Large Business Bulletin: November 2011
Large Business Bulletin: November 2011
Downloading the bulletin
From the Deputy Commissioner, Large Business and International
Welcome to the latest and final edition of the Large Business Bulletin for the year.
2011 has been a busy year for us here at the Australian Taxation Office (ATO). We have continued our work on implementing our risk differentiation framework (RDF) and notifying you of your company's risk categorisations across income tax, excise and GST. In consultation with you, we have also developed a new schedule for the 2012 company tax return. The Reportable tax position (RTP) schedule will ask certain large businesses to disclose their most contestable and material tax positions that have not been disclosed elsewhere. Updates on the work we are doing on both the RDF and the RTP schedule are included in this edition.
In our lead article we take a closer look at Annual Compliance Arrangements (ACAs) and the benefits and flexibility they can offer your company. ACAs offer a great opportunity for us to improve relationships and work in partnership to reduce your compliance costs and provide practical certainty quickly.
In this edition, we reflect on the key achievements from our Large Business Advisory Group (LBAG) for 2011. As always the contributions of the LBAG have been honest and insightful and we look forward to continuing this strong relationship in 2012.
As this is our final edition for 2011, I would like to take this opportunity to wish you all a safe and happy holiday period. I look forward to continuing our work with you in 2012.
Large Business and International
Australian Taxation Office
Locking in practical certainty
Annual Compliance Arrangements (ACAs) provide you as a large business taxpayer with more certainty and timely advice surrounding your individual tax position.
We are inviting any business classified as a 'key taxpayer' under the RDF, to consider entering into an ACA with us. We believe there is much to be gained from this program and it will help in maintaining our cooperative relationship.
An ACA is an administrative arrangement between us that defines and governs our compliance relationship. It has the advantage of providing real time practical certainty and is built on sound corporate governance, early dialogue and mitigation of tax risks. The key concepts of an ACA are that you have sound tax risk management processes and there is full and true disclosure of material tax risks.
Choosing to be in an ACA enables you to manage your planning and compliance from a position of greater certainty, with 'no surprises' if material risks have been disclosed.
There is no doubt that for ACAs to work well there needs to be a level of trust. Trust on your part that we won't just start auditing any issues raised with us and trust on our part that what is being disclosed is appropriate, full and true.
There are a number of benefits of ACAs, including:
- speedier resolution of technical issues
- administrative solutions to resolve compliance irritants
- centralised points of contact and ongoing dialogue on technical matters
- closure of prior periods, including legacy issues
- concessional treatments of penalties and interest
- a plan outlining agreed processes and timelines
- possible extension of thresholds for correcting GST mistakes.
On 7 September 2011, the Inspector-General of Taxation (IGT) released his report outlining the review of our large business risk review, audit policies, procedures and practices.
We welcomed the report and acknowledge the value of the recommendations to help us improve the way we manage the tax system for large corporate taxpayers.
We are well progressed on implementing activities to address the concerns raised. To ensure that we have adequately responded to the issues, we have consulted with the IGT regarding the implementation strategy for each recommendation. Many of these relate to:
- improving transparency of our risk review and audit processes
- enhancing relevant assurance processes and better engagement
- better communication from us to large market stakeholders.
We are in the process of implementing many of the recommendations, including:
- publishing the Information gathering in the large market paper on our website
- consulting with the LBAG to enhance the RDF risk categorisation process
- developing a process for independent review of position papers where the taxpayer disagrees with specific issues
- enhancing assurance processes including monthly reporting to reflect the issues raised by the IGT; for example, refinement and communication of the risk hypothesis, better taxpayer engagement, and enhanced case reviews (referred to as case callovers) on risk review and audit cases.
We are committed to addressing all of the concerns that were raised by taxpayers and the IGT. We will continue to work with the IGT and key stakeholders, including the LBAG, to implement the recommendations outlined in the report.
For a copy of the full report, visit the IGT's website at www.igt.gov.au
The draft Reportable tax position (RTP) schedule for the company tax return and updated guidance material is available on our website at www.ato.gov.au/rtp
You only have to complete this schedule if your company has received a notification that it must do so. These notices were sent to 56 lodging companies during June 2011. If you have not received a notice, you will not have to complete the schedule this year.
