Information for consolidated and multiple entry consolidated (MEC) groups
Consolidation – taxing wholly owned groups as single entities
The taxation of consolidated groups and MEC groups, that is, the taxing of wholly owned eligible companies, partnerships and trusts as if they are part of a single head company, was introduced on 1 July 2002. Consolidation may be an option for your business if the business structure includes a company that wholly owns one or more entities.
See Consolidation for the Consolidation reference manual and other relevant publications.
If you are lodging a company tax return as a head company for a consolidated or MEC group, print X in the box at Z1 Consolidated head company item 3. Print X in all other boxes in item 3 that also apply. A trust that is a consolidated head company must also show whether it is a private company or a public company.
Printing X at Z1 at item 3 on the return does not meet the requirement to notify the Commissioner that you have made a valid choice in writing to form a consolidated or MEC group.
Subsidiary member – non-membership period
If the company is a subsidiary member of a consolidated or MEC group and is lodging a tax return because it had a period during the income year when it was not a member of a consolidated group (a non-membership period), print X in the box at Z2 Consolidated subsidiary member item 3.
If a subsidiary member of a consolidated or MEC group must lodge a company tax return for any non-membership periods during the year of income, the company must complete all relevant schedules for the non-membership periods.
For information about reporting multiple non-membership periods during the income year, see the Consolidation reference manual, sheet C9-5-110.
- If you completed Z2, do not complete the part-year details at the top of page 1 of the tax return unless the company has an approved substituted accounting period. Even though the company will include only the income and deductions properly attributable to all of the periods of non-membership during the year, the tax return is still regarded as being for the whole of the income year, that is, from 1 July to 30 June or equivalent substituted accounting period, and is lodged at the usual time.
- Do not complete the Final tax return box on page 1 of the tax return if membership of the consolidated or MEC group is the only basis on which the company will not be required to lodge future returns.
Key elements of the consolidation regime
Choice to form a consolidated group or MEC group
To form a consolidated group, a group must consist of an Australian resident head company and at least one other Australian resident entity (a company, trust or partnership) wholly owned by the head company.
A consolidated group comes into existence when a head company of a consolidatable group makes a choice in writing that it is forming a consolidated group from a particular date.
To form a MEC group, there must be a potential MEC group consisting of two or more eligible tier-1 companies of a top company. A MEC group comes into existence when the relevant eligible tier-1 companies of a potential MEC group make a choice in writing that they are forming a MEC group from a particular date. The choice must also include the appointment of the provisional head company (PHC) of the group by the eligible tier-1 companies.
The choice to consolidate is optional, but once made is irrevocable.
If a head company of a consolidatable group chooses to consolidate on a specified date then, from that time, both the head company and all of its eligible wholly owned subsidiaries will be members of the consolidated group for income tax purposes. Similarly, where the eligible tier-1 companies of a potential MEC group choose to consolidate, all the eligible tier-1 companies and their eligible wholly owned subsidiaries will be members of the MEC group for income tax purposes.
The choice to consolidate must be made in writing no later than:
- the day on which the head company lodges its income tax return for the income year in which the day specified in the choice occurs, or
- if a return is not required for that income year, the day it would otherwise have been due.
The period for making a choice in writing to consolidate cannot be changed. If the choice to consolidate is not made within the prescribed time, the group cannot be treated as consolidated for that income year. The Commissioner does not have the power to extend the time period for making the choice in writing. If more time is required to make a choice to consolidate, it is recommended that you ask us for an extension of time to lodge the relevant income tax return. The written choice to consolidate is not required to be given to the Commissioner. See the Consolidation reference manual, sheet C7-1-110 for more information on making a choice in writing.
Notifying the Commissioner of your choice
In addition to making a choice in writing to form a group, the head company of a consolidated group or MEC group must notify the Commissioner of Taxation of its choice to consolidate using the appropriate approved form.
The appropriate notification must be lodged within the same time period as applies to making a choice to consolidate.
For a consolidated group, the head company needs to complete and lodge a Notification of formation of an income tax consolidated group form (NAT 6781). For a MEC group, the head company needs to complete and lodge a Notification of formation of a multiple entry consolidated (MEC) group form (NAT 7024).
See Consolidation for information on completing the relevant notification forms.
If you cannot lodge your notification of formation within the required timeframe, contact us to discuss an extension of time to lodge your income tax return.
On consolidation, the head company of a consolidated or MEC group and all the subsidiary members are treated as a single entity for their income tax purposes, that is, each subsidiary member is treated as a part of the head company. The tax costs of assets of an entity joining a consolidated or MEC group (other than eligible tier-1 companies) which become assets of the head company under the single entity rule are reset in accordance with the tax cost setting rules.
The consolidated or MEC group operates as a single entity for income tax purposes, with the head company lodging a single income tax return and then paying a single set of PAYG instalments for the group.
A MEC group will have a PHC during the course of the income year. The PHC at the end of the income year will be the head company for the whole income year or, where the MEC group came into existence during the income year, from the time the MEC group came into existence. If a PHC becomes ineligible to be the PHC, a choice to appoint a new PHC must be made in writing by all of the remaining eligible tier-1 companies and also notified to the Commissioner.
