Growing Disclosure Requirements
The ATO has recently announced that they are extending the ,already existing, onerous disclosure requirements for corporate entities by extending the obligation to lodge the Reportable Tax Position (RTP) schedule to companies in economic groups that have a turnover of greater than A$250M.
The change in disclosure requirement comes into effect for income years commencing on or after 1 July 2017 or in other words for income years ending on or after 30 June 2018. The company will receive written notification if it will be required to complete the RTP with notifications beginning to be issued in August.
An RTP schedule requires a taxpayer to provide a variety of information to the ATO if certain positions are adopted in the income tax return or in the financial statements. These are grouped into three categories as follows:
Category A – Tax Uncertainties in the Tax Return – this category applies where a material position that is about as likely to be correct as incorrect, or less likely to be correct than incorrect, having regard to relevant authorities is adopted in the tax return. Materiality is based on the methodology provided in the RTP guide.
Category B – Tax Uncertainties in the Financial Statements – a material difference between positions disclosed in the financial statements of the entity or a related party and the income tax return. This exists where there is a material uncertainty about taxes payable or taxes receivable in the financial statements. Again, materiality is based on the RTP guide.
Category C – Reportable arrangements – this category differs from the other two categories in that it does not have a materiality threshold. This category seeks to identify transactions or arrangements that have normally been the subject of Taxpayer Alerts. The items captured in this category are constantly updated and are detailed in the Guide to Reportable Tax Positions.
When disclosing RTPs, taxpayers will need to outline any arrangements, circumstances and transaction of the position and the position taken on the company’s income tax return.
The RTP schedule forms part of the ATO’s ever increasing network of information gathering sources and will be used by it to focus its compliance activities. This along with CbC reporting and other compliance activities focused on corporates illustrates the ATO’s increased focus in this area.
While the schedule does not need to be completed until lodgement of the 2018 or 2019 tax returns for early balancing taxpayers, it would be best practice for taxpayers to formulate a work plan now to reduce and manage potential RTP disclosures, as well as consider how to disclose tax matters in their financial statements.
Should you require assistance in relation to this matter or would like additional information, please call your relevant ESV engagement partner on 02 9283 1666.