• Question 16

    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 question asks whether you have had any international related party dealings involving no payment or a non-monetary payment (as defined below). Information regarding the nature of these dealings and where they occurred will further assist us in identifying if there has been international related party dealings that may give rise to a:

    • transfer pricing risk (but would not be reported at other questions in the schedule due to the nature of the consideration being nil or non-monetary)
    • a possible capital gains tax risk.

    No payment

    Where there has been no charge or adjustment allocating income or expenditure between related parties for the provision of services, transfer of property or other relevant international related party dealings, then this would be taken to be a dealing for no payment.

    Attention

    Note:

    • You are not required to report at this question, any interest free loans disclosed at question 14.
    • You are not required to report transactions where you have received a benefit for no payment.
    • You are required to report transactions where you have provided a benefit for no payment.
    End of attention

    Non-monetary payment

    The nature of a dealing involving a non-monetary payment may be a barter, swap, bonus or discount, or any type of similar agreement.

    A non-monetary payment will generally include any consideration other than one of the following:

    • monetary payment
    • payment by cheque
    • telegraphic and bank-to-bank transfer of funds
    • inter-company loan account charges.

    In particular, debt-for-equity swaps and non-monetary settlements of inter-company loan accounts will be taken to be a non-monetary payment.

    Capital or revenue in nature?

    Whether the dealings between related parties are capital or revenue in nature is a matter to be decided based on the facts and circumstances of each case. The leading Australian case on this topic is Sun Newspapers Ltd and Associated Newspapers Ltd v FC of T (1938) 61 CLR 337; 5 ATD 87. This case established that expenditure incurred in establishing, replacing and enlarging the profit yielding structure (ie the business entity/structure) is of a capital nature and should be contrasted with working or operating expenses incurred to operate the business and generate business income. The test laid down in the Sun Newspapers case involves three elements, none of which are by themselves decisive:

    • Is the expenditure on something that will result in an enduring benefit?
    • The manner in which the advantage is to be used or enjoyed.
    • The means adopted to obtain the benefit.

    Guidance can also be found in various other common law sources and ATO guidance such as Taxation Rulings. We strongly recommend that you source appropriate guidance in light of the particular facts and circumstances of your case.

    To answer this question, you will need to ascertain whether you had international related party dealings where:

    • you provided a benefit of a capital nature for no payment (if so print X at C to answer yes)
    • you provided a benefit of a revenue nature for no payment (if so print X at F to answer yes)
    • the payment was non-monetary and of a capital nature (if so print X at I to answer yes)
    • the payment was non-monetary and of a revenue nature (if so print X at L to answer yes).

    For those types of international related party dealings that you answered 'yes' (ie that type of dealing occurred during your income year), you will need to indicate the location of the related party you dealt with and the nature of the dealing.

    If you have had more than one particular type of international related party dealing, complete the principal country and nature of item label according to the dealing with the highest dollar value.

    Further Information

    For the list of country codes, see Appendix 3.

    For the nature of item codes, see Appendix 8.

    End of further information

    Example 1

    A taxpayer provides core banking system software valued at $100 million to an international related party located in the United States. For the purposes of this example, assume the core banking system software forms part of the taxpayer's capital assets. The taxpayer does not charge the international related party for the software. This would meet the criteria of an international related party dealing involving no payment that was capital in nature.

    Example 2

    A taxpayer purchases a derivative portfolio for $20 million from an international related party located in the United Kingdom. For the purposes of this example, assume the portfolio forms part of the taxpayer's ordinary revenue assets. If, rather than paying for the portfolio with a $20 million funds transfer to the related party, the decision was made to settle the debt by any of the following:

    • forgiving royalties that would otherwise be payable by the international related party
    • transferring title in a fixed asset
    • agreeing to a discount on specified future transactions
    • then this would meet the criteria of an international related party dealing involving a non-monetary payment that was revenue in nature.
     

    Example 3

    During the current income year an Australian taxpayer had the following international related party dealings involving no payment or a non-monetary payment.

    Payment type

    Capital or revenue

    Country

    Country code

    Nature of item

    Item code

    Value of dealing

    No payment

    Capital

    United States

    USA

    Provided Real property

    3

    $50 million

    No payment

    Capital

    United Kingdom

    GBR

    Provided Company shares

    1

    $75 million

    Non-monetary payment

    Revenue

    Singapore

    SGP

    Insurance policies

    8

    $68 million

    Non-monetary payment

    Revenue

    Japan

    JPN

    Loan assets

    5

    $101 million

    With this information, the Australian taxpayer completes question 16 as follows.

    Example of question 16 completed

    Last modified: 09 Nov 2011QC 24292