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  • Findings report Reportable tax position schedule Category C disclosures

    Companies are required to provide a range of information and disclosures to us each year. The base level of information they provide is contained in the company tax return. There are several schedules to the return, providing more detail on specific aspects of company tax, such as the International dealings schedule. Certain significant global entities are also required to provide information through country by country (CBC) reports and general purpose financial statements.

    The Reportable tax position (RTP) schedule was introduced as a schedule to the company tax return in 2011. This schedule gathers information on uncertain tax positions from the largest public and multinational companies. It was later expanded to include disclosures of arrangements considered to pose a systemic risk to the corporate tax base. This often involves questions related to tax avoidance or profit shifting (or both).

    The RTP schedule has three categories:

    • Category A – requiring disclosures of material positions that are either
      • about as likely to be correct as incorrect, even if they are reasonably arguable
      • less likely to be correct than incorrect.
    • Category B requiring disclosures of material tax related provisions, current tax liabilities or contingent liabilities recognised and/or disclosed in accordance with accounting principles in financial statements
    • Category C – requiring disclosures of
      • specific arrangements of concern
      • self-assessed risk ratings for arrangements covered by our practical compliance guidelines (PCGs).

    In this report we provide the aggregated disclosures made by companies for the 2018–19 income year under Category C of the schedule. These disclosures reflect the vast majority of disclosures made by companies.

    The data provides insights to types of arrangements large companies are entering into. Some display the range of risk levels across the lodging population as self-assessed by taxpayers. However, this level of risk may not correspond with our assessment of the disclosed arrangements.

    The data shows that high-risk or arrangements of concern aren’t prevalent among large public and multinational businesses. This finding is consistent with our view that most large businesses do the right thing and are paying the right amount of tax. It is also reflected in our estimate of the large corporate groups income tax gap.

    For 2017–18 we estimate a gross gap of 7.5%, which is the gap prior to considering the impact of our engagement. We estimate a net gap of 3.7%. This reflects the final amount of income tax uncollected after impacts of our action.

    While the data from RTP schedule disclosures and the tax gap estimates indicate high levels of voluntary compliance, we still see room for improvement. We will continue our scrutiny of the large corporate groups population to ensure their continued compliance. We will also deal appropriately with the small minority who choose to do the wrong thing.

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    The role of the RTP schedule in our large public and multinational business compliance program

    Under the Tax Avoidance Taskforce, we continually monitor and review the tax performance of Australia’s largest businesses. We focus our efforts on the top 1,100 public and multinational businesses, as collectively they contributed more than 60% of the total corporate tax reported in 2018–19.

    The RTP schedule plays an important role in our compliance program. It aids both detection and prevention of the proliferation of high-risk tax arrangements and tax avoidance schemes. We review all disclosures made and, where required, undertake more detailed investigations to understand and resolve any compliance risks.

    We use disclosures to better understand the prevalence of new and emerging issues and key tax risks across the large business population. This enables us to understand and assess the impact of our risk, advice and guidance, and compliance programs. We then adjust these, where necessary, based on the insights we have gained.

    The role of the RTP schedule in a company’s tax risk governance

    The RTP schedule can play an important role in the tax risk governance framework of large companies. It is a useful tool for tax functions, risk committees, chief financial officers (CFOs) and boards to understand the tax risk profile of their organisation across key system risks.

    RTP schedule disclosures can highlight potential areas of dispute with us. Conversely, they may provide a board with the confidence we are unlikely to undertake an intensive review of their arrangements. Where RTP disclosures show a high-risk rating for an arrangement, or an arrangement having the same or similar characteristics to those within a taxpayer alert, we encourage companies to review and amend these arrangements to reduce their level of tax risk. This will improve their own and our confidence in those tax positions.

    Our report will allow large companies to understand their risk profile across key system risks relative to that of their peers. This provides an important sense check to organisational thinking as to the relativity of their tax risk profile.

    Who needs to lodge an RTP schedule?