A consequence of choosing to consolidate is that transactions that occur solely between members of the consolidated or MEC group will be disregarded for income tax purposes.
If a subsidiary member of a consolidated or MEC group has a period or periods in its income year when it is not a subsidiary member (non-membership periods), it will need to lodge a tax return for that income year. However, the tax return will be based only on amounts properly attributable to the periods when the entity was not a subsidiary member of a consolidated or MEC group during the income year.
The losses, franking credits, pre-commencement excess foreign income tax, conduit foreign income and attribution account surpluses of each subsidiary member can generally be transferred to, and used by, the head company of the consolidated or MEC group.
Carry-forward losses, franking balances, pre-commencement excess foreign income tax and conduit foreign income transferred to the head company of the group remain with the head company when an entity leaves the group. Special rules apply regarding treatment of carry-forward losses transferred into the consolidated or MEC group.
The consolidation regime does not affect a subsidiary member’s obligations for other taxes such as goods and services tax (GST), fringe benefits tax (FBT) and pay as you go (PAYG) withholding.
Certain corporate unit trusts and public trading trusts can be the head company of a consolidated group.
Where a consolidated or MEC group includes one or more subsidiary members that are life insurance companies, special consolidation rules apply to take into account the particular taxation treatment of life insurance companies. For more information, see the Consolidation reference manual.
The head company of a consolidated or MEC group (or PHC where relevant) must, among other things:
- pay the group’s PAYG instalments when it is issued with a consolidated instalment rate after the lodgment by the head company of its first group tax return
- determine, report and make any balancing adjustments to meet the group’s annual income tax liabilities
- manage any ongoing income tax liabilities and supply income tax information to us when required
- notify us of any members that join or leave the group.
Consolidated and MEC groups – head company tax returns
The tax return disclosures are the head company’s principal means of communicating its consolidated group tax data to us. They are also used by the Commissioner to calculate the head company’s instalment rate. This data is useful in our role as administrator of Australia’s tax system as we and the Government evaluate and monitor the tax system for the benefit of the community.
As a result, we expect that all tax return label disclosures will reflect correct, or materially correct, consolidated amounts at each label. Such amounts do not take account of transactions that occur between members of the consolidated or MEC group and give effect to the single entity principle. Correct or materially correct consolidated amounts at each label will retain the structural integrity of the disclosures to enable consistent monitoring and analysis of taxpayer data.
In addition, the concept of materiality applies to the tax return labels affected by consolidation. However, the amounts at T Taxable income or loss item 7 and those labels in the Calculation statement on page 11 of the tax return must be correct, not just materially correct.
In determining if the consolidated amounts are materially correct, we will be guided by the accounting standard on materiality; AASB 1031 Materiality.
We expect the completed consolidated tax return to be at least as relevant and as useful as other statutory financial reports.
Groups should have record-keeping, accounting and tax systems in place to ensure that materially correct consolidated data is available for the 2016 company tax return and for future years’ tax returns.
Given that consolidation is about taxing wholly owned groups as single entities, a head company of a consolidated or MEC group must complete only one of each required schedule. Each required schedule will contain the information for the consolidated or MEC group.End of example
Simplified imputation system
Broadly, the simplified imputation system has the following effects on the company tax return:
A company that is paid a franked or unfranked distribution must include:
- the amount of the distribution at Income, H Total dividends item 6
- any attached franking credits at J Franking credits item 7. Franking credits should not be included in assessable income at J or claimed as a franking tax offset at label C or E in the Calculation statement if:
- the shares are not held at risk as required under the holding period and related payments rules
- dividend washing integrity rule applies, or
- the imputation system has been manipulated in some other way.
The Commissioner may make a determination to deny imputation benefits where you have entered into a scheme for the purpose of obtaining franking credit benefits.
The amount of franking credits included in assessable income is allowed as a tax offset and claimed at C Non-refundable non-carry forward tax offsets in the Calculation statement.
Where the company has a franking deficit tax (FDT) liability, it can claim an FDT offset against its income tax liability. Some special rules apply to life insurance companies to ensure that an FDT liability can only be offset against that part of the company’s income tax liability that is attributable to shareholders. The amount of FDT liability that can be claimed as a tax offset is reduced in certain circumstances. For more information on how to calculate this amount, see Franking deficit tax offset and Franking account tax return and instructions 2016 (NAT 1382). There are also special rules that apply to late balancing entities that elect to determine their FDT on a 30 June basis. For more information, see:
- Simplified imputation: franking deficit tax offset
- Simplified imputation: FDT offset for late balancers.
