Category A: Tax uncertainty in your tax return

Warning:

This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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A Category A reportable tax position is one where, given 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 there are none
• is not 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.

For more information, see:

• 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 do not include:

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

Positions based on anticipated legislation

If you rely on 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.

Treating similar arrangements or transactions as a single position

Similar arrangements or transactions are treated as a single position when both:

• the facts used to determine their treatment for tax purposes are the same or similar, or are related to each other in a way that makes it necessary to take them into account together
• a common conclusion is reached on their tax treatment, that is, there is a common basis for lodgment.

These arrangements or transactions only need to be disclosed on the schedule once under a single RTP number. You must state in the Concise description field that the position relates to more than one similar arrangement or transaction.

Research and development tax offset claims

An R&D tax offset claim reflected on the tax return may not be a single Category A or B reportable tax position. Instead there may be several positions taken within the R&D tax offset claim, for example, whether the:

• entity is an eligible R&D entity
• expenditure included in the claim was incurred
• expenditure was incurred on eligible R&D activities
• expenditure was at risk for R&D purposes
• feedstock provisions are applicable.

Each of these positions must be considered separately to work out whether your entity has any material reportable tax positions you must disclose on the schedule.

If your entity has several projects that make up its R&D tax offset claim, this doesn't mean each project is treated as a separate Category A or B reportable tax position. If the criteria for treating similar arrangements or transactions as a single position are met, you only need to report the projects under a single disclosure.

Related party international dealings

Where your entity has multiple related party international dealings, if the criteria for treating similar arrangements or transactions as a single position are met, you only need to report the dealings under a single reportable tax position disclosure.

You can also combine all related party revenue dealings, or related party expenditure dealings, as a single Category A reportable tax position disclosure.