    RTP schedules are lodged at the same time as the company tax return. Taxpayers who meet the lodgment criteria are required to lodge a schedule even if they have no reportable tax positions to disclose. Administrative penalties may apply if a taxpayer fails to lodge a schedule when they are required to do so. We monitor the lodgment of RTP schedules and follow up taxpayers that don’t lodge as part of our non-lodgment program.

    Companies are required to self-assess against the lodgment criteria in the instructions to determine their obligation to lodge an RTP schedule. The definition of economic group and the threshold total business income of $25 million means some companies outside our large corporate groups population have an obligation to lodge the schedule.

    Category C – Reportable tax position schedule

    Questions in Category C of the RTP schedule are typically linked to ATO public advice and guidance (PAG) products, such as:

    • taxpayer alerts (TAs)
    • practical compliance guidelines (PCGs).

    This report provides aggregated data on 2018–19 RTP disclosures for Category C, as at 30 September 2020. Further lodgements of 2019 RTP schedules after this date will alter taxpayer and disclosure numbers.

    Companies lodged approximately 1,240 schedules for the 2018–19 income year. Approximately 230 taxpayers who lodged their 2018–19 tax return and met the schedule lodgment criteria are yet to lodge their schedule. They will be subject to our non-lodgment program.

    There are generally no materiality thresholds on Category C questions. Taxpayers who meet the lodgment criteria must disclose arrangements irrespective of the impact on their overall tax outcomes.

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    Questions

    Nearly two-thirds of Category C questions that applied in the 2018–19 income year related to arrangements described in taxpayer alerts. A quarter sought the self-assessed risk rating from applying the criteria in PCGs covering a range of arrangements.

    Category C questions and the type of PAG product they refer to

    Question number

    PAG product

    9, 14, 22–24

    PCG

    2–4, 6–8, 10–13, 17, 18, 20

    Taxpayer alert

    1

    Taxation determination

    16, 19, 21

    None

    Disclosures

    Graph displaying the breakdown of 1,470 total disclosures by schedules by Category C: none 37% (540), one 24% (360), multiple 23% (34), and schedule not lodged 16% (230).

    Taxpayers are only required to provide a response to a question under Category C if they have an arrangement covered by the question. Therefore, we don’t expect every schedule lodged to contain a response to every Category C question. For example, not every taxpayer required to lodge the schedule engages in registered research and development (R&D) activities and those who don’t will not make any disclosures under question 13.

    For some taxpayers only one question will relate to an arrangement they have and they will only make one disclosure. Other taxpayers may have multiple arrangements to disclose or a question may ask them to make multiple disclosures. For example, question 9 on offshore hub arrangements.

    Typically, PCGs provide a range of risk ratings:

    • low – white, green or blue zones
    • moderate – yellow or amber zones
    • high – red zone.

    We tailor our compliance approach to the risk rating disclosed. For example, our activity for low-risk disclosures is limited to confirming the arrangement is within the low-risk zone and the methodology in the PCG has been correctly applied. We apply more intensive scrutiny for high-risk disclosures to determine if they comply with the relevant legislative provisions. If we can’t gain this assurance at the review stage, we may undertake an audit or more intensive investigation through our Top 1,000 Next Actions program.

    We review disclosures on taxpayer alert related questions as part of our assurance activities. Where required, we address remaining concerns as part of our audit or next actions programs. Disclosures are required where a taxpayer’s arrangement is similar to that described in a taxpayer alert but lacks the mischief described or doesn’t give rise to a tax benefit. This means that not all disclosures on taxpayer alert questions will give rise to a compliance concern or require intensive scrutiny by us.

    We monitor and determine if disclosures in the RTP schedule are incomplete or inaccurate through our assurance programs and analysis of other data sources, for example CBC reports. We have full coverage of the most systemically important corporate groups through our Top 100 program and Top 1,000 tax performance program. This allows us to check the accuracy of disclosures. Penalties may apply if taxpayers do not make full and true disclosures under the RTP schedule.

    We continually monitor taxpayers in the Top 100 population and assess disclosures on an annual basis. Our monitoring and assurance activities mean we may already be aware of arrangements before disclosures are made.

