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Penalties may apply for incorrectly claiming input tax credits.

Last updated 11 April 2017

If you incorrectly claim input tax credits on things acquired in the course of M&A activity, you may be liable to a penalty for making a false or misleading statement.

If reasonable care was taken to prepare your activity statement, a penalty for making a false or misleading statement will not apply. A lack of awareness by those preparing the activity statement, about matters which are relevant to completing that activity statement, does not excuse you from taking reasonable care.

We expect that an entity engaged in M&A will, to the fullest extent possible, make relevant information available to those involved in preparing an activity statement to enable a reasonable assessment to be made about:

  • the nature of the M&A being undertaken
  • the extent to which acquisitions are related to particular options.

However, we recognise that determining creditable purpose in the context of unfolding M&A activity provides some practical difficulties, and that there may be some uncertainty in determining the correct amount of input tax credits at the date an activity statement is due. Some of these difficulties include:

  • confidentiality considerations necessarily limiting the sharing of information within an organisation, particularly where listed public companies are involved
  • frequent changes in direction and purpose as due diligence unfolds
  • difficulty in analysing the particulars of work provided by certain advisors in time for preparing activity statements.

Having regard to these practical difficulties, and as part of your overall compliance management approach, you may decide to establish a process which involves reviewing input tax credit claims. This review should take place within a reasonable period after the completion of the M&A transaction to identify and correct any errors made in the original input tax credit claims.

When considering whether reasonable care has been taken, we will take into account the way you sought to manage your compliance obligation in response to these practical difficulties. Moreover, if we conclude that you did not take reasonable care and are therefore liable to a penalty, we will consider whether remission of any penalty is appropriate, having regard to such things as:

  • whether it would be fair and reasonable to remit, having regard to the practical difficulties faced by you in initially determining creditable purpose
  • whether you are making a genuine attempt to comply – which might be supported, for example, by a process that you have in place to review input tax credit claims within a reasonable period after the M&A expenses were incurred, with a view to correcting any error in the original activity statement.