You will be able to use the final schedule to disclose your most contestable and material tax positions that you have not otherwise adequately disclosed to us before lodging your company tax return.
During 2011, meetings were held with the LBAG and National Tax Liaison Group (NTLG) RTP working group to seek advice in the development of the schedule and the associated definitions.
Selected consultation will continue in the coming months to further refine the schedule.
You should note that the schedule is still in draft form and some physical layout changes will occur before it is produced as a Tax Time 2012 publication.
We will continue to keep you updated through our Large Business Alert system and future editions of the Large Business Bulletin.
To subscribe to the Large Business Alert, email us at LargeBusinessAlert@ato.gov.au
Positions which have already been disclosed to us do not have to be included in the schedule. If you have an ACA, you will not need to fill out the RTP schedule because you will have previously disclosed the position to us as part of our ACA relationship.
As outlined in the September edition, we have been writing to all large businesses to share our view of their risk categories for income tax, GST and excise.
This is part of our efforts to be more transparent about our views and to encourage greater levels of willing participation.
The Chief Executive Officer or Public Officer of the business should expect to hear from us by December.
We have also met with tax managers of some of the largest businesses to explain our views and discuss how we can work together to resolve any concerns.
We want to make sure senior levels within each company understand our view of their tax risks and why any audits or reviews are needed.
Our approach is to have open and cooperative relationships with you. We think that sharing our view of the relative risk is vital to encouraging voluntary compliance. By explaining our thinking, we hope to build trust and cooperation.
We have already seen a positive response from businesses about our willingness to be open and transparent about our views. We believe the increase in voluntary disclosures is an example of cooperative compliance at work.
Some businesses have also been invited to enter into cooperative compliance arrangements with us, such as our flagship ACAs. These arrangements provide greater practical certainty and relief from low-risk audits - a 'no surprises' approach that benefits us both.
We welcome your feedback to improve the effectiveness of our approach. We will continue our consultation with the large market through forums such as the LBAG.
Our annual compliance program was released on 30 June 2011 by Michael D'Ascenzo, the Commissioner of Taxation.
Mr D'Ascenzo said:
The Compliance program is aimed at supporting and protecting the community, and outlines what we consider to be current risks and the actions we are taking to address our concerns. The majority of us do the right thing. Those who deliberately do the wrong thing face serious consequences for their actions, including penalties and possible criminal prosecution.
Areas of focus for the coming year include:
Tax and capital losses
We are testing for claims that do not:
- have economic substance
- reflect genuine commercial arrangements
- meet the continuity-of-ownership or same business test.
Inappropriate outcomes involving consolidations
We are initiating reviews and audits relating to:
- mergers and acquisitions
- other transactions or business activities.
We will continue to monitor developments in relation to the Board of Taxation review into the rights to future income and residual cost setting rules.
Private equity - leaving Australia
We have issued four tax determinations to provide greater clarity about private equity exiting Australia. These determinations set out:
- what we look for in determining an Australian source to profits
- whether those profits are assessable income
- when our anti avoidance rules can apply
- how we will pass on any applicable tax treaty benefits to foreign investors.
We have sent letters to private equity firms reinforcing our positions as set out in the determinations and requesting they engage with us to provide certainty when disposing of Australian target companies. We are also presenting information sessions to advisers, private equity firms, industry representative bodies, chartered accounting firms, legal firms and government stakeholders on our views in this area.
We are currently conducting compliance projects dealing with:
- business restructures
- guarantee fees and intra-group loans
- multi-national enterprises with consistently poor profit outcomes
- services to the mining industry.
Conduit arrangements/debt generators
Conduit arrangements seek to exploit debt deductions associated with offshore equity investment with no commensurate assessable income. We will be vigilant in detecting and dealing with any schemes or arrangements entered into for the purpose of obtaining these tax benefits.
We will continue to identify and deal with new risks as they emerge in the large market.
The Large Business Advisory Group (LBAG) is our peak forum for consulting with large businesses. Members are large businesses from various sectors, key industry and representative peak bodies and our senior officers. LBAG members meet quarterly to discuss current tax and operational issues and help us to understand the needs of the large market.
The LBAG is a valuable forum for consultation, collaboration and co-design of large market products. For example, members were part of the working party to co-design the Large business and tax compliance booklet, launched in June 2010.