    Disclosures enable us to understand and assess changes in tax positions and arrangements, including new arrangements taxpayers are entering into, and to prioritise our assurance activities. These may take more than one year for Top 100 taxpayers. Importantly, taxpayers who have achieved justified trust (high assurance), disclosures on the schedule will have a less intensive engagement approach during the monitoring and maintenance period by enabling us to effectively track changes in arrangements and adjust our action accordingly.

    We review the Top 1,000 taxpayers on a four-year cycle. This means not all arrangements related to RTP schedule disclosures made for the 2018–19 year have been fully reviewed. We review all disclosures to monitor the performance, assess and prioritise our engagement with this population. Where we identify new high-risk arrangements or arrangements of concern, we prioritise the taxpayer for review. RTP disclosures will also inform how we conduct the assurance review. For example, a taxpayer who has self-assessed in the green zone, will be reviewed on whether the PCG has been correctly applied to obtain confidence of the tax outcome. This is typically a less resource intensive process.

    For taxpayers in the medium and emerging populations, we take a risk-based approach to allocating compliance resources. This means we review the highest risk arrangements where these are material. Given the lack of materiality thresholds for most Category C disclosures, we may not apply compliance resources to review in detail every high-risk arrangement disclosed. Instead we will concentrate our efforts on arrangements that have a material impact on the taxpayer’s tax outcomes.

    Disclosures by public advice and guidance product

    Graph displaying the breakdown of 1,248 total disclosures by taxpayer and PAG product type: practical compliance guidelines 85% (1,064), taxpayers alerts 10% (130), and other 5% (54).

    Notes:

    * Where a PCG related question instructs the taxpayer to make only one disclosure of the highest risk rating and the taxpayer has made more than one disclosure, they have been counted only once.

    Most Category C questions ask taxpayers to disclose whether they have arrangements covered by specific ATO public advice and guidance products. The majority of questions refer to taxpayer alerts but the majority of disclosures relate to PCGs.

    Graph displaying the breakdown of 1,064 total disclosures by PCG-related questions: Q14 – 564, Q9 – 215, Q24 – 159, Q23 – 78 and Q22 – 48 disclosures.

    Graph displaying the breakdown of 130 total disclosures by taxpayer alert related questions: Q3 – 6, Q4 – 23, Q6 – 11, Q7 – 12, Q8 – 12, Q10 – 11, Q11 – 7, Q12 – 9, Q13 – 12, Q17 – 5 and Q18 – 22 disclosures.

    Graph displaying the breakdown of 54 total disclosures by other questions – Q1 – 3, Q16 – 23 and Q21 – 28 disclosures.

    PCG related disclosures

    PCGs provide a framework for corporate taxpayers and their boards to self-assess the risk associated with their arrangements and understand our likely compliance response. Self-assessment is voluntary but we consider it best practice for corporate taxpayers to include self-assessment under PCGs as part of their standard tax governance processes.

    If a taxpayer hasn’t undertaken the self-assessment, they must disclose a high-risk rating in the schedule. This alerts us to examine the arrangement more closely to obtain confidence about the tax outcome.

    Taxpayers must disclose their self-assessed risk rating in the corresponding Category C question. In some cases, they may be required to disclose multiple arrangements, such as question 9 on hub arrangements. For these reasons, the greatest number of disclosures are against PCG linked questions.

    A number of PCGs don’t include materiality thresholds and aim to identify the highest risk arrangement, where the taxpayer has multiple arrangements. The schedule also doesn’t apply any materiality threshold on Category C questions. This means we don’t use the quantum of disclosures against any particular question or any comparison of disclosure numbers to infer anything about the relative risk levels of the arrangements covered by PCGs.

    We do consider the spread of risk ratings disclosed to understand relative risk levels. But this is only one data source we use. The lack of materiality thresholds means, for most PCGs, we need to use other data sources in conjunction with the schedule disclosures. This helps us gain a true understanding of the relative risk of an arrangement in the population, compared to other arrangements and over time.

