If you have clients who are Next 5,000 groups, they need to take care to report, and fulfill, their record-keeping requirements for ‘related party transactions’. These are transactions of goods and services between related parties, with or without financial payment.
If your clients are part of our Next 5,000 private groups tax performance program, they need to keep complete accurate records of these transactions to ensure they:
- properly capture business income and expenditure (including tax invoices where appropriate) throughout the year and correctly report it in their group's tax returns and BAS
- can evidence related party pricing arrangements (e.g. loan, lease and service arrangements) to assist them claim business expenses in their company tax return
- avoid lengthy and costly review, audits and amendment processes if they incorrectly prepare tax returns and BAS.
If your clients engage in related party real property transactions, they should have a process for obtaining an independent valuation.
To demonstrate the importance of keeping complete and accurate records, recently we saw a case of a Next 5,000 private group that disposed of land to a related party. However, as part of a streamlined assurance review, they were unable to substantiate how they determined the sales price. A lengthy valuation exercise was required to confirm the $40 million sale price. That led to an adjustment to the group’s taxable income of over $7 million plus penalties and interest.
Read our Next 5,000 Findings Report for more tips and recommendations to help your clients to correctly comply with, and report on, their group's tax obligations.