Other features of the simplified imputation system include:
- the franking account operates on a tax-paid basis and is also a rolling-balance account
- the period for determining a corporate tax entity’s FDT liability is aligned with its income year. However, certain late balancing entities can elect to have their liability determined on 30 June
- the franking period relates to the operation of the benchmark rule
- corporate tax entities can choose the extent to which they frank frankable distributions made within a franking period. This choice is subject to the benchmark rule, except for certain listed public companies
- the benchmark rule, while limiting streaming opportunities, provides some flexibility in allocating franking credits to frankable distributions. To comply with this rule, a corporate tax entity must ensure that all frankable distributions made within a franking period are franked to the same extent, which is the benchmark franking percentage. The benchmark franking percentage is equal to the franking percentage established for the first frankable distribution made in that franking period
- a breach of the benchmark rule will not invalidate the allocation made to the distribution. However, a penalty will be imposed on the corporate tax entity. The penalty is either:
- an over-franking tax (OFT) if the franking percentage for the distribution exceeds the benchmark franking percentage, or
- a franking debit to the franking account if the franking percentage for the distribution is less than the benchmark franking percentage
- the penalty is calculated by reference to the difference between the franking credits actually allocated and the benchmark franking percentage
- payment of OFT does not give rise to a franking credit in the franking account. If an entity is liable to pay OFT it must complete a Franking account tax return 2016
- under the disclosure rule, corporate tax entities must notify the Commissioner in the approved form if they have significantly varied their benchmark franking percentage between franking periods. This information is disclosed on the Franking account tax return 2016.
- The maximum franking credit than can be allocated to a frankable distribution is 30%, including small businesses eligible for the 28.5% tax rate. As small business entities now have a higher franking credit cap than their tax rate, they need to take care not to over-frank (that is, allocate more franking credits than are in the franking account when paying dividends). Doing so may result in you having to pay a franking deficit tax.
Franking account tax return
Corporate tax entities may be entitled to claim an FDT offset. In certain circumstances, the FDT offset reduction rule reduces the amount of FDT that can be offset against future income tax liabilities. See Franking deficit tax offset for more information.
As a result of these rules, the Franking account tax return 2016 requires you to complete C Offsetable portion of current year FDT.
Complete a franking account tax return for all Australian corporate tax entities (including head companies of consolidated or MEC groups, corporate limited partnerships, corporate unit trusts and public trading trusts) and New Zealand franking companies that have:
- a liability to pay FDT
- a liability to pay OFT, or
- an obligation to disclose information to the Commissioner for their benchmark franking percentage.
Lodge the franking account tax return separately from your company tax return. If you lodge your franking account tax return at the time your company tax return is due, your franking account tax return may be late and an interest charge may apply to any outstanding tax amounts. Your franking account tax return is generally due one month after the end of your income year.
For more information on completing this tax return, see the Franking account tax return and instructions 2016.
Cooperatives – option to frank dividends
Cooperative companies may frank distributions made to members from assessable income.
Cooperative companies that do not choose to frank distributions made to members are entitled to claim a deduction to the extent that a distribution of assessable income is not franked.
For more information, see
Debt and equity rules
The debt and equity measures broadly operate to characterise certain interests as either debt or equity. For some tax law purposes, interests are treated in the same way as shares even though they are not shares in legal form. These interests are called ‘non-share equity interests’. They include some income securities, some stapled securities and certain related party ‘at call’ loans. For more information, see Debt and equity tests: guide to the debt and equity tests. This provides an overview of the debt and equity rules and explains what a non-share equity interest is.
For an explanation of when and how the debt and equity measures apply to ‘at call’ loans made to a company, see Debt and equity tests: guide to ‘at call’ loans.
For the purposes of the imputation system, non-share equity interests are generally treated in the same way as shares that are not debt interests. Non-share dividends on these types of interests may be franked or unfranked. Write the amount of non-share dividend, whether franked or unfranked, and any amount of franking credit attached to the non-share dividend, at the appropriate place on the tax return as if it were for a share.
You cannot claim a deduction for a non-share dividend.
Clubs, societies and associations
Taxable clubs, associations, societies and organisations are generally treated as companies. Such companies can be either non-profit or other taxable companies depending on the company’s constituent documents and purposes.
Non-profit companies are subject to special tax rules. For more information, see Mutuality and taxable income.
Non-profit companies that are resident and have taxable income of $416 or less do not have to lodge an income tax return, unless specifically requested.
For taxable not-for-profit organisations required to lodge an income tax return, see the Guide to company tax return for not-for-profit organisations 2016.
Corporate unit trusts and public trading trusts
Trustees of trusts that satisfy the conditions of section 102J (corporate unit trusts) or section 102P (public trading trusts) of the ITAA 1936 in an income year are subject to the company tax arrangements and lodge company tax returns and must apply for a company TFN.
The trust loss legislation in Schedule 2F to the ITAA 1936 applies to these trusts.
Information for consolidated and multiple entry consolidated (MEC) groups
Subdivision 713-C of the ITAA 1997 enables a corporate unit trust or public trading trust to be the head company of the consolidated group, if certain conditions are met. A corporate unit trust or public trading trust which is a head company of a consolidated group will be treated as a company for all income tax purposes including the treatment of lossesEnd of example
Taxation of financial arrangements (TOFA) Rules
For the purposes of these instructions, 'TOFA rules' is a reference to the TOFA rules contained in Division 230 of the ITAA 1997, and not to the 'foreign exchange gains or losses' rules contained in Division 775 of the ITAA 1997.