    Offshore hubs – Question 9 disclosures

    Chart displaying hub risk levels: marketing hubs – 9 high risk, 8 medium risk and 112 low risk, and procurement hubs – 48 high risk and 37 low risk.

    One disclosure has been excluded as the taxpayer failed to include the subcategory number on their schedule.

    The risk framework in Practical Compliance Guideline PCG 2017/1 enables taxpayers to self-assess the transfer pricing risks of certain business activities and operating risks located or relocated into an offshore centralised operating model (hub). It currently covers marketing and non-core procurement activities.

    The disclosures received on PCG 2017/1 have assisted us to identify previously unknown marketing hub arrangements. They have also given us a more comprehensive understanding of the level of risk associated with marketing hub arrangements.

    We have resolved our concerns with a number of taxpayers’ arrangements through advance pricing arrangements or settlements. We also have complete coverage of arrangements of Top 100 taxpayers, who are responsible for the majority of Australian exports sold through marketing hub arrangements. These outcomes are reflected in the high proportion of disclosures of low risk ratings. A small number of arrangements are subject to ongoing compliance action.

    Related party finance – Questions 14 and 23 disclosures

    Chart displaying related party financing risk levels – arm’s length condition show 152 high risk, 166 medium risk, 240 low risk and 6 not disclosed, and financing derivatives show 21 high risk, 18 medium risk, 37 low risk and 2 not disclosed.

    * Not disclosed are disclosures by taxpayers who included the question number but didn’t include the subcategory number on their schedule.

    Some taxpayers disclosed multiple arrangements, only the highest rated disclosure has been counted, as the instructions for questions 14 and 23 ask for only the highest rated arrangement to be disclosed.

    Practical Compliance Guideline PCG 2017/4 allows taxpayers to self-assess the tax risk of their cross-border related party financing arrangements. Given the prevalence and significant tax outcomes involved, we actively investigate these arrangements. Over 80% of taxpayers with arrangements disclosed in the red zone and over 75% in the amber zone are already subject to compliance activity or have activity planned. We have strategies in place to address the remainder, including where the disclosures come from taxpayers in the medium and emerging population segment.

    The review of related party financing arrangements is an inherent element of the assurance work we undertake. This involves reviewing the application of PCG 2017/4 against the taxpayer’s relevant loan agreements and transfer pricing documentation.

    We will also be contacting taxpayers we identify who lodged a schedule but didn’t disclose their relevant financing arrangements at question 14 or 23 to clarify why this is the case.

    Hybrid arrangements – Question 22 disclosures

    Disclosures on question 22, 2018–19

    Disclosure

    Low risk

    Not low risk

    Total

    Number

    41

    7

    48

    One taxpayer disclosed two arrangements, only the not low risk disclosure has been counted as the correct disclosure per the instructions

    Practical Compliance Guideline PCG 2018/7 has been designed to assist taxpayers to restructure into compliant replacement arrangements. These arrangements eliminate double non-taxation outcomes, consistent with the underlying objective of the hybrid mismatch rules.

    We use data available from schedule disclosures and other information sources to identify and monitor hybrid restructures undertaken and arrangements maintained by taxpayers. We expect accurate and comprehensive disclosures from taxpayers. Our focus is on ensuring compliance with the hybrid mismatch rules through ongoing engagement and the release of guidance products.

    We will review and actively manage any compliance risks in the seven not low risk disclosures through our Top 100 and Top 1,000 assurance programs.

    Inbound distribution arrangements – Question 24 disclosures

    Chart displaying inbound distribution arrangements – 43 high risk, 64 medium risk, 49 low risk and 3 not disclosed.

    * Not disclosed are disclosures by taxpayers who included the question number but didn’t include the subcategory number on their schedule.

    Some taxpayers disclosed multiple arrangements. We have only counted the highest rated disclosure, as the instructions for questions 14 and 23 ask for only the highest rated arrangement to be disclosed.

