Compliance reviews have revealed a high error rate in privately owned and wealthy group CFC disclosures.
Australian resident taxpayers (e.g. the head of a group of companies) must apply the CFC provisions if they have a controlling interest in a foreign company. If this applies to you, you need to disclose all CFCs, and their income, in tax returns and the international dealings schedule (IDS).
We monitor private group compliance through a review program, where we’re regularly seeing incorrect disclosures that highlight knowledge gaps around the CFC provisions.
Common errors
Common errors we see are:
- under-reporting of CFC attributable income in tax returns, often from errors in applying the active income test, or from failing to recognise tainted income
- deemed dividends from unlisted country CFCs omitted from the taxpayer’s assessable income
- incorrect IDS disclosures, including
- completely overlooking CFCs including where there is associate-inclusive control
- inaccurate reporting of CFC gross revenue and the number of CFCs acquired and disposed of.
Private group compliance continues to be a key focus of our Tax Avoidance Taskforce. You need to lodge correct information, otherwise you're risking lengthy review processes and costly amendments, so it’s important to check you’re complying.
Get across your CFC obligations
Follow these tips to make sure you’re getting it right:
- Review our Controlled foreign company page for the Private Wealth International Program. Knowing the CFC basics might help avoid mistakes.
- Discuss the CFC provisions with your adviser.
- Take care if your group is growing rapidly in size and complexity. This is when you’re most susceptible to mistakes.
- Keep your adviser across all business developments – seemingly small changes can have big tax implications.
- Amend any previously lodged tax returns if you discover an error. Waiting for us to notice may result in a tax bill including penalties and interest.
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