The TOFA rules found in Division 230 of the ITAA 1997 generally provide for:
- methods of taking into account gains and losses from financial arrangements, being accruals and realisation, fair value, foreign exchange retranslation, hedging, and reliance on financial reports and balancing adjustment
- the time when the gains and losses from financial arrangements will be brought to account.
The TOFA rules will apply to the following entities:
- authorised deposit-taking institutions, securitisation vehicles and financial sector entities with an aggregated turnover of $20 million or more
- Superannuation entities, managed investment schemes or entities with a similar status to a managed investment scheme under foreign law relating to corporate regulation with assets of $100 million or more
- any other entity (excluding individuals) which satisfies one or more of the following
- an aggregated turnover of $100 million or more
- assets of $300 million or more
- financial assets of $100 million or more.
Once the TOFA rules apply to a company, they will continue to apply to that company, even if its aggregated turnover, value of assets or value of financial assets subsequently falls below the requisite threshold.
A company that does not meet these requirements can elect to have the TOFA rules apply to it.
The aggregated turnover tests may mean that the TOFA rules will apply to companies that do not meet the turnover thresholds in their own right. Aggregated turnover includes the annual turnover of any entity a company is connected with, or any affiliate of the company, including overseas entities.
There are a number of elections available to companies under the TOFA rules. Elections under the TOFA rules are irrevocable and should be carefully considered before being made. For more information, see:
Foreign exchange gains and losses
Under the foreign exchange (forex) measures contained in Division 775 of the ITAA 1997, forex gains and losses are generally brought to account as assessable income or allowable deductions, when realised. The forex measures cover both foreign currency denominated arrangements and, broadly, arrangements to be cash-settled in Australian currency with reference to a currency exchange rate. Forex gains and losses of a private or domestic nature, or for exempt income or non-assessable non-exempt income, are generally not brought to account under the forex measures.
If a forex gain or loss is brought to account under the forex measures and under another provision of the tax law, it is generally assessable or deductible only under the forex measures. However, if a financial arrangement of a company is subject to the TOFA rules, forex gains and losses from the financial arrangement will generally be brought to account under those TOFA rules instead of the forex measures.
Additionally, forex gains and losses will generally not be assessable or deductible under the forex measures if they arise from certain acquisitions or disposals of capital assets, or acquisitions of depreciating assets, and the time between the acquisition or disposal and payment is no more than 12 months. Instead, any foreign exchange gain or loss is usually matched with or integrated into the tax treatment of the underlying asset.
The general translation rule (Subdivision 960-C of the ITAA 1997) requires all tax-relevant amounts to be expressed in Australian currency, regardless of whether there is an actual conversion of that foreign currency into Australian dollars.
The tax consequences of gains or losses on existing foreign currency assets, rights and obligations that were acquired or assumed before 1 July 2003, being the commencement date of the forex measures, are to be determined under the law as it was before these measures came into effect, unless:
- the company has made a transitional election that brings these under the forex measures, or
- there is an extension of an existing loan that brings the arrangement within these measures, for example, an extension by a new contract, or a variation to an existing contract.
For more information about these measures and how to calculate your foreign exchange realisation gains and losses, see Foreign exchange gains and losses
General value shifting regime
Broadly, value shifting describes transactions and other arrangements that reduce the value of an asset and (usually) increase the value of another asset.
The general value shifting regime (GVSR) consists of direct value shifting (DVS) and indirect value shifting (IVS) rules that primarily affect equity and loan interests in companies and trusts. There is also a DVS rule dealing with non-depreciating assets over which a right has been created. There are different consequences for particular interests according to whether the interest is held on capital account, or as a revenue asset or trading stock.
Where the rules apply to a value shift there may be a deemed gain (but not a loss), adjustments to adjustable values (for example, cost bases), or adjustments to losses or gains on realisation of assets.
There are de minimis exceptions and exclusions that will minimise the cost of complying with the GVSR, particularly for small business. Entities dealing at arm’s length or on market value terms are generally excluded from the GVSR.
The Trans-Tasman imputation measure allows a New Zealand resident company to choose to enter the Australian imputation system. This allows a New Zealand franking company to maintain an Australian franking account and to attach Australian franking credits to frankable distributions it pays from one month after the company makes an election. Australian shareholders of New Zealand companies may benefit from the Australian franking credits attached to distributions made by a New Zealand franking company that has elected into the Trans-Tasman imputation measure (referred to as a ‘New Zealand franking company’).
For more information, see the Trans-Tasman imputation overview fact sheet.
International taxation – treatment of certain foreign hybrid entities
Broadly, foreign hybrids are certain foreign limited partnerships, foreign hybrid companies such as limited liability companies in the United States of America and other similar entities that are taxed on a partnership basis in their country of formation, that is, the overseas jurisdiction taxes the members on their share of the entity’s income. The entity itself is not taxed.