    Practical Compliance Guideline PCG 2019/1 provides a framework for taxpayers to assess the transfer pricing risk of their inbound distribution arrangements. We have confidence in the reasonableness of these disclosures as we have good visibility of this population through our assurance programs. We are also employing a range of approaches to detect and address any non-disclosure against question 24.

    We have coverage of over 70% of the arrangements disclosed as high risk through our audit and next actions programs. Of the remaining arrangements disclosed as high risk, some have been reviewed and found to be immaterial. Others have been reviewed and found to be incorrectly disclosed as an inbound arrangement.

    Disclosures on arrangements subject to taxpayer alerts

    We issue taxpayer alerts to warn taxpayers of our concerns about new or emerging arrangements we consider might pose a high risk, such as tax avoidance arrangements. Our aim is to share our concerns early to help taxpayers make informed decisions about their tax affairs.

    Our experience shows the majority of large corporate taxpayers don’t wilfully take on tax risk. Taxpayers will often engage with us to gain certainty on arrangements we’ve indicated we have concerns with. They may apply for a ruling or advance pricing arrangement or simply not enter into these arrangements, preventing proliferation.

    Taxpayers alerts are intended as an advance warning system. The low number of disclosures against Category C questions referring to taxpayer alerts is, therefore, unsurprising. This is a healthy sign most large company taxpayers are choosing to not enter into or have exited arrangements of the nature described in the alerts. We use information obtained through our assurance programs and other data sources, for example CBC reporting, to identify any non-disclosure risk.

    Taxpayer alerts will often apply more broadly than to just the large company population required to lodge the RTP schedule. Disclosures on the RTP schedule help us to understand the proliferation of arrangements described in taxpayer alerts in the lodging population. They us also help to identify variations of the arrangements and if these too pose a risk.

    We retain RTP schedule questions on taxpayer alerts for a period after we have reviewed all existing arrangements (disclosed and identified through other data sources). We do this to ensure no new taxpayers are entering into the arrangement or variation of the arrangement. We are also mindful that withdrawing a question too early may signal acceptance of the arrangement or variants of it to taxpayers, possibly leading to new high-risk arrangements proliferating.

    Funding special dividends and buybacks – Question 2 disclosures

    There were no disclosures at question 2 in 2018–19. Question 2 relates to equity raising to fund special dividend or share buyback arrangements.

    We have continued to monitor the risk associated with arrangements described in Taxpayer Alert TA 2015/2. Our risk identification processes and assurance programs have confirmed these arrangements are no longer prevalent in the large public and multinational business population. This gives us confidence we don’t have a non-disclosure risk.

    Bifurcated procurement hubs – Question 3 disclosures

    There were six disclosures at question 3 in 2018–19. Question 3 relates to procurement hub arrangements described in Taxpayer Alert TA 2015/5.

    Most taxpayers who have disclosed arrangements at question 3 have discussed those arrangements with us. We don’t have any ongoing concerns with the arrangements disclosed and discussed with us. Other disclosures made relate to immaterial arrangements. The taxpayers involved have also made appropriate disclosures on their International dealings schedule.

    Our risk identification processes and assurance programs give us confidence these arrangements are no longer prevalent in the population.

    Thin capitalisation – Questions 4 and 10 disclosures

    Disclosures on questions related to thin capitalisation, 2018–19

    Question

    Topic

    Taxpayer alert

    Disclosures

    4

    Thin cap – revaluations

    TA 2016/1

    23

    10

    Thin cap – debt / equity bifurcation

    TA 2016/9

    11

    We have full coverage of the thin capitalisation arrangements identified at question 4. These arrangements related to recognition and revaluation of assets for thin capitalisation purposes and not reflected in their financial accounts. This risk has now been addressed by legislative amendments that came into effect in May 2018. The amendments ensure only revaluations included in the audited financial statements are included for thin capitalisation purposes. We removed question 4 from the 2019–20 schedule.

    Question 10 deals with the exclusion of amounts treated as equity for accounting purposes from thin capitalisation debt calculations. We have released Tax Determination TD 2020/2 setting out our view of the operation of the law to these arrangements.

