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  • Category A: Tax uncertainty in your income tax return

    A Category A RTP is a position where it would be concluded in the circumstances, having regard to relevant authorities, that what is argued for is about as likely to be correct as incorrect, or is less likely to be correct than incorrect.

    This does not include a position where you have exercised reasonable care and concluded in the circumstances, having regard to relevant authorities, that what is argued for is more likely to be correct than incorrect.

    For the purposes of the schedule, the phrases ‘about as likely to be correct as incorrect’, ‘more likely to be correct than incorrect’, and ‘relevant authorities’ take their meaning from MT 2008/2 Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable. A position that is about as likely to be correct as incorrect is a Category A RTP even though it is reasonably arguable.

    You must have regard to all matters relevant to the position – this includes anti-avoidance rules, integrity provisions, transfer pricing and market valuations.

    You must disclose a material position that does not have regard to relevant authorities, or if there are none, that is not based on a well-reasoned construction of the applicable statutory provision. You must disclose such a material position even if it is based on administrative or industry practice.

    An example of a position covered by RTP Category A can be found under Disclosing RTPs on the schedule.

    We have provided additional guidance on when a transfer pricing position is a Category A RTP, including on when a transfer pricing position is material.

    Disclosing positions that are reasonably arguable

    A matter is reasonably arguable if it satisfies the requirements of section 284-15 of Schedule 1 to the Taxation Administration Act 1953 (as amended) (TAA). This is different to the definition of a Category A RTP.

    A position that is reasonably arguable may still need to be disclosed on the RTP schedule as a Category A position. This is because Category A covers positions where, having exercised reasonable care and concluded in the circumstances, having regard to relevant authorities, that:

    • what is argued for is more likely to be incorrect than correct (these positions are not reasonably arguable)
    • what is argued for is about as likely to be correct as incorrect (these positions are reasonably arguable, but must still be disclosed as Category A RTPs).

    RTP Category A does not cover positions where, having exercised reasonable care and concluded in the circumstances, having regard to relevant authorities, that what is argued for is more likely to be correct than incorrect. This type of position is also reasonably arguable.

    Positions that are not supported by relevant authorities

    You must also disclose a material position that is not supported by relevant authorities if is not based on a well-reasoned construction of the applicable statutory provision. You must disclose such a material position, even if it is based on administrative or industry practice.

    Positions based on anticipated legislation

    To work out whether a material position is a Category A RTP, you must have regard to relevant authorities. For the purposes of the RTP schedule, the phrase ‘relevant authorities’ takes its meaning from MT 2008/2 Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable.

    As outlined in MT 2008/2, the following are relevant authorities:

    • a taxation law
    • material for the purposes of subsection 15AB(1) of the Acts Interpretation Act 1901
    • a decision of a court (whether or not an Australian court), the Administrative Appeals Tribunal or a Taxation Board of Review
    • a public ruling (defined in section 358–5 of Schedule 1 to the TAA).

    Relevant authorities do not include announced but un-enacted law changes.

    If you do rely upon anticipated legislation, you must determine whether the position you have taken is a material RTP that must be disclosed on the RTP schedule.

    Positions contrary to a public ruling

    The reasonably arguable standard is an objective standard. All authorities relevant to the tax treatment of circumstances, arrangements or transactions, including the authorities contrary to the treatment, must be taken into consideration.

    You must disclose a material position that is not in accordance with a public ruling where it would be concluded in the circumstances, having regard to relevant authorities, that what is argued for is about as likely to be correct as incorrect, or is less likely to be correct than incorrect.

    Refer to MT 2008/2 Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable for the meaning of:

    • about as likely to be correct as incorrect
    • more likely to be correct than incorrect
    • relevant authorities.

    You must take reasonable care in forming your view. In determining whether you have exercised reasonable care, refer to MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard.

    Positions relating to the exercise of a Commissioner’s discretion

    In concluding whether a position involving an assumption about the way in which the Commissioner of Taxation will exercise a discretion, including the application of integrity and anti-avoidance provisions, you should have regard to:

    Where an assumption about the exercise of the Commissioner's discretion forms part of a material Category A RTP, you must disclose the relevant legislative provision that relates to that discretion or anti avoidance provision in the ‘Basis for position’ field for that position.

    Positions covered by a general administrative practice

    You must have regard to relevant authorities in concluding what is argued for is about as likely to be correct as incorrect, or is less likely to be correct than incorrect.

    For the purposes of the RTP schedule, relevant authorities do not include our general administrative practices or industry practices.

    Disclosure is required if a material position falls within any RTP category, even where you conclude that the position conforms to our general administrative practice.

    You are required to include any industry or administrative practices that you have relied on in the Basis for position field.

    Positions where the law is clear but the facts are uncertain (relating to valuation issues)

    A position means your basis for lodgment in your company income tax return in respect of particular circumstances, arrangements or transactions.

    Your basis for lodgment of your income tax return is the effect for taxation purposes given to particular circumstances, arrangements or transactions reflected on your income tax return. This includes positions involving findings of fact, such as market valuations.

    Disclosure of a position is required where a material position involving findings of fact is about as likely to be correct as incorrect, or is less likely to be correct than incorrect.

    In determining whether a material position involving market values is about as likely to be correct as incorrect, or is less likely to be correct than incorrect, consider Market valuation for tax purposes, which provides guidance in determining such things as the appropriate valuation methodology, documentation and allocations among assets.

    Formal valuations, where they are done correctly and the right asset is valued, can be undertaken to reduce uncertainty of positions that are uncertain due to valuation issues. Where uncertainty is reduced to the point that the position is more likely correct than incorrect, it does not need to be disclosed on the RTP schedule.

    Category B: Tax uncertainty in financial statements

    A Category B RTP is a position in respect of which uncertainty about taxes payable or recoverable is recognised and/or disclosed in your or a related party's financial statements.

    Uncertainty about taxes payable or recoverable exists where there is a difference between your position and the measurement and/or recognition of the taxes payable or recoverable in respect of that position as adopted in your or a related party's financial statements. A Category B RTP is material if this difference is equal to or exceeds your materiality amount. Taxes payable or recoverable exist where an income tax-related provision, current tax liability (asset) and/or contingent liability (asset) is recognised and/or disclosed in accordance with accounting principles in your or a related party’s financial statements.

    You will be required to disclose a Category B position where the provision and/or contingent liability (asset) in the financial statements for the current year:

    • is raised in the current reporting period
    • was raised in a prior reporting period and has not been disclosed previously (because you were not required to lodge an RTP schedule)
    • was raised in prior reporting periods, the amount of the provision/contingent liability has increased in your or a related party's financial statements, and that increase has not been disclosed previously because it either increased in the current year or in a year you did not have to lodge an RTP schedule.

    You only have to disclose a Category B RTP if it is material.

    You are not required to disclose a Category B position where the same provision and/or contingent liability (asset) has been disclosed in a prior year RTP schedule and the amount has not increased since that disclosure.

    The concepts of 'recognition', 'measurement' and 'disclosure' are to be given meanings in accordance with accounting principles.

    Determining whether a position has been disclosed or recognised as uncertain in a related party's financial statements

    Where a position will likely appear in a related party's financial statement because you advised that related party that the tax treatment for this position is uncertain, you need to confirm with the related party if that position will be recognised in their financial statements. In this case you will have to consider the position to be a Category B RTP unless the related party specifically tells you that the position will not be recorded in their financials.

    We do not expect you to contact every related party to see if they are recognising any tax positions related to you. Where you have not previously discussed a position with a related party, we do not expect you to ask them if they are recognising this position.

    Last modified: 23 Jul 2020QC 58955