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  • Tips for completing the company income tax return and schedules

    Do not rely solely on the information here to complete an income tax return. See the Company tax return instructions and other products for detailed information.

    A number of large and consolidated entities have been incorrectly completing label T, the total amount of PAYG instalments, on the company income tax return form.

    If you complete label T correctly it will prevent undue delay in the processing of the return and issue of any refund entitlements.

    See also:

    Company details and who do we mean by 'you'?

    Head company/group return

    In the fields for company name, Australian business number (ABN) and addresses on page 1 of the return form, show the head company's details (or provisional head company in the case of a MEC group). References to 'you' or 'your' on the return form refer to the head company. The head company gives an aggregated response for all members of the group to requests for information.

    Subsidiary return

    If completing a return form for a subsidiary accounting for one or more non-membership periods, show the subsidiary's details in the fields for company name, ABN and addresses on page 1 of the return form. References to 'you' or 'your' on the return form refer to the subsidiary.

    Item 1 – Holding companies

    In the head company/group return show the name of the ultimate and any immediate holding company of the head company if that company is either foreign resident or ineligible to be included in the consolidated group. If there is no immediate holding company do not complete this field.

    See also:

    For a MEC group show the name of the top company as the ultimate holding company. The immediate holding company is the foreign company that wholly owns and is immediately above the provisional head company (PHC). If the PHC has no immediate holding company, do not complete this field.

    See also:

    If completing a return form for a subsidiary covering one or more non-membership periods, show the name of the ultimate and any immediate holding company during the non-membership periods. If there is no immediate holding company do not complete this field.

    Head companies – dealing with intragroup transactions

    A core principle of consolidation is that all transactions between members of the consolidated group, including distributions between group members, are ignored for income tax purposes. This means that the head company subtracts the impact of intragroup transactions from aggregated group data to give a consolidated position. This is particularly relevant to items 6 to 8 and 17 to 20.

    In completing item 6 – Calculation of total profit or loss, for example, income from sales to and distributions from other group members should not be included. Similarly, the cost of sales to other group members should not be included under Expenses.

    Specifically, in completing:

    • Item 2 – Main business activity: show the business activity from which the group derived the most gross income. Intragroup transactions should be eliminated but if this is not possible aggregated data can be used.
    • Item 8 – Financial and other information: show the amounts recorded in the financial statements, not those arrived at as part of the allocable cost amount calculation. Aggregated data is acceptable but only if consolidated data is not available.

    The use of aggregated data where consolidated data is not available is only acceptable as an interim measure. We require consolidated groups to have systems in place to provide consolidated data for all income tax return items for the 2005-06 and later income years.

    Subsidiaries – financial and other information at item 8

    If a part-year subsidiary member:

    • at labels Z and A – show respectively the cost of intangible depreciating assets and other depreciating assets first deducted during the non-membership period. However, do not include the cost of depreciating assets for which the company is deducting their decline in value for the first time simply as a consequence of leaving a consolidated group.

    If the part-year subsidiary member was a member of a consolidated group at the end of the income year:

    • at labels B, C to H, and R – show relevant amounts as at the end of the non-membership period
    • at label J - show the average total debt of the company by adding the opening and closing balances of total debt for the non-membership period and dividing this sum by 2
    • at label M - if there was a surplus franking account balance at the end of the non-membership period show that balance; if there was a deficit balance at the end of any non-membership period the company must lodge an FAR and pay the FDT.

    Subsidiaries – losses information

    If a part year subsidiary member company was a subsidiary member of a consolidated group at the end of the income year, labels U and V at item 10 should be left blank as any tax losses are transferred to the head company or cancelled at the date of consolidation.

    Calculation statement – PAYG instalments

    A number of large and consolidated entities have been incorrectly completing label T, the total amount of PAYG instalments, on the company income tax return form. It is important that you show at label T only the total of the four quarterly instalments raised during the year. Do not include any balancing payments (for example, 'wash up' or residual payments).

    If you complete label T correctly it will prevent undue delay in the processing of the return and issue of any refund entitlements.