Under Division 830 of the ITAA 1997, foreign hybrids (as defined in section 830-5 of the ITAA 1997) are treated as partnerships, and not as companies, for most Australian income tax purposes. This means that Division 5 - Partnerships of Part III of the ITAA 1936 applies to foreign hybrids and their member investors (i.e. as partners in a partnership for tax law purposes). Investors in these entities are treated for Australian tax purposes as having partnership interests. There are special rules in addition to those that normally apply to partnerships.
For more information, see foreign hybrids.
We use information-matching technology to verify the correctness of tax returns, so ensure that all information is fully and correctly declared on the company tax return.
If possible, the company tax return should fully itemise all investment income, rather than including the income in gross business income or profit and loss statements. Failure to do so could result in the company receiving an income discrepancy query letter from us.
Ensure that the company has not quoted an individual’s TFN to a financial institution for any income it intends to declare in a company tax return, or vice versa.
In particular, we will check the following in the 2016 tax returns:
- distributions from partnerships and trusts, including unit trusts
- income and credits for withholding if an ABN has not been quoted against information provided to us by payers
- total salary and wages paid against the PAYG withholding system
- the amount of prior year losses claimed, which will be reconciled with the amounts of losses carried forward on tax returns of earlier years
- dividend and interest income.
Small business entities
A small business entity may be eligible for the following concessions:
- 15-year asset exemption
- 50% active asset reduction
- retirement exemption
- rollover provisions
- simplified depreciation rules
- deduction of certain prepaid business expenses immediately
- simplified trading stock rules
- accounting for GST on a cash basis
- annual apportionment of GST input tax credits
- payment of GST by quarterly instalments
- FBT car parking exemption
- PAYG instalments based on GDP-adjusted notional tax.
Some of these concessions have specific eligibility conditions that must also be satisfied.
For more information about small business entity concessions:
- see Small business entity concessions, or
- phone 13 28 66.
The company will be a small business entity if it is carrying on a business and has an aggregated turnover of less than $2 million.
Broadly, aggregated turnover is the company’s annual turnover plus the annual turnovers of any entities that are connected to or affiliated with it.
Eligibility for the small business entity concessions must be reviewed each year.
For more information on eligibility, see Am I eligible for the small business entity concessions?
Turnover includes all ordinary income that the company earned in the ordinary course of business for the income year. Some examples of amounts included and not included in ordinary income are in table 1.
Include these amounts
Do not include these amounts
There are special rules for calculating the annual turnover if the company has retail fuel sales or business dealings with associates that are not at market value.
For more information about calculating turnover, see Small business entity concessions or phone 13 28 66.
Special rules, called the aggregation rules, will determine who the company is connected to or affiliated with.
These rules prevent larger businesses from structuring or restructuring their affairs to take advantage of the small business entity concessions.
An entity that is connected with the company or that is its affiliate is referred to as a relevant entity.
When calculating the company’s aggregated turnover, do not include:
- income from dealings between the company and a relevant entity
- income from dealings between any of the company’s relevant entities
- income from a relevant entity when it was not the company’s relevant entity.
For more information on the aggregation rules, see Concessions for small business entities.
If the company is not connected or affiliated with any other entities and its business turnover is less than $2 million, then the company is a small business entity.
Business operated for only part of the year
If the company, or a relevant entity, carries on a business for only part of the income year, annual turnover must be worked out using a reasonable estimate of what the turnover would have been if the company, or relevant entity, had carried on a business for the whole of the income year.
Satisfying the aggregated turnover threshold
There are three ways to satisfy the $2 million aggregated turnover requirement, but most businesses will only need to consider the first method.
Previous year turnover
If the company’s aggregated turnover for the previous income year was less than $2 million, it will be a small business entity for the current year. This is regardless of its estimated or actual aggregated turnover for the current year.
Estimate of current year turnover
If the company’s estimated aggregated turnover for the current income year is less than $2 million, it will be a small business entity for the current year.
If you are estimating the company’s turnover you need to assess whether it is more likely than not to have less than $2 million aggregated turnover as at the first day of the income year or, if it started a business part way through the year, as at the time the business started. Estimate the company’s turnover based on the conditions you are aware of at the beginning of the income year or, if the business was started part way through the year, at the time the business started. Companies that began carrying on a business in the current year need to make a reasonable estimate of what their turnover would have been had the business been carried on for the entire year.
This method cannot be used if the company’s aggregated turnover in each of the previous two income years was $2 million or more.
Actual current year turnover
If the company’s actual aggregated turnover is less than $2 million at the end of the income year, it will be a small business entity for that year.
This method is only needed if the first two tests cannot be met.
If the company is a small business entity by means of this third method only, it cannot use the GST and PAYG concessions for that income year because those particular concessions must have been chosen earlier in the income year.
Former simplified tax system taxpayers
There are transitional rules for former simplified tax system (STS) taxpayers that deal with the continued use of the STS accounting method.
A special rule applies if the company is winding up a business this year that it previously carried on and it was an STS taxpayer in the income year it ceased business. For more information, see Small business entity concessions.
Strata title bodies corporate
Strata title bodies corporate are treated as public companies under the tax law and must lodge a company tax return for any year in which non-mutual income is earned. For more information see Strata title body corporate instructions and tax return 2016 (NAT 4125).
