Large private companies will be required to disclose contentious tax positions to the ATO. Are your systems and processes compliant?

By Greg Nielsen - December 18, 2019

Large private company groups will be required to complete the Reportable Tax Position ("RTP") schedule for income years beginning on or after 1 July 2020. The RTP schedule requires taxpayers to report their most contestable and material tax positions to the Australian Taxation Office ("ATO"). A proper tax risk management system can ensure that your company reviews positions so that you do not have contestable positions that require disclosure. Pitcher Partners has been heavily involved in consulting with the ATO over the timing and scope of the expanded regime and can help you review your tax risk management protocols which will need to be in place by 1 July 2020.

What does the regime involve?

The regime requires affected taxpayers to lodge a RTP schedule.  The information gathered from the schedule highlights the tax risks for a taxpayer and enables the ATO to tailor future targeted reviews and audits of the taxpayer.  

What type of information needs to be reported?

The 2019 RTP schedule (required to be lodged by large public and foreign owned groups) identified three categories of disclosures – Categories A, B and C.  While it is expected that the disclosures required by large private groups will be substantially, the detail is still the subject of consultation with the ATO. 

The three categories of disclosures required by large public and foreign owned groups are: Category A: described as material positions where the treatment adopted for tax purposes is more likely than not correct (i.e. the position is about as likely to be correct as incorrect or is less likely to be correct than incorrect), Category B: described as material positions where uncertainty about the outcome is disclosed in your or a related party's financial statements and Category C: arrangements set out in a list maintained by the ATO where disclosure is required regardless of materiality.  A copy of the 2019 schedule and instructions can be found here.   

Which taxpayers need to complete a RTP schedule?

Large private groups will be required to self-assess the obligation to lodge a RTP schedule by reference to criteria that are still the subject of consultation with the ATO.  Initial guidance indicates that, consistent with those applicable to public and foreign owned companies, private companies that have total business income of more than $25 million and are part of an Australian economic group with total business income of more than $250 million will be required to lodge a RTP schedule. 

Due to delays in finalising the lodgement criteria, the ATO announced on 11 December that RTP reporting obligations will start for income years beginning on or after 1 July 2020 for affected large private companies and groups.  Thus, an “early balancer” – a company with a substituted accounting period ending before 1 July 2020 – will not be required to file a RTP schedule as part of the 2020/21 income tax return. 

Tax governance 

In line with the ATO’s published views on tax governance, there is an expectation that large private groups will have processes in place to ensure that management and the Board are aware of positions that fall outside the ATO’s guidance.  These processes are key to identifying disclosures required on the RTP schedule. 

What are the next steps?

It will be important that companies that fall within the current criteria for lodgement of a RTP schedule assess existing tax governance processes and determine what disclosures may be required.  Taxpayers should ensure that their tax governance processes are sufficient to enable them to properly deal with the RTP schedule from 1 July 2020.  As work needs to be done before that date, it is prudent that taxpayers start to engage in this process as soon as possible. 

Clients should contact their Pitcher Partners representative to review their situation and determine what action is required well before 30 June. 

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