In 2011, LBAG members also consulted with the corporations law amendments working group. This was to identify potential priority tax issues arising from amendments to the Corporations Act 2001 and co-designed guidance material on these.
We are currently engaging with members on our following initiatives:
- increasing electronic interactions in the large business market
- shaping our approach to implementing the RDF
- new resource rent tax arrangements.
Minutes from LBAG meetings are available on our website. The last meeting for 2011 was held on 14 November in Sydney.
We are committed to working with the large market to improve our tax system. The LBAG is a valuable forum that canvasses your experiences and gives us the opportunity to co-design responses to the challenges and identify opportunities for large business.
The research and development (R&D) tax incentive provides generous benefits for eligible R&D activities that benefit Australia.
The new incentive replaced the R&D tax concession for income years starting on or after 1 July 2011. The incentive has two core components:
- a 45% refundable tax offset for certain eligible entities with an aggregated turnover of less than $20 million per annum - unless they are controlled by tax-exempt entities
- a 40% non-refundable tax offset for all other eligible entities.
More generous benefits
Malcolm Allen, Assistant Commissioner, Large Business and International, said:
The R&D tax incentive provides a significant benefit to entities investing in R&D. The refundable R&D tax offset is equivalent to a 150% tax deduction for most small and medium entities and the non-refundable R&D tax offset is equivalent to a 133% tax deduction for all other eligible entities.
The new program also includes an increase in allowable overseas R&D activities where they are covered by a finding by Innovation Australia.
Eligible entities will be able to claim the new R&D tax incentive for their expenditure on eligible R&D activities regardless of where the resulting intellectual property is held.
What stays the same?
Many aspects from the previous program, the R&D tax concession, continue under the new program. It continues to be jointly administered by us and AusIndustry (on behalf of Innovation Australia).
Participating entities need to maintain sound record-keeping practices and be able to verify eligible R&D activities and your eligible expenditure.
For more information about the R&D tax incentive:
Innovate and grow - did you know that innovative businesses undertaking R&D are twice as likely to be successful and contribute to growing a stronger Australian economy?
Processing system upgrade for PAYG and FBT instalments
In late December 2011, we plan to upgrade our processing system for pay as you go (PAYG) and fringe benefits tax (FBT) instalments. We expect the impact to be relatively minor. The upgrade is planned to occur during our regular Christmas closure.
Over the coming weeks, we will let you know how this upgrade will affect:
- our systems availability
- our form processing
- what you might see when you receive an instalments notice.
Online access manager is changing
Early next year, online access manager (OAM), used to manage access and permissions in our online services such as the Business and Tax Agent Portals, will be replaced with a new stand-alone system, Access Manager (AM). This change will be automatic and will not require any action by you.
To access the new AM, you need to visit either:
What will change?
- As AM will be a stand-alone system, you will log into AM to manage your access and permissions for our online services rather than the portal.
- When we need to make changes to AM, we won't need to take the portal offline, ensuring less impact on you as a user.
- There will be a new feature called 'copy permissions'. This function will give your access administrator the option to copy the same permission set to numerous credential holders at the same time.
- Your access administrator can use a simplified process to provide/remove staff access to the agent numbers associated with your business. AM will allow your administrator to grant a credential holder access to numerous agent numbers at the same time.
- AM will have a new look and feel that is more intuitive, which should increase ease of use.
What will remain the same?
- AM features the same level of security as OAM. To login to AM you will use your AUSkey or ATO digital certificate as you would to login to the portal.
- AM will offer the same functions as OAM, including the ability to temporarily disable staff access (for example, when they go on leave) and restrict access to certain clients and functions your staff can perform within the portal.
- Your OAM permissions will be automatically copied over to AM.
If you currently use the portal, you will be notified through a key update in the portal when the change to the new system has been made.
Once AM is released, help and support information will be available on our website at www.ato.gov.au
Two of the key objectives of the taxation of financial arrangements (TOFA) are to:
- more closely align tax and commercial recognition of gains and losses from financial arrangements
- minimise compliance costs.
One way that the TOFA rules achieve these objectives is allowing you, subject to eligibility requirements, to rely on your accounting results to calculate gains and losses from your financial arrangements.