The strata title body corporate will need to complete a company tax return if it:
- has net capital gains
- has received franked dividends
- has losses brought forward from earlier income years claimed as a deduction
- has tax offset refunds
- has overseas transactions or interests, or
- needs to make an interposed entity election.
The company cannot complete its tax return using the Strata title body corporate tax return.
Record keeping requirements
Record keeping and retention
If you carry on a business, you must keep records that record and explain all transactions and other acts you engage in that are relevant for any taxation purpose. Subsection 262A(2) of the ITAA 1936 prescribes the records to be kept as including:
- any documents that are relevant for the purpose of ascertaining the person’s income or expenditure
- documents containing particulars of any election, choice, estimate, determination or calculation made by the person for taxation purposes and, in the case of an estimate, determination or calculation, particulars showing the basis on which, and the method by which, the estimate, determination or calculation was made.
You must keep these records for your financial arrangements covered by the TOFA rules even if you are not carrying on a business in relation to those arrangements.
Generally, a company must keep all relevant records for five years after those records were prepared or obtained, or five years after the completion of the transactions or acts to which those records relate, whichever is the later, although this period may be extended in certain circumstances. Keep records in writing and in English; however, you can keep them in an electronic form or on microfiche as long as the records are in a form that we can access and understand to determine your taxation liability (see Taxation Rulings TR 96/7 – Income tax: record keeping – section 262A – general principles and TR 2005/9 – Income tax: record keeping – electronic records).
The company is not expected to duplicate records. If the records that the company normally keeps contain the information specified in these instructions, you do not need to prepare additional records.
For some items on the tax return, these instructions refer to specific record-keeping requirements. In general, the records specified related to instances where the required information may not be available in the normal company accounts. The record-keeping requirements in the instructions indicate the information that the company uses to calculate the correct amounts to declare on the tax return but they are not an exhaustive list of the records that a company maintains.
Prepare and keep the following documents:
- a statement of financial position
- a detailed operating statement
- livestock and produce accounts for primary producers
- notices and elections
- documents containing particulars of any estimate, determination or calculation made for the purpose of preparing the tax return, together with details of the basis and method used in arriving at the amounts on the tax return
- a statement describing and listing the accounting systems and records, for example, chart of accounts that are kept manually and electronically.
If an audit or review is conducted, we may request, and a company is expected to make readily available:
- a list and description of the main financial products (for example, bank overdrafts, bills, futures and swaps) that were used by the company to finance or manage its business activities during the income year
- for companies that have entered into transactions with associated entities overseas
- an organisational chart of the company group structure
- all documents, including worksheets, that explain the nature and terms of the transactions entered into.
The company will be liable to pay interest, in addition to the shortfall amount, if it does not declare the correct amount of taxable income or tax payable. Penalties may also apply. The company is also liable to penalties if it does not keep records, or keeps inadequate records, about business transactions or the items disclosed on the tax return. For guidelines on record-keeping obligations and remission of penalty for failure to keep or retain records, see Law Administration Practice Statement PS LA 2005/2 – Penalty for failure to keep or retain record.
Information for consolidated and multiple entry consolidated (MEC) groups
Generally, the head company of a consolidated or MEC group must keep records that, among other things, document:
- the choice in writing to form a consolidated group or MEC group
- the process of forming the group
- entries and exits of subsidiary members into and out of the group
- events which result in an entity being no longer eligible to be a head company or PHC
- consolidation eliminations or adjustments to derive the income tax outcome for the head company of the group.
This would be in addition to those records usually retained to ascertain the income tax liability of the head company.
More information on the record-keeping and retention requirements of a consolidated or MEC group can be found in the Consolidation reference manual.End of example
Recording the choice of superannuation fund
You must keep records to show that you have met your employer obligations about the choice of superannuation fund. For more information, see Records you need to keep.
Keeping records for capital gains tax
A company must keep records of everything that affects its capital gains and capital losses for at least five years after the relevant CGT events.
If a company carries forward a net capital loss, the company should generally keep records of the CGT event that resulted in the loss for five years from the year in which the loss was made or four years from the date of assessment for the income year in which the capital loss is fully applied against capital gains, whichever is the longer.
For more information on record keeping for capital gains tax, see the Guide to capital gains tax 2016 and Taxation Determination TD 2007/2 – Income Tax: should a taxpayer who has incurred a tax loss or made a net capital loss for an income year retain records relevant to the ascertainment of that loss only for the record retention period prescribed under the income tax law?
For more information about keeping a CGT asset register, see Taxation Ruling TR 2002/10 – Income tax: capital gains tax: asset register.
Keeping record of tax losses
If a company incurs tax losses, it may need to keep records longer than five years from the date on which the losses were incurred. Generally, tax losses incurred can be carried forward indefinitely until they are applied by recoupment or, in very limited circumstances, transferred to another group company. When applied, the loss amount is a figure that leads to the calculation of the company’s taxable income in that year. It is in the company’s interest to keep records substantiating this year’s losses until the amendment period for the assessment in which the losses are applied has lapsed (up to four years from the date of that assessment).