    We have full coverage of these arrangements through our compliance programs. We have already issued some amended assessments to taxpayers. We are finalising audits on others where we also expect to issue amended assessments.

    Other taxpayers have adjusted their thin capitalisation calculations to reflect the correct treatment for the respective instrument within those calculations. Typically, this will increase their adjusted average debt level. As a consequence, they may breach their safe harbour amount and be required to deny some interest deductions.

    We also expect the incidence of bifurcated instruments to decrease as a consequence of the hybrid mismatch rules.

    Related party finance – Questions 6, 11, 17 and 18 disclosures

    Disclosures on questions related to financing arrangements, 2018–19

    Question

    Topic

    Taxpayer alert

    Disclosures

    6

    Financing – CCIRS

    TA 2016/3

    11

    11

    Financing – round robin arrangements

    TA 2016/10

    7

    17

    Financing – WHT

    TA 2018/4

    5

    18

    Financing – debt deductions and NANE

    TA 2009/9

    22

    Risks associated with related party financing arrangements continue to be a key focus for us. We use the disclosures under questions 6, 11, 17 and 18 together with data from the International dealings schedule and CBC reports to identify and assess these risks.

    We have reviewed, or are reviewing, nine of the arrangements disclosed at question 6 to date. Our concerns with three of these arrangements have been resolved through settlements. In other cases we have been satisfied the arrangements don’t exhibit the compliance risks outlined in Taxpayer Alert TA 2016/3. We anticipate the hybrid mismatch rules will reduce the use of these arrangements.

    We have reviewed three arrangements disclosed at question 11 and have concerns with one. Our concerns are being addressed through our next actions program. The remaining arrangements are currently being reviewed or have reviews planned to commence in the 2020–21 financial year.

    In some cases, taxpayers have disclosed arrangements at question 17 even though they have remitted withholding tax. We don't consider the disclosed arrangements to be a compliance risk as the key feature is that withholding tax hasn’t been remitted. Other disclosures have been reviewed or are being reviewed as part of our assurance program. We have concerns with one disclosed arrangement reviewed and are addressing those concerns through our next actions program.

    Many of the disclosures at question 18 were made by taxpayers because they have claimed a deduction under section 25-90. Absent the other features outlined in Taxpayer Alert TA 2009/9 these disclosed arrangements don’t pose a compliance risk. A majority have also been discussed with us.

    Lease-in lease-out arrangements – Question 7 disclosures

    There were 12 disclosures at question 7 in 2018–19. Question 7 relates to arrangements involving cross-border leasing of mobile assets described in Taxpayer Alert TA 2016/4.

    The disclosures obtained from question 7 combined with data from CBC reports has supported the identification of cross-border leasing of mobile assets arrangements. We have undertaken audits of two arrangements disclosed, and issued amended assessments. Other disclosed arrangements are currently under review in our Top 1,000 assurance program. A number of disclosures were made where the arrangements didn’t fall within the scope of the taxpayer alert.

    With the finalisation of PCG 2020/1 we have updated the 2020 schedule to seek taxpayer’s self-assessed risk ratings. We will use disclosures against the new PCG to help us assess the impacts of market conditions on the approaches adopted by taxpayers. This will inform our ongoing management of the risks associated with cross-border leasing of mobile assets. We are also actively monitoring the impact of the downturn in the industry and any changes taxpayers make to their arrangements as a result.

    Offshore permanent establishments – Question 8 disclosures

    There were 12 disclosures at question 8 in 2018–19. Question 8 relates to arrangements involving tax consolidated groups with offshore permanent establishments, as described in Taxpayer Alert TA 2016/7.

    We have seen changes in taxpayer behaviour since Taxpayer Alert TA 2016/7 was released and the hybrid mismatch rules were implemented. Some taxpayers are recognising more offshore branch income as assessable in Australia. Others have wound up their outbound permanent establishment or restructured into compliant structures.

