• Financing activities

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    This part of question 4 asks you to provide details of your expenses/losses incurred and revenue/gains earned in relation to your financing activities with related parties located in any of the specified countries during the income year.

    This question also collects information about expenses/losses claimed and income/gains returned for your internally recorded 'dealings' with your branch operations that record your attribution of your income and expenditure for your financing activities to the branch operations carried on in specified countries.

    Financing activities refers to dealings in financial instruments that would qualify as financial assets or financial liabilities under relevant Australian accounting standards or comparable foreign accounting standards but excludes financial instruments that would meet the definition of a derivative. At the time of this publication, the two key Australian accounting standards relevant to this question include AASB 132 Financial Instruments: Presentation and AASB 139 Financial Instruments: Recognition and Measurement. You do not need to consider the debt/equity provisions of the tax legislation.

    We expect interest to be the principal expense incurred and revenue earned in respect of your financing activities. However, any other expenses/losses and revenue/gains associated with these activities should also be included in the response to this question, such as borrowing costs or foreign exchange gains/losses.

    Do not show at this question:

    • principal and principal repayment amounts
    • the amount of your funds used in your offshore branch operations that you have internally recorded as a 'loan' or other financing arrangement with your branch operations - you must instead show those amounts at question 14.

    The amounts reported at this question may be reported in the financial statements as revenue/gains or expenses/losses, depending on the accounting treatment of your relevant financial assets and financial liabilities. This includes amounts relating to hedging items that are classified in the financial statements as financial assets or financial liabilities. Therefore for the purposes of this question, the terms: 'expenditure and losses'; and 'revenue and gains'; are interchangeable.

    To complete this question, you need to:

    • identify all your financing activities with related parties located in specified countries during the income year
    • group these dealings according to the specified country where the related party to the activity was located
    • total the dollar value of the expenses/losses plus revenue/gains (excluding principal and principal repayment amounts) for your financing activities for each specified country
    • work out the three specified countries where you had the highest dollar value of expenditure/losses plus revenue/gains in respect of your financing activities.

    In the first column at C, F and I, list the codes of the three specified countries with the highest dollar values of 'expenditure/losses plus revenue/gains' in respect of your financing activities with related parties located in these countries.

    List the codes in a descending order of total dollar value.

    Further Information

    For the list of codes for the specified countries, see Appendix 2.

    End of further information

    In the second column at D, G and J, provide the total amount of expenditure/losses incurred (excluding principal and principal repayment amounts) in respect of your financing activities with related parties located in each of the specified countries listed in the first column.

    In the third column at E, H and K, provide the total amount of revenue/gains earned (excluding principal and principal repayment amounts) in respect of your financing activities with related parties located in each of the specified countries listed in the first column.

    If your financing activities with related parties were confined to one or two of the specified countries, only list those countries.

    Example

    During the income year the following events occurred in relation to an Australian bank:

    • the bank's borrowed funds were used in its branch operations carried on in the US, the UK and Jersey which it internally recorded as a loan to those branch operations
    • provided short term loans to entities located in UK, Monaco and Jersey
    • issued bonds to entities located in US, Monaco and Jersey to finance its business restructure.
     

    The Australian taxpayer recorded the expenditure incurred and the revenue earned in respect of these financing activities.

    Entity

    Relation to taxpayer

    Country entity located

    Expenditure

    Revenue

    US branch

    Branch

    US

     

    5,095,000

    UK branch

    Branch

    UK

     

    7,080,000

    Jersey branch

    Branch

    Jersey

     

    6,695,000

    UK Co

    100% subsidiary

    UK

     

    15,230,000

    Monaco Co

    100% subsidiary

    Monaco

     

    13,010,000

    Jersey Co

    na

    Jersey

     

    9,850,000

    Coin Co

    100% subsidiary

    US

    20,450,000

     

    Finance Co

    na

    Monaco

    14,890,000

     

    Money Co

    100% subsidiary

    Jersey

    16,900,000

     

    From the information in the table above the Australian taxpayer will disregard:

    • the income/revenue returned by the bank for its internally recorded loans in respect of the borrowed funds used by its US and UK branch operations, as the branch operations are not carried on in specified countries
    • the revenue earned in respect of the short term loans to UK Co and Jersey Co, as the first entity is not located in a specified country and the other is not related to the taxpayer
    • the expenditure incurred in respect of the bonds issued to Coin Co and Finance Co, as the first entity is not located in a specified country and the other is not related to the taxpayer.
     

    The Australian taxpayer extracts the relevant data from the information above.

    Country entity located

    Entity

    Expenditure

    Revenue

    Total dollar value

    Jersey

    Jersey branch

     

    6,695,000

    23,595,000

    Jersey

    Money Co

    16,900,000

     

    Monaco

    Monaco Co

     

    13,010,000

    13,010,000

    As the Australian taxpayer only undertook financing activities with related parties located in two specified countries, Jersey and Monaco, these countries must have the highest dollar value of 'expenditure/losses plus revenue/gains' in respect of their financing activities undertaken with related parties.

    With this information the Australian taxpayer completes question 4 as follows.

    Example of question 4 completed

    Note: The fields in the third row are left blank as the Australian taxpayer's financing activities were undertaken with related parties located in two specified countries.

    Last modified: 09 Nov 2011QC 24292