For more information on record keeping where losses are incurred, see Taxation Determination TD 2007/2 – Income tax: should a taxpayer who has incurred a tax loss or made a net capital loss for an income year retain records relevant to the ascertainment of that loss only for the record retention period prescribed under income tax law?
Keeping records for overseas transactions and interests
Keep records of any overseas transactions in which the company is involved, or has an interest, during the income year.
The involvement can be direct or indirect, for example, through persons, trusts, companies or other entities. The interest can be vested or contingent, and includes a case where the company has direct or indirect control of:
- any income from sources outside Australia not disclosed elsewhere on the tax return, or
- any property, including money, situated outside Australia. If this is the case, keep a record of:
- the location and nature of the property
- the name and address of any partnership, trust, business, company or other entity in which the company has an interest
- the nature of the interest.
If an overseas interest was created by exercising any power of appointment, or if the company had an ability to control or achieve control of overseas income or property, keep a record of:
- the location and nature of the property
- the name and address of any partnership, trust, business, company or other entity in which the company has an interest.
Apply for a tax file number (TFN) before lodging the company’s first tax return to ensure that payments are credited to the correct account. You can apply for a TFN by completing an Application for ABN registration for companies, partnerships, trusts and other organisations (NAT 2939) (you can apply for both a TFN and an ABN on this application) or electronically at abr.gov.au. We cannot allocate a TFN until we receive the application.
If the company has applied for a TFN, but has not received notification of its TFN at the time of lodging its Company tax return 2016, include a copy of the application with the return, prominently highlighted with the words in block letters ‘ATTENTION COPY ONLY – TFN NOT RECEIVED AT THE TIME OF LODGING 2016 RETURN’. If the company does not have a copy of the original application, contact us on 13 28 66 for advice.
If the company has not applied for a TFN, attach a completed application with its tax return. There may be delays in processing a tax return lodged without a TFN.
Lodging the tax return and schedules
Companies that derived assessable income in the 2015–16 income year must lodge a tax return for the 2015–16 income year. Companies that are carrying forward losses that exceed $1,000 to the 2016–17 income year must also lodge a tax return for the 2015–16 income year even if no assessable income has been derived in that income year. Non-profit companies that are resident and have taxable income of $416 or less do not have to lodge an income tax return, unless specifically requested. Keep records so that the information reported on the tax return can be verified at a later date, if required, see Record-keeping requirements.
The preferred lodgment method is electronic. If you are having difficulty lodging electronically, send your completed tax return to the relevant address. See Mail.
The following are the schedules that are sent with the Company tax return 2016:
- Capital gains tax (CGT) schedule 2016
- Consolidated groups losses schedule 2016
- Dividend and interest schedule 2016
- International dealings schedule 2016 (NAT 73345)
- Interposed entity election or revocation 2016 (NAT 2788)
- Losses schedule 2016
- Non-individual PAYG payment summary schedule 2016
- Reportable tax position schedule 2016 (NAT 74066)
- Research and development tax incentive schedule 2016
- any elections required by Taxation Ruling IT 2624 – Income tax: company self assessment; elections and other notifications; additional (penalty) tax; false or misleading statement.
If a schedule is lodged separately from the tax return you are required to sign and date the schedule.
Do not send other schedules or documents with the Company tax return 2016. Keep these with the company’s tax records.
The date for lodgment of the company tax return (including any relevant schedules) is notified in a legislative instrument on the Federal Register of Legislative InstrumentsExternal Link.
The Commissioner may allow later lodgment dates. See Key lodgment dates business.
You must lodge your return and all the required schedules by the due date. If you lodge your return without all the required schedules, we may not consider it to have been lodged in the approved form. Unless your return and all schedules are lodged by the due date, you may be charged a penalty for failing to lodge on time.
Do not attach the company’s payment to the company tax return. The company can make payments by one of five methods. See Payment.
Lodging the tax return from outside Australia
Foreign resident companies carrying on a business in Australia or deriving Australian income must provide an Australian address for service on the tax return. This may be an Australian postal address.
If the entity has no Australian postal address, provide the address of the appointed public officer.
Amendment under self-assessment
The taxable income or the amount shown for tax offsets or some credits can be altered after the lodgment of the company’s tax return. The company can request an amendment to a tax assessment or lodge an objection disputing an assessment, generally up to four years following the assessment. The objection must state the full particulars of the issue in dispute. This is a basic guide only.
Private ruling by the commissioner of taxation
A private ruling is a written expression of opinion by the Commissioner about the way in which tax laws and other specified laws administered by the Commissioner would apply to an entity for a specified scheme.
An application for a private ruling must be made in the approved form and in accordance with Divisions 357 and 359 of Schedule 1 to the Taxation Administration Act 1953.
The required information and documentation that accompany a private ruling request must be sufficient for the Commissioner to make a private ruling; it should include:
- the entity to whom the ruling is to apply
- the facts describing the relevant scheme or circumstance
- relevant supporting documents, such as transaction documents
- issues and questions that relate to the provision to which the ruling relates
- your arguments and references on such questions.
