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  • Examples

    Self-assessment

    The following example will help you self-assess your requirement to lodge an RTP schedule.

    Example

    Economic Group A is a public group that has an aggregated total income of $270 million and comprises of companies B, C, D, Trust E and Partnership F. The total income in the tax returns of group members is as follows:

    • Company B: $100 million
    • Company C: $70 million
    • Company D: $20 million
    • Trust E: $60 million
    • Partnership F: $20 million.
    • The group income exceeds $250 million.

    Companies B and C will be required to lodge the RTP schedule as their total business income exceeds $25 million and Economic Group A has aggregated total income exceeding $250 million.

    Company D will not be required to lodge an RTP because its total income is less than $25 million.

    Trust E and Partnership F are not required to lodge an RTP schedule as they are not companies, and do not lodge a company tax return.

    End of example

    Group income

    Example 1

    Economic Group A is a public group that has an aggregated turnover of $370 million and comprises of companies B and C:

    • Company B is a foreign parent with $200 million turnover, and it does not lodge an Australian tax return.
    • Company C is an Australian subsidiary with $170 million disclosed in the total business income label of the company tax return.

    Only income that is included in the Australian tax returns is included in the group income calculation. As the income in the Australian tax returns of all group members is below $250 million, none of the group members are required to lodge the RTP schedule.

    End of example

    Example 2

    Economic Group A is a public group that has an aggregated turnover of $600 million and comprises of companies B and C:

    • Company B is a foreign subsidiary with $300 million turnover and $50 million in profit which it pays to its parent as a dividend, it does not lodge an Australian tax return.
    • Company C is the Australian parent company whose income comprises of $300 million from its Australian operations and $50 million in NANE dividends from company B. Company C records $350 million in its total business income label.
    • The group income is $350 million which exceeds $250 million.
    • Company B will not be required to lodge the RTP schedule it does not lodge an Australian income tax return.

    Company C will be required to lodge an RTP as their total business income exceeds $25 million.

    End of example

    Economic group

    Example

    Company A has 60% interest in Company B, 30% interest in Company C and 30% interest in Company D. Company B owns 30% in its sister Company C.

    The group is headed by Company A as it is the ultimate holding company.

    The Australian resident economic group consists of:

    • Company A being the ultimate holding company
    • Company B as company A's controlling interest exceeds 50%
    • Company C as both companies A and B are group members and together they own a controlling interest in excess of 50%. (Company A owns 30% and Company B owns 30%, the total being 60%.)

    Company D is not included in the group as it is only 30% owned by members of this group and as such is not controlled by group members.

    End of example

    Public company

    Example 1

    Company A, has total business income of $300 million, is listed on the Australian Stock Exchange and has one class of shares:

    • 20% of the shares are traded on the ASX
    • 80% of the shares belong to the founder and their family trust.

    Under paragraph 103A(3)(a) of the ITAA 1936, as more than three-quarters of the shares in the company are owned by less than 20 people, the company is a private company.

    Company A is not required to lodge the RTP schedule.

    End of example

     

    Example 2

    Company A, has total business income of $300 million, is listed on the Australian Stock Exchange.

    • Company A fully owns Company B whose total business income is $30 million.

    Under subparagraph 103A(2)(d)(v) of the ITAA 1936 a company is a public company if it is a subsidiary of a public company. This means that Company B is a public company.

    Companies A and B would be required to lodge an RTP schedule.

    End of example

    Foreign owned company

    Example

    Company A is a foreign company that has no operations in Australia except through its 60% ownership of subsidiary Company B. Company B has total business income of $300 million.

    Company B is controlled by foreign Company A as Company A's interest in Company B exceeds 50%.

    Company B is considered to be foreign owned that will be required to lodge an RTP schedule.

    End of example

    Disclosing RTPs on the schedule

    The following examples will help you complete your RTP Schedule.

    Example 1: Category A RTP

    AusCo is an Australian investment company. For many years, it has invested in the share market with an average turnover of about 10% of the value of the total share portfolio, maintaining a consistent yield on its capital invested in shareholdings in Australian companies. AusCo had no particular exit strategy and treated any sales as the realisation of investments and on capital account.

    During the income year, in order to refinance after having liquidity problems, AusCo sold 30% of its shares. AusCo considered these shares to be 'growth' shares as opposed to 'value shares'. These shares were sold on the market at a loss.

    AusCo concludes that the facts associated with the disposal of the shares are relatively the same or similar for the purposes of the position and that a common conclusion is reached on the tax treatment of those transactions – that is, there is a common basis for lodgment. So, AusCo treats the disposals of the sale shares as a single position.

    AusCo decides to treat the losses from the sale of the shares as arising from an isolated transaction and on revenue account. If this treatment is not sustained, the potential adjustment would equal or exceed AusCo's materiality amount.

    Exercising reasonable care, AusCo concludes that this treatment is about as likely to be correct as incorrect – so, AusCo must disclose the position as a Category A RTP.

    The information on the RTP schedule could be completed for this RTP as follows:

    RTP number

    2019–1

    Have you discussed this position with the ATO?

    No

    RTP category

    A

    Concise description

    AusCo is an Australian investment company. AusCo has continuously invested in the Australian share market since early 2000.

    From 1 July 2009 to 30 June 2018, AusCo had a 10% average turnover of the value of its total portfolio of Australian shares. It maintained a consistent yield on its capital invested in shareholdings in Australian companies.

    During the 2018–19 income year, AusCo experienced urgent liquidity problems because it was unable to re-finance a loan facility. As a direct result, AusCo had to urgently sell 30% of its shares.

