Holding/Parent Companies versus Sister Companies

We are sometimes asked whether a “Holding/Parent Company” structure, or a “Sister Company” structure is recommended.

What is a Holding/Parent Company?

A holding/parent company is owned by the ultimate shareholders, let’s say James and Jill with each owning 50% of the shares in the holding/parent company.  The holding or parent company then owns 100% of the shares in a number of subsidiary companies.

What is a Sister Company?

A sister company structure occurs when two or more companies have identical shareholdings.  For example, if James and Jill each own 50% of the shares in Company A, Company B and Company C then Companies A, B and C are called sister companies.

Advantages of a Holding/Parent Company?

  • Simpler structure allowing investment in a larger number of different companies
  • Centralised management and control of subsidiaries
  • Easier to introduce new investors into the group
  • Facilitates sharing of resources between group companies
  • The holding company can obtain bank funding and on loan to subsidiaries
  • Allows movement of capital between the group without dividend implications
  • Some tax planning advantages, such as no “associated personal capital gains”, no deemed dividends, group companies can be taxed as a single company (as can sister companies)
  • Easier to ensure group tax status is not lost.

Disadvantages of a Holding/Parent Company?

It may be unclear whether a holding company is entitled to deduct costs incurred on behalf of its subsidiaries, for example administration costs and general head office expenses. These expenses will only be deductible if they are either:

  1. Incurred to gain or produce assessable income. Dividends from the subsidiaries will not be taxable if the holding company holds 100% of the subsidiary, and in any event, the connection between the expenses incurred and the dividend income may be remote.


  1. Are incurred in the course of the company’s business. It is not clear that a holding company necessarily does have a business as such, or whether it is merely an investor (which could also create GST leakage issues).

It is preferable for the parent company to charge an explicit management or administration fee which should be deductible to the subsidiary.   However, there could potentially be personal services attribution issues if James and Jill personally provide the management services.

A holding / parent company structure can also be more expensive as there will be an additional company for financial reporting and consolidated financial statements may also be required.

A holding / parent company structure makes extraction of capital gains in subsidiaries more difficult and complicates the introduction of employee share schemes.

Advantages of a Sister Company?

Most, if not all, of the tax benefits applying to holding/parent companies also apply to sister companies.  However, some tax issues, such as shareholder salaries, are easier to handle out of sister company structures.

Sister companies are also the preferred structure if one subsidiary is sold to a third party as the capital gain is easier to extract, or if key employee(s) are invited to become shareholders of one of the companies.

“Head Office” Services

If a holding/parent company structure is used then we recommend that a range of “head office” services are provided.

These could include administration and management, treasury functions for the group, perhaps owning the fixed assets which are leased to subsidiaries, and owning the intellectual property.


A holding/parent company structure is better for larger corporate structures while sister companies are usually better for smaller or family owned enterprises.

Group registration for GST is often helpful for any group structure as this overcomes tricky timing issues on inter-company charges such as management fees.

Getting the company structure right at the outset is one of the most important business decisions you can make, as getting it wrong can be costly.  We definitely recommend taking expert advice.

“The hardest thing in the world to understand is the income tax.”

Albert Einstein

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