The following examples will help you self-assess your entity's requirement to lodge an RTP schedule.
The following example will help you determine your entity's group income.
The following example will help you determine your entity's economic group.
The following examples will help you determine if your entity is considered a public company.
The following example will help you determine if your entity is considered a foreign-owned entity.
The following examples will help you understand what positions you need to disclose.
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.
End of example