There will be some cases where the TOFA outcome will not be the same as the accounting outcome. That is, the TOFA rules are not a direct link to accounting.
For example, using the accrual accounting method in order to work out your TOFA accrual will not always give you the right result. This may be the case where you have a deeply discounted security or a financial arrangement for which your accounts reflect an impairment because of a doubtful debt.
TOFA is one of the risks for large business highlighted in our Compliance program 2011-12.
As detailed in this program, we will be conducting TOFA implementation reviews to ensure taxpayers are applying the TOFA rules appropriately. Therefore, taxpayers should consider whether the TOFA outcome for particular arrangements is the same as the accounting outcome.
Reporting on our work
Our Annual report 2010-11 has been published. The report informs parliament, stakeholders and the community about our performance in administering the tax system.
For the large business market, the report covered:
- continuing our development in having a transparent and up-front relationship with you, addressing problems at an early stage
- our ongoing dialogue on risk categories and governance of tax risks
- improving opportunities for commercial tax certainty such as faster private rulings, ACAs and pre-lodgment discussions of tax risk.
We continued to require expertise in complex transactions such as those arising from increases in merger and acquisition activity through global adjustments to changing financial pressures and opportunities.
Some legislative measures are costing more in revenue foregone than parliament may have expected. Implications of major litigation outcomes are also contributing to assessment of compliance risks in business tax arrangements.
There is currently significant reconstruction work being undertaken in communities affected by the recent natural disasters. This is expected to continue over the coming months and, in some cases, years.
We understand that sometimes those involved are so focused on the reconstruction effort that tax and super obligations can be overlooked.
While we don't normally find issues with large businesses in this environment, it may be useful to consider these issues when subcontracting to other smaller businesses.
We have developed a new web page to help those involved in repair and reconstruction in areas affected by natural disasters to meet their tax and super obligations while they are contributing to the reconstruction effort.
Under pay as you go (PAYG) withholding, you must withhold amounts from certain payments you make to others (for example, wages) and send these amounts to us.
Business entities may have a large, medium or small withholding status. You are a large withholder if one of the following applies:
- you have withheld amounts totalling more than $1 million in a previous income year
- you are part of a company group that has withheld more than $1 million in a past income year.
If you are a large withholder, you must pay the amounts you withhold to us electronically. We have had many instances of companies using the incorrect electronic funds transfer (EFT) code type for PAYG withholding payments resulting in payments being processed incorrectly.
When making your PAYG withholding payments, use EFT code type 70.
If you have questions about PAYG withholding for large withholders or difficulty in paying your tax debt on time, phone us on 1300 728 060 to discuss your circumstances.
If you have an agreement with your employee's super fund to pay expenses, such as insurance premiums and administration fees, these expenses will count towards your employee's concessional contributions cap. If your employee exceeds their cap, they will have to pay extra tax.
Concessional contributions are sometimes known as 'pre-tax' contributions.
You should tell your employees if you pay some, or all, of their super fund expenses. This will help them manage their contributions and avoid exceeding their concessional contributions cap.
The Tax Laws Amendment (2010 Measures No. 5) Act 2011 was enacted on 29 June 2011. It clarifies how the GST law applies to non-profit sub-entities and makes changes to the running balance accounts provisions.
From 1 July 2011, non-profit sub- entities will be able to access the same GST concessions as their parent entity. To date, we have interpreted the law to allow these entities to access these concessions. The recent legislative change clarifies this.
Running balance account
From 1 July 2011, where you make a payment, or have a credit or running balance account surplus, it will not need to be applied against a tax debt - that is, a BAS amount - unless that amount is both due and payable.
A BAS amount can include a number of business tax liabilities; for example:
- wine equalisation tax
- luxury car tax
- fuel tax credits.
Visit our website
- find the latest public rulings relevant to large businesses
- read the latest speeches by the Commissioner and other ATO leaders.
If you have any questions about tax matters for large business, phone us on 1300 137 286 Monday to Friday, 8.00am to 6.00pm.
The Large Business Bulletin is issued quarterly. If you have any suggestions or feedback, email Largebusinessbulletin@ato.gov.au
Visit our website to subscribe to the Large Business Bulletin.
Last Modified: Monday, 28 November 2011