    The head company is entitled to claim credit for its own instalments plus any subsidiary member's instalments that are attributable to the period during which the subsidiary was a member of the consolidated group.

    A subsidiary member lodging a return due to one or more non-membership periods is entitled to claim any of its instalment credits not claimed by the head company.

    Accompanying schedules

    What schedules must be lodged?

    Schedule

    Head company

    Subsidiary member with non-membership period

    Capital allowances

    Required if group's aggregate amounts exceed thresholds that apply to companies generally (see Company tax return instructions)

    Not required for 2002-03 and 2003-04 income years

    Capital gains tax (CGT)

    Required if group's aggregate capital gains or losses - ignoring intragroup gains and losses - exceeds $10,000

    Not required for 2002-03 and 2003-04 income years

    Consolidated group losses schedule

    Required if group has utilised, carried forward or had transferred from joining entities losses greater than $100,000

    Not required for 2002-03 and 2003-04 income years

    Thin capitalisation

    Only required for the latest application of the thin capitalisation rules

    Not required for 2002-03 and 2003-04 income years

    Schedule 25A

    Required if group's aggregate amount of transactions or dealings with international related parties exceeds $1 million

    Not required for 2002-03 and 2003-04 income years

    R&D

    Required

    Not required for 2002-03 and 2003-04 income years

    Dividends and interest

    Not required where company is required to lodge an annual investment income report (under regulation 56(1) of the Income Tax Regulations 1936)

    Not required where company is required to lodge an annual investment income report (under regulation 56(1) of the Income Tax Regulations 1936)

    PAYG

    Required

    Required if applicable

    Personal services income

    Required

    Required if applicable

    Capital allowances schedule

    • Assets brought into a consolidated group by a joining subsidiary that are given a new start date for decline in value deductions for the head company purely because of consolidation are not reported at Part A (or at labels Z and A of the company income tax return).
    • The head company is required to choose an effective life for depreciating assets brought into the group under the cost setting process. If the chosen effective life is the same as before the joining time, answer No to question 3 box R and leave blank question 3 box S. If the effective life changes, answer Yes in box R and complete question 3 box S and/or T. The amount recorded in box S and T will be the adjustable value of the depreciating asset just before the joining time.

    Consolidated group losses schedule

    • Show the actual amount of losses transferred from joining entities, not the amount that results after applying the available fractions.
    • Losses that fail the modified tests for transfer to a head company are not recorded on the schedule.
    • If a head company cancels the transfer of losses from a joining subsidiary the transfer is deemed never to have occurred and Part A of the Schedule is not completed in respect of those losses.
    • Only losses transferred from joining subsidiaries in the income year in which the group consolidated are included in Part A items 1, 2, 6 and 7.

    Thin capitalisation schedule

    • Where a consolidated group is formed part way through an income year, the thin capitalisation rules apply to the entities on a individual basis for the period in which they were not part of the consolidated group (unless the TC grouping rules apply under the transitional provisions). The consolidated period and the non-consolidated period are each treated as part-year periods and the thin capitalisation calculations are worked out for each period separately.
    • If the head company changes classification part way through an income year, the relevant thin capitalisation rules apply separately to each part of the income year on a part year basis. Take for example, a head company of a consolidated group with a standard income year that changes from a non-ADI inward investing entity to a non-ADI outward investing entity on 1 January. From 1 July to 31 December, the non-ADI inward investing entity rules apply. From 1 January to 30 June, the non-ADI outward investing entity rules apply.

    Schedule 25A

    • In providing information at item 1 on industry sectors and locations in which the group operated, aggregate the similar business activities of group members.
    • The head company reports only its own international dealings and those of the group. If a subsidiary is outside the consolidated group for any period during the income year, do not report its international related party dealings during those periods.
    • Consolidation has no impact on the way a permanent establishment is treated for the purposes of Schedule 25A. A permanent establishment of a consolidated entity is treated no differently than a permanent establishment of a non-consolidated entity.
      Last modified: 01 Feb 2017QC 17844