    While the shares had to be sold quickly, AusCo carefully considered which shares should be sold (the sale shares). In line with a strategic decision made by AusCo's board, the sale shares were those shares that AusCo considered to be 'growth' shares (as opposed to 'value' shares).

    The disposal of the sale shares was effectively a forced sale – AusCo sold into a falling market, with the result that the sale shares were sold at a loss.

    The sale shares comprised of shares in a number of different Australian listed companies actively traded on the Australian Stock Exchange. Each parcel of shares was sold at a loss.

    The sales of the shares have been treated as a single position.

    Basis for position

    The position taken by AusCo on its 2018–19 income tax return is that the loss arising on the disposal of the sale shares is deductible under section 8–1 of the Income Tax Assessment Act 1997.

    In adopting this treatment, regard was had to the following relevant authorities, industry and administrative practices:

    • section 8–1 Income Tax Assessment Act 1997
    • London Australia Investment Co Ltd v. FC of T (1977) 138 CLR 106; AGC (Investments) Limited v. FC of T 92 ATC 4239; Trent Investments Pty Ltd v. FC of T 76 ATC 4105
    • TR 92/3 Income tax: whether profits on isolated transactions are income
    • TR 2005/23 Income tax: listed investment companies
    • TD 2011/21 Income tax: does it follow merely from the fact that an investment has been made by a trustee that any gain or loss from the investment will be on capital account for tax purposes?
    End of example

     

    Example 2: Category A RTP

    BCo is an Australian company that is not a member of a tax consolidated group. During the 2018–19 income year, all of the shares in BCo were sold to unrelated parties, resulting in BCo failing the continuity of ownership test. The new shareholders also introduced changes in BCo's operations. BCo decides to write off a material long-term receivable as unrecoverable and 'bad'.

    BCo concludes that it satisfies the same business test and is entitled to treat the bad debt write-off as deductible.

    If this treatment is not sustained, the potential adjustment would equal or exceed BCo's materiality amount.

    Exercising reasonable care, BCo concludes that this treatment is about as likely to be correct as incorrect – so, BCo must disclose the position as a Category A RTP.

    The information on the RTP schedule could be completed for this RTP as follows:

    RTP number

    2019–1

    Have you discussed this position with the ATO?

    No

    RTP category

    A

    Concise description

    Since 2010, BCo Pty Limited (BCo) has continuously owned and operated the retail business known as 'B retail'. In August 2014, BCo provided services for an agreed fee to XYZ, an unrelated third party, through its 'B retail' business. In September 2017, XYZ started experiencing serious financial difficulties. XYZ did not pay for the services provided by BCo in line with the agreed terms.

    In December 2017, XYZ advised BCo that it was not able to pay for the services provided. In March 2018, after undertaking appropriate investigations and enquiries, BCo determined that the long-term material receivable from XYZ was unrecoverable and ‘bad’. BCo then took all necessary steps to write off the XYZ receivable as bad, including writing off the receivable from its accounts.

    In November 2018, the legal and beneficial interests in all of the shares in BCo were sold to unrelated parties. The new shareholders of BCo have implemented changes to BCo’s operations, focusing on improving the profitability of 'B retail'.

    Basis for position

    The position taken by BCo on its 2018–19 income tax return is that the full amount of the XYZ debt that BCo wrote off as bad in the 2018–19 income year is deductible under sections 25-35 and 165-120 of the Income Tax Assessment Act 1997.

    In adopting this treatment, regard was had to the following relevant authorities, industry and administrative practices:

    • sections 25-35, 165-120, 165-126, 165-129 and 165-210 of the Income Tax Assessment Act 1997
    • TR 92/18 Income tax: bad debts
    • TR 1999/2 Income tax: deductibility of expenditure incurred on tailings dams or similar mining residue, waste storage or disposal facilities (the operation of sections 165-13 and 165-210, paragraph 165-35(b), section 165-126 and section 165-132)
    • Dinshaw v. Bombay Commissioner of Taxes (1934) 50 TLR 527
    • Avondale Motors (Parts) Pty. Ltd. v. Federal Commissioner of Taxation (1971) 124 CLR 97.
    End of example

     

    Example 3: Category C RTP

    AusCo enters into an arrangement whereby capital is raised from shareholders in order to fund the payment of a special dividend to shareholders.

    This arrangement is an RTP covered by Question 2 of Category C. The required information to be provided on the RTP schedule for this RTP is as follows:

    RTP Category C question

    2

    RTP Category C subcategory

    Optional comments

    It is not compulsory to complete the optional comments section and AusCo chooses not to provide any optional comments.

    End of example

     

    Example 4: Category C RTP

    An Australian mining company (AusCo) has a related party in Thailand (ForCo). ForCo sells minerals on behalf of other members in the Group (including AusCo) to third parties in Malaysia, for which it is remunerated on a commission basis by the members including AusCo.

    In considering PCG 2017/1, AusCo identifies that it is involved in an offshore marketing hub arrangement and the arrangement falls in the blue zone.

    Marketing hub arrangements are covered by Question 9 of Category C, with the blue zone covered by subcategory 3.

    The required information to be provided on the RTP schedule for this RTP is as follows:

    RTP Category C question

    9

    RTP Category C subcategory

    3

    Optional comments

    Offshore marketing hub arrangement is in relation to export of zinc from Australia to Malaysia.

    Note: it is not compulsory to complete the optional comments section.

    End of example
    Last modified: 23 Jul 2020QC 58955