New Australian Income Tax Reporting Requirements
From the Australian 2012 fiscal year on, some companies operating in Australia may be required to provide significantly more information to the Australian Taxation Office when lodging their Australian income tax returns. The new reporting requirements will be particularly relevant for Australian subsidiary companies or branches of non-Australian corporations.
Companies may be required to complete the following new tax schedules for inclusion in their Australian income tax returns:
International Dealings Schedule
The IDS will replace the existing Schedule 25A and Thin Capitalisation Schedule for all taxpayers (companies, trusts and funds) for the fiscal year ending 30 June 2012 onwards, including those early-balancing entities with a substituted accounting period. For example, a taxpayer with a 31 December 2011 year end will be required to complete the IDS for their 2012 tax return.
Previously the IDS applied to large financial services entities, however, the Australian Taxation Office has indicated that the IDS will become mandatory for all taxpayers.
Based on the current 2011 IDS, it would seem that the Australian Taxation Office is using this schedule to obtain much more detailed and extensive information about an entity's international dealings. At present it is not known how the 2012 IDS will differ from the earlier versions of this schedule, however, it is reasonable to assume that the 2012 IDS will be more extensive than previously.
Materiality is a key concept in the development of the 2012 IDS, whereby thresholds will be introduced to ensure that only material issues are covered.
One area of concern for taxpayers is the question that asks about the existence of sufficient transfer pricing documentation, and whether or not it can be relied upon to make a reasonable assessment of whether international related party dealings comply with the arm's length principle.
Our experience is that may entities lack sufficient Australian compliant transfer pricing documentation, so it seems that this area of compliance will become a focus going forward.
Reportable Tax Position Schedule
The RTPS is a completely new schedule to the company income tax return that will allow large businesses to disclose their most contestable and material tax positions.
This schedule will apply to companies with income years starting on or after 1 July 2011. Therefore, for companies with substituted accounting periods, it will first apply for the year of their accounting periods ending after 30 June 2012.
Initially, it is proposed that the RTPS will required from only those taxpayers to which the Australian Taxation Office has specifically written advising that they must lodge it. These are taxpayers which are part of the largest economic groups.
Aside from completing an RTPS, other acceptable means for disclosing reportable tax positions include an Annual Compliance Arrangement (ACA), an Advance Pricing Arrangement (APA), in a private ruling application and in a Reportable Tax Position Early Disclosure form.
A reportable tax position is a position that is any of the following:
A material position that is about as likely to be correct as incorrect or less likely to be correct than incorrect;
A material position in respect of which uncertainty about taxes payable or recoverable is recognised and/or disclosed in the taxpayer's or a related party's financial statements;
A position in respect of a reportable transaction.
For this purpose, position means the effect for taxation purposes given to particular circumstances, arrangements or transactions as reflected in the statements made in the income tax return lodged.
A position is material if the potential adjustment is equal to or exceeds the lesser of :
A reportable transaction is a transaction or arrangement as a result of which :
The capital proceeds from the transaction or arrangement exceed AU$200m, and
A capital gains tax event happens for the taxpayer during the current year, and
The taxable capital gain or the capital tax loss from the event is respectively less or more than 50% of the accounting gain or loss, and
The difference between the taxable gain or loss and the accounting gain or loss is material, as defined above.
HLB can Assist You with International Tax
If your business operates internationally, a good understanding of the income tax consequences can help you to manage the global tax expense and avoid costly mistakes. HLBI's tax specialists in over 100 countries worldwide can assist you with international tax planning and compliance. Visit www.hlbi.com or contact your local HLB office for more information.
For further information please contact our tax expert:
Representative: Neil Wickenden - HLB Mann Judd
Tel: + 61 - (0)2 - 9020 4000
About HLB Mann Judd
The HLB Mann Judd Australasian Association consists of 8 member firms and 3 representative firms and has approximately 90 partners and around 700 staff members. It represents a group of specialists providing business advice and services to a wide range of business organisations and private clients. As members of HLB International, HLB Mann Judd firms are part of a world-wide network of respected accounting firms.