ATO focuses in on private company tax issues

Larger private groups are about to come under even more scrutiny from the Australian Taxation Office (ATO).

The ATO has announced that it’s now notifying larger private companies that they will be required to lodge the Reportable Tax Position (RTP) schedule with their income tax return for the 2020/21 financial year.

This significantly expands the tax disclosures that private companies need to make and will materially increase the possibility that the ATO will identify tax risks in a private group and select them for audit.

Private groups should view this as an opportunity to reassess the potential tax issues in their group and improve their approach to managing them.

The RTP is required to be lodged by private companies that have total business income for 2018/19 of either:

  • $250m or more; or
  • $25m or more and are a part of a private economic group with total business income over $250m.

This information is based on the 2019 tax returns.

Public companies and foreign owned companies are required to self-assess the need to lodge the RTP schedule for the 2020/21 income year. Large private companies will be required to self-assess their lodgement requirement from the 2021/22 income year.

There are three categories of RTP that need to be considered:

  • Category A – A position disclosed in the taxpayer’s income tax return that is as likely to be correct as incorrect, or less likely to be correct than incorrect
  • Category B – A position where uncertainty about taxes payable or recoverable is recognised and/or disclosed in the taxpayer’s or related party’s financial statements; and
  • Category C – A reportable arrangement, being any arrangement identified and listed by the ATO as high-risk.

The company and its public officer will need to be able to demonstrate that they have a reasonable basis for the disclosures they make in the RTP schedule.

Even if no RTPs are identified, the RTP schedule still needs to be lodged disclosing this “nil” position.

In addition to the 26 Category C arrangements that public companies and foreign owned companies are required to consider, private companies will also be required to consider four additional arrangements:

  • Division 7A focused arrangements, where loans are made to shareholders from subsidiary companies
  • CGT focused arrangements, where assets are transferred to a unit trust prior to disposal to a third party
  • Trustee shareholder focused arrangements including change of trustee and trust splitting; and
  • Foreign income tax offset arrangements where a credit is claimed in respect of tax paid on a foreign income or capital gain.

These disclosures reflect the four key tax risk areas identified by the ATO for private groups:

  • Division 7A (shareholder loans)
  • Business sales
  • Trusts; and
  • International transactions.

Additionally, there are a range of other risk areas that apply to both public and private groups. Key among these is transfer pricing. If a taxpayer does not have contemporaneous transfer pricing documentation that meets the requirements of the Australian tax laws, this will need to be disclosed to the ATO in the RTP schedule.

If you need to lodge a RTP or have concerns over potential tax risks in your business, please contact us.

ATO focuses in on private company tax issues

Greg Travers

Greg is the national leader of the Tax Services division. Recognised as one of Australia’s leading tax advisors, Greg has assisted countless businesses, individuals and families to deal with the often difficult situation of an ATO or State Revenue audit. Greg also specialises in international tax working with overseas businesses as they set up and operate in Australia, and assisting Australian businesses that are venturing overseas.

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