Business advice
and accounting

Our purpose is to help you on your journey as you grow. Learn more about our history, partners and purpose.

Our purpose is to help you on your journey as you grow. Learn more about our history, partners and purpose.

Your partners for Business Service and Advisory, Taxation, Audit, Business Valuation, Forensic Accounting, Fraud & Risk and Business Valuation Services.

Whatever your business, industry or family office, from local or international institutions we bring extensive expertise.

We're one team with a purpose and passion for what we do. Learn about our culture and career opportunities available to you.

Uncovering insights, trends and inspiration to help business grow in an ever-changing world.

We are always looking for ways to engage and give back to our community.

Telephone: +612 9283 1666
Email: admin@esvgroup.com.au

Level 13, 68 York Street,
Sydney NSW 2000

Why us

Our purpose is to help you on your journey as you grow. Learn more about our history, partners and purpose.

What we do

Your partners for Business Service and Advisory, Taxation, Audit, Business Valuation, Forensic Accounting, Fraud & Risk and Business Valuation Services.

Who do we help

Whatever your business, industry or family office, from local or international institutions we bring extensive expertise.

Work with us

We're one team with a purpose and passion for what we do. Learn about our culture and career opportunities available to you.

What we think

Uncovering insights, trends and inspiration to help business grow in an ever-changing world.

Working to give back

We are always looking for ways to engage and give back to our community.

Contact us

Telephone: +612 9283 1666
Email: admin@esvgroup.com.au

Level 13, 68 York Street,
Sydney NSW 2000

Disclosure Changes Impacting Uncertain Income Tax Treatments

11 February 2020

by David Prichard and Emma Bryant

The term “uncertain” can have many meanings, however, it is vital that general purpose accountants understand and are aware of changes to the ATO’s definition of ‘uncertain’ as it relates to income tax treatments.

In recent years increasing scrutiny has been placed on disclosures in financial statements and corporate governance.  As part of this scrutiny the disclosure of taxation positions has come to the fore with companies often adopting differing positions between financial statements and tax returns.  As a result, Interpretation 23 Uncertainty over Income Tax Treatments has been released to provide guidance for annual reporting periods beginning on or after 1 January 2019.

Interpretation 23 provides guidance on how to apply the existing standard (AASB 112 Income Taxes) where there is uncertainty over the taxation treatment of a particular item or transaction.   The Interpretation provides guidance with specific reference to determining what “uncertainty” is when ascertaining whether there is an “uncertain tax treatment”. Put simply, “uncertainty” is whether a tax authority will accept a position under law.

The Interpretation essentially provides a new methodology to determine whether a matter is “uncertain”, and therefore needs to be disclosed.

Under the revised approach, entities must now assume that tax authorities with rights to examine and challenge treatments will examine them closely and possess full knowledge of relevant information.  As such, the measurement removes the unknown element of whether the tax authority will identify the issue and then have all the requisite information to make an informed decision.

Where an entity concludes that it is improbable that a taxation authority will accept an uncertain treatment, the effect of uncertainty needs to be considered in determining the disclosure of the position adopted.  Entities will now be required to measure the effect using the method that best predicts its resolution.

In addition to new matters being subject to the revised criteria, reassessment of existing positions is required on an annual basis, where there is a change of circumstances.

Any uncertain tax treatments must be documented and submitted for audit.  The Interpretation may also result in prepayments of tax in respect of uncertain tax treatments and how interest and penalties are accounted for in such circumstances.

The disclosure changes required may prove challenging for preparers whilst providing additional issues for audit committees and boards to consider.

If you need assistance in determining whether existing or new positions meet the disclosure requirements or assessing the correct tax treatment, please contact your ESV engagement partner on 02 9283 1666.