The Commissioner may request additional information to make a ruling. The Commissioner will then consider the request and either issue or, in certain limited circumstances, refuse to issue a private ruling.
To improve the administration of the private rulings system, we now publish all notices of private rulings for public record. See Private rulings.
Private rulings are published in an edited form to safeguard taxpayer privacy. Before publication, applicants can comment on the edited version of their private ruling.
Applicants are invited to provide a statement detailing any information they believe should be removed from the published version of their private ruling.
If the information the applicant wants removed is more than simply names and addresses, then provide reasons why publication of this information will breach the applicant’s privacy.
Taxpayers can object to adverse private rulings or a failure to make a private ruling, in much the same way that they can object to assessments.
They can also seek a review of adverse objection decisions on a private ruling by the Administrative Appeals Tribunal or a court. An explanation of review rights and how to exercise them is issued with the private ruling. An objection to a ruling can be lodged within the later of:
60 days after receipt of the ruling, or
four years from the last day allowed for lodging a tax return for the last income year covered by the ruling.
A taxpayer cannot object to a private ruling if an assessment has occurred covering the same facts and issues. The taxpayer could, of course, object to the assessment.
Where a taxpayer has objected to a private ruling, the taxpayer cannot object to a later assessment about the same matter ruled on, unless the facts have changed.
Private rulings dealing with the ITAA 1936 continue to apply to the ITAA 1997, to the extent that the old law to which the ruling applies expresses the same ideas as the new law in the ITAA 1997.
When rulings are binding
A private ruling is binding on the Commissioner where it applies to an entity and the entity has relied on the ruling by acting (or omitting to act) in accordance with the private ruling. An entity can stop relying on a private ruling at any time (unless prevented by a time limit imposed by a taxation law) by acting (or omitting to act) in a way that is not in accordance with the private ruling, and can subsequently resume relying on the private ruling by acting accordingly. The Commissioner cannot withdraw a private ruling. However, the Commissioner can make a revised private ruling where the scheme to which a private ruling relates has not begun to be carried out and, where the private ruling relates to an income year or other accounting period and that period has not begun.
Paying your tax debt
Income tax debts must be paid by the due date. For payment options, see Payments.
The tax payable by a company for an income year becomes due and payable on the statutory due date, which is the first day of the sixth month of the following income year, for example, for 30 June balancing companies the statutory due date is 1 December.
The Commissioner may allow later lodgment dates. See Key lodgment dates business.
A general interest charge is levied on outstanding amounts from the due date for payment. The general interest charge rate for a particular quarter is calculated by adding 7 percentage points to the relevant monthly average yield of 90-day bank accepted bills. The general interest charge rate is updated quarterly.
For more information on the interest charge, phone 13 28 66.
If you can’t pay your tax debt when due
To avoid action being taken to recover the debt, phone us on 13 11 42. You are expected to organise your affairs to ensure that you pay your debts on time. However, we may allow you to pay your debts under a mutually agreed payment plan if you face genuine difficulty and have the capacity to eventually pay the debt. The interest charge will continue to accrue on any outstanding amounts of tax during any payment arrangement.
Approval for a payment arrangement is not given automatically. The company may need to provide details of its financial position, including a statement of its assets and liabilities and details of its income and expenditure. We will also want to know what steps the company has taken to obtain funds to pay its tax debt and the steps it is taking to meet future tax debts on time.
Penalties, shortfall interest charges, general interest charges
The law may impose penalties on companies for:
- having a shortfall amount by understating a tax related liability or over-claiming a credit that is caused by:
- making a statement which is false or misleading in a material particular, unless you took reasonable care in connection with the making of the statement
- taking a position that is not reasonably arguable, and the shortfall amount is more than the greater of $10,000 or 1% of the income tax payable for the income year
- making a statement which is false or misleading in a material particular that does not result in a shortfall amount, unless you took reasonable care in connection with the making of the statement
- failing to provide a tax return from which the Commissioner can determine a liability
- obtaining, but for the relevant anti-avoidance provision, a scheme benefit.
The Commissioner may remit all or a part of a penalty. If the Commissioner decides not to remit the penalty in full, he must give written notice to the company of the decision and the reasons for the decision.
Shortfall interest charges
Companies are liable for the shortfall interest charge where their income tax assessment is amended to increase their liability. Generally, the shortfall interest charge accrues on the increase in tax payable from the due date for payment of the original assessment until the day before the assessment is amended.
Shortfall interest charge is calculated at a rate 4% lower than the general interest charge.
The Commissioner may remit all or a part of the shortfall interest charge when it is fair and reasonable to do so. For more information, see Shortfall interest charge.
General interest charges
Companies are liable for the general interest charge where they have:
- not paid tax, penalty or certain other amounts by the due date for payment
- varied their PAYG instalment rate to less than 85% of the instalment rate that would have covered the company’s actual liability for the year, or
- used an estimate of their benchmark tax that is less than 85% of their actual benchmark tax for the year.
The Commissioner may remit all or a part of a general interest charge. For more information, see General interest charge.