i.e. they are not 75%/ effective 51% subsidiaries of the principal company of a Group REIT);
- joint venture companies in respect of which a joint venture look-through election is in place (see GREIT13020); and
- OEICs.
This means that some entities that are treated as transparent
for tax purposes will be treated as opaque in the preparation of
the financial statements of G (property rental business) and G
(residual). However, this treatment of the income arising and of
assets held by the entity for the Balance of Business Conditions
does not extend to calculation of tax-exempt profits.
For example, a member of a Group REIT has a 10% interest in a
partnership that owns a property, valued at 1,000 and generating
rental profit of 60 and with cash on deposit of 400, yielding
interest at 5%. The financial statement G (residual) will show an
asset valued at 140 (being 10% of 1,000 + 400) and income of 46
(being 10% of 400 + 60) in respect of the interest in the
partnership. The group member with the interest in the partnership
will have tax-exempt property rental income of 40 and taxable
interest of 6 from the partnership.
The table at
GREIT12140 summarises the treatment of
various types of vehicles.
