Category A: Tax uncertainty in your income tax return

A Category A reportable tax position is one where, considering relevant authorities, you consider the material position taken is either:

• about as likely to be correct as incorrect, even if it is reasonably arguable
• is less likely to be correct than incorrect.

You must disclose a material position, even if it is based on administrative or industry practice, that:

• doesn't have regard to relevant authorities, or if there are none
• isn't based on a well-reasoned construction of the applicable statutory provision.

You must have regard to all matters relevant to the position including:

• anti-avoidance rules
• integrity provisions
• transfer pricing
• market valuations.

A position will be material where the potential adjustment, should the position not be sustained, is equal to or exceeds your entity's materiality amount.

See also:

• 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’, and ‘relevant authorities’
• Disclosing reportable tax positions on the schedule – examples 1 and 2
• When a transfer pricing position is a Category A RTP

Relevant authorities

The relevant authorities are:

• 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, as defined in section 358–5 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

Relevant authorities don't include:

• announced but unenacted law changes
• our general administrative practices
• industry practices.

Positions based on anticipated legislation

If you rely on anticipated (announced but unenacted) legislation, you must determine whether the position your entity has taken is a material reportable tax position that must be disclosed.

Positions contrary to a public ruling

You must disclose a material position contrary to a public ruling where it meets the criteria for a Category A reportable tax position.

Positions relating to the exercise of a Commissioner’s discretion

In determining if a position involving an assumption about the way the Commissioner of Taxation will exercise a discretion is a Category A reportable tax position, you should consider:

• PS LA 2005/24 Application of General Anti-Avoidance Rules
• subsection 284-15(2) of Schedule 1 to the Taxation Administration Act 1953
• the Revised Explanatory Memorandum to A New Tax System (Tax Administration) Bill (No 2) 2000 at paragraph 1.29.

Where an assumption about the exercise of the Commissioner's discretion forms part of a material Category A reportable tax position, you must disclose the relevant legislative provision that relates to the discretion in the Basis for position field on the schedule.

Positions covered by a general administrative practice

You are required to include any industry or administrative practices your entity relied on to reach its position in the Basis for position field on the schedule.

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

In determining whether a material position involving market values is a Category A reportable tax position, you should consider the guidance provided in Market valuation for tax purposes. This includes guidance in determining such things as the appropriate valuation methodology, documentation and allocations among assets.

Category B: Tax uncertainty in financial statements

You are required to disclose a Category B reportable tax position where uncertainty about taxes payable or recoverable is recognised or disclosed (or both) in your entity or a related party's financial statements.

Uncertainty about taxes payable or recoverable exists where there is a difference between your entity's position and the measurement or recognition (or both) of the taxes payable or recoverable in respect of that position, as adopted in your entity, or a related party's, financial statements. Taxes payable or recoverable exist where an income tax-related provision, current tax liability (asset) or contingent liability (asset) (or both) is recognised or disclosed (or both) in accordance with accounting principles in your entity, or a related party’s, financial statements.

You will be required to disclose a material Category B reportable tax 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 your entity wasn't required to lodge an RTP schedule)
• was raised in prior reporting periods, the amount of the provision / contingent liability has increased in your entity, 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 your entity didn't have to lodge an RTP schedule
• was required under AASB Interpretation 23 Uncertainty over Income Tax Treatments.

A position will be material where the potential adjustment, should the position not be sustained, is equal to or exceeds your entity's materiality amount.

You aren't required to disclose a Category B reportable tax position where the same provision or contingent liability (asset) (or both) has been disclosed in a prior year RTP schedule and the amount hasn't increased since that disclosure.

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

See also:

• Guidance on AASB Interpretation 23 (PDF, 324.7KB)This link will download a file

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

In identifying positions that may be a Category B reportable tax position, you, or another representative of your entity, don't need to:

• contact every related entity to see if they are recognising any tax positions related to your entity in their financial statements
• ask them if they are recognising a position in their financial statements, if you, or another representative of your entity, haven't previously discussed that position with that entity.

If you, or another representative of your entity, advise a related entity that the tax treatment of a position is uncertain you need to disclose this position as a Category B reportable tax position if:

• the related entity confirms the position will be recorded in their financial statements
• the position meets the criteria for a Category B reportable tax position.