Companies that are required to lodge a RTP
From the income year commencing July 2021, large private companies will be required to lodge a reportable tax position (RTP) schedule as part of their income tax returns. The private companies that will fall within this regime are those that either:
The ATO’s definition of an “economic group” includes all entities (i.e. companies, trusts, partnerships etc.) under an ultimate holding company or ultimately owned by an individual, trust or partnership. The total income of the economic group is the sum of 'total income' labels reported in the relevant tax returns. This includes all Australian sourced income and foreign income of Australian resident entities but does not include foreign income of foreign entities.
What is a RTP disclosure?
The disclosable tax positions are identified under 3 categories:
Category A is where, considering relevant authorities, you consider the position taken is either about as likely to be correct as incorrect or less likely to be correct than incorrect.
Category B is a position where uncertainty about taxes payable or recoverable is recognised or disclosed in your entity (or both), or a related party's, financial statements.
Category C is one where you must identify specific reportable arrangements listed by the ATO (not necessarily material).
What is the purpose of the RTP?
The RTP schedule supports the ATO’s Next 5000 and Top 500 programs and it is used to attain justified trust on a taxpayer’s tax position. The ATO uses the RTP schedule to:
- tailor engagement with taxpayers to resolve concerns and provide assurance in relation to high-risk arrangements
- improve its understanding of the risk profile of taxpayers
- identify where further clarification or certainty of the correct tax treatment of complex high-risk arrangements and transactions is required
- better understand tax risks across the large business population.
Planned Category C questions for 2020-21
If your entity is a private company that is the head entity of a consolidated group, did any of the consolidated group members (including the head entity) make a loan to the head entity's shareholders or their associates that are external to the consolidated group where all of the following apply:
- the loan is not compliant with the terms of 109N
- the loan was not repaid by the lodgment date
- no statement has been provided to the recipient advising of a deemed dividend.
- We are interested in loans made by members of consolidated groups to shareholders (or shareholders' associates) outside the consolidated group, in the current income year. For more information refer to: Taxation Determination TD 2004/68 and Taxation Determination TD 2018/13.
Has your entity been part of an arrangement described by either subcategory below?
Subcategory 1: Your entity has subscribed for a controlling share of units in a unit trust (where they did not own a controlling share in the prior year), which had a debt to another party that was the trust’s associate before the subscription and where the proceeds of the subscription were used to repay the debt?
Subcategory 2: Your entity has or had an associate unit trust which, in the current or four previous income years, transferred assets into a second unit trust relying on CGT rollover relief under Subdivision 126-G of ITAA 1997, and where the unitholding(s) in the second trust has subsequently changed to the extent that it is no longer your associate.
Refer to Taxpayer Alert TA 2019/2 for further guidance.
If your entity is a private company and more than 10% of your issued shares are owned by a single shareholder acting as a trustee of a trust, do either of the subcategories below apply?
Subcategory 1: There was a change of trustee during the year that was not in connection with a trust split, or your entity does not know if there was a trust split.
Subcategory 2: There was a change of trustee during the year that was in connection with a trust split.
Refer to Taxation Determination TD 2019/14 for further guidance.
In the current or four prior income years, has your entity, or an entity your entity controls, claimed a full credit or offset for foreign income tax paid where less than 100% of the related foreign income (including capital gains) is included in their Australian assessable income?
The RTP schedule is part of the company tax return and is required to be lodged by the due date of your company's tax return.
Administrative penalties may apply if you:
- make a false or misleading statement (this includes omitting information such as not disclosing a reportable tax position)
- fail to lodge on time.
What to do?
The identification and assessment of RTPs in accordance with ATO guidelines is a potentially time consuming and difficult task. There will need to be careful consideration of positions and compliance with questions in each of the categories, and extra care should be taken in complying with the RPT schedule disclosures due to the potential for penalties.
We are able to assist larger private companies and their accountants with the RTP schedule compliance process.
Contact our tax team
ABL is the tax controversy sector leader in end-to-end management of taxation disputes and litigation arising from ATO compliance activities and audits. If you have identified issues or would like assistance in reviewing risks or uncertainties, please contact one of our team members below.