Example – Self-assessment

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

• Company B – $100 million
• Company C – $70 million
• Company D – $20 million
• Trust E – $60 million
• Partnership F – $20 million.

Companies B and C are required to lodge an RTP schedule as their total business income exceeds $25 million and the group's total income exceeds $250 million.

Company D isn't required to lodge an RTP schedule because its total income is less than $25 million.

Trust E and Partnership F aren't required to lodge an RTP schedule as they aren't companies and don't lodge a company tax return.

Example – Stub period

Company H is the head entity of Consolidated Group A. Company H is required to lodge an RTP schedule for financial year end 2021 on behalf of Consolidated Group A.

Company B was part of Consolidated Group A but left the consolidated group prior to the 2021 year end. Company B lodged a stub return for the part of the 2021 income year it wasn’t part of the group.

Company B isn't required to lodge an RTP schedule with its stub return.

Company H is required to disclose, in Consolidated Group A's 2021 RTP schedule, any of Company B’s relevant arrangements for the period it was part of the group.

Example 1

Economic Group A is a public group and comprises companies B and C:

• Company B is a foreign resident with $200 million turnover – it doesn't 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 reported in Australian tax returns is included in the group income calculation. As 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.

Example 2

Economic Group A is a public group with an aggregated turnover of $600 million and comprises 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 doesn't lodge an Australian tax return
• Company C is the Australian parent company whose income comprises $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 on its Australian company tax return.

Company B isn't required to lodge an RTP schedule as it doesn't lodge an Australian company tax return. Company C is required to lodge an RTP schedule as its total business income exceeds $250 million.

Example – Economic group

Company A has:

• 60% interest in Company B
• 30% interest in Company C
• 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 as 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 own a controlling interest in excess of 50% (Company A owns 30% and Company B owns 30%).

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

Example 1

Company A has total business income of $300 million, is listed on the Australian Securities Exchange (ASX) 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 Company A are owned by less than 20 people, it is a private company.

Company A isn't required to lodge an RTP schedule.

Example 2

Company A has total business income of $300 million and is listed on the ASX. 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 Company B is a public company.

Companies A and B are required to lodge an RTP schedule.

Example 1 – Foreign-owned company

Company A is a foreign company and its only Australian operations are through its 60% ownership of Company B.

Company B is controlled by Company A, as Company A's interest in Company B exceeds 50%, and is considered foreign-owned.

Company B has total business income of $300 million.

Company B is required to lodge an RTP schedule.

Example 2 – Foreign-owned company

Company B, a foreign-owned entity, has a 50.9% controlling interest in Company A.

Company C, an Australian private company, holds the remaining 49.1% interest.

Company A is considered a foreign-owned company.

Company A has total business income of $300 million and is required to lodge an RTP schedule.

Example 1 – Category A reportable tax position

AusCo is an Australian investment company. For many years, it has invested in the share market in Australian companies.

On average, it turns over about 10% of the value of its total share portfolio and maintains a consistent yield on its capital invested. AusCo had no particular exit strategy and treated any sales as the realisation of investments and on capital account.

During the income year, 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 treats the losses from the sale of the shares as arising from an isolated transaction and on revenue account. It does so for all share sales and, therefore, treats the disposals of the sale shares as a single position.

If the chosen treatment isn't sustained, the potential adjustment would exceed AusCo's materiality amount.

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

Information provided on AusCo's RTP schedule:

• RTP number – 2021–01
• Have you discussed this position with the ATO? – No
• RTP category – A.

Concise description

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

From 1 July 2009 to 30 June 2021, AusCo had a 10% average turnover of the value of its total portfolio of Australian shares and maintained a consistent yield on its capital invested.

During the income year, AusCo experienced liquidity problems, as it couldn't refinance a loan facility. As a direct result, AusCo had to urgently sell 30% of its shares. The disposal of the sale shares was effectively a forced sale.

In line with a strategic decision made by AusCo's board, the sale shares were those shares AusCo considered to be growth shares, as opposed to value shares.

The sale shares comprised shares in several different Australian companies whose shares are actively traded on the ASX. Each parcel of shares was sold at a loss, as AusCo sold into a falling market.

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

Basis for position

The position taken by AusCo, in its company 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, the following relevant authorities were considered:

• 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?

Example 2 – Category A reportable tax position

BCo is an Australian company that isn't a member of a tax consolidated group.

During the income year, all 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 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 exceed BCo's materiality amount.

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

Information provided on BCo's RTP schedule:

• RTP number – 2021–10
• Have you discussed this position with the ATO? – No
• RTP category – A.

Concise description

Since 2010, BCo Pty Ltd (BCo) has continuously owned and operated the retail business known as B Retail. In July 2019, BCo provided services, for an agreed fee, to XYZ Pty Ltd, an unrelated third party, through its B Retail business. In September 2019, XYZ started experiencing serious financial difficulties. XYZ didn't pay for the services provided by BCo in line with the agreed terms.

In November 2020, XYZ advised BCo it couldn't pay for the services provided. In December 2020, after undertaking appropriate investigations and enquiries, BCo determined 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 2020, the legal and beneficial interests in all 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 company tax return, is the full amount of the XYZ debt written off as bad in the income year is deductible under sections 25-35 and 165-120 of the Income Tax Assessment Act 1997.

In adopting this treatment, the following relevant authorities were considered:

• 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.

Example 3 – Category C reportable tax position

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

This arrangement is a reportable tax position covered by Question 2 of Category C.

Information provided on AusCo's RTP schedule:

• RTP Category C – question 2
• RTP Category C subcategory – leave field blank as not applicable.

Comments

AusCo has chosen not to provide any optional comments.

Example 4 – Category C reportable tax position

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.

Applying PCG 2017/1, AusCo identifies 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.

Information provided on AusCo's RTP schedule:

• RTP Category C – question 9
• RTP Category C – subcategory 3.

Comments

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