    Business fragmentation – Question 12 disclosures

    There were nine disclosures at question 12 in 2018–19. Question 12 relates to arrangements involving the fragmentation of integrated trading businesses in order to re-characterise income to passive income to achieve a more favourable tax outcome. This is described in Taxpayer Alert TA 2017/1.

    We combine the information obtained from disclosures at question 12 with data from transitional election forms to risk assess stapled groups. The transitional election form allows eligible taxpayers to claim transitional relief and continue to apply the lower 15% withholding rate during the transition period. We scrutinise the arrangements of taxpayers who make a disclosure at question 12 and also make an election for transitional relief to assure their compliance.

    We have reviewed or are in the process of reviewing eight of the arrangements disclosed. The remaining disclosures will be reviewed under our assurance programs.

    R&D – Question 13 disclosures

    There were 12 disclosures at question 13 in 2018–19. Question 13 relates to various R&D activities as described in:

    • Taxpayer Alert TA 2017/2 (construction activities)
    • Subcategory 2: Taxpayer Alert TA 2017/3 (any business activities)
    • Subcategory 3: Taxpayer Alert TA 2017/4 (agricultural activities)
    • Subcategory 4: Taxpayer Alert TA 2017/5 (software development activities).

    Most disclosures for question 13 relate to arrangements outlined in TA 2017/5. This aligns with our experience that the R&D claims of most concern in the large corporate groups population relate to software development activities. Where appropriate, we refer any concerns identified with eligibility of R&D activities to AusIndustry, who are responsible for this aspect of the R&D Tax Incentive.

    Securities lending – Question 20 disclosures

    There were no disclosures at question 20 in 2018–19. Question 20 relates to arrangements involving securities lending and derivative contracts as described in Taxpayer Alert TA 2018/1.

    We have continued to monitor and manage the risk associated with arrangements described in Taxpayer Alert TA 2018/1. Our risk identification processes give us confidence we don’t have a non-disclosure risk.

    We are separately addressing concerns with these types of arrangements entered into by superannuation funds. As these entities don’t complete a company tax return they have no obligation to lodge an RTP schedule.

    Other questions

    Section 25-90 deductions and non-assessable non-exempt income –Question 1 disclosures

    There were three disclosures at question 1 in 2018–19. Question 1 relates to deductions claimed under section 25-90 where income earned is non-assessable and non-exempt.

    All of the disclosures at question 1 on deductions incurred in earning non-assessable non-exempt income were made by Top 1,000 taxpayers. We have no ongoing concerns with the arrangement that has been reviewed. We will review the other two arrangements under our assurance program.

    Consolidation churning – Question 16 disclosures

    There were 23 disclosures at question 16 in 2018–19. Question 16 relates to application of the consolidation churning rule to arrangements entered into by a multiple entry consolidated group.

    The majority of disclosures at question 16 were by taxpayers indicating the churning rule applied to deny certain cost setting rules. All disclosures stating the rules didn’t apply were made by Top 1,000 taxpayers. We have reviewed these disclosures and have an ongoing concern with only one. This taxpayer is still currently under review.

    Material changes to settlement positions – Question 19 disclosures

    There were no disclosures at question 19 in 2018–19. Question 19 relates to breaches or material changes to facts covered by settlement deeds. It is an important feature of our settlements that we achieve behavioural change and lock in future tax outcomes. We continue to monitor compliance with these agreements closely.

    Therefore, we weren’t surprised by the lack of disclosures at question 19.

    Unamended mistakes or omissions – Question 21 disclosures

    There were 28 disclosures at question 21 in 2018–19. Question 21 relates to any unamended mistakes or omissions in tax returns.

    Disclosures under question 21 related to issues including carry forward loss balances, capital losses and uniform capital allowances. Over a third of these subsequently saw the taxpayer make a voluntary disclosure with additional tax paid. Five taxpayers lodged self-amendments, some resulting in an increase in tax payable, others a decrease and some having a notional impact through changes in losses carried forward.

    The remaining disclosures will be used by our engagement and assurance teams in their broader profiling work on mistakes or omissions.

    Last modified: 28 Jan 2021QC 64611