Restructures and significant changes
Significant new business and transactions
This applies if during the last 2 income years, you commenced any significant new business or investment activities.
Also, if during the last 2 income years, you undertook any significant new transactions that do not form part of your normal business activities.
If either of the above occurred, then provide:
- details of the entities involved
- an explanation of the significant activities and transactions
- a brief description of how these were financed.
Restructure – acquisitions
Your group may have acquired an interest in an entity or business (including foreign) during the review period. If so, provide the following for each acquisition:
- details of any restructure that occurred within your group leading up to or at the time of the acquisition (including relevant ABN and TFN)
- the name and ABN of the vendor and the name of the entity that was acquired
- details of the rights attached to the classes of shares and ownership percentages acquired
- the acquisition price and the form of consideration provided
- the name of the purchaser within your group and date of acquisition
- an explanation of how the acquisition was financed, including
- the provider of the finance
- whether the provider is a related party.
Restructure – disposal
Your group may have disposed of an interest in an entity or business (including foreign) during the review period. If so, provide the following for each disposal:
- details of any restructure that occurred within your group leading up to or at the time of the disposal (including relevant ABN and TFN)
- the name of the entity that was disposed of and the name and ABN of the purchaser
- details of the rights attached to the classes of shares and ownership percentages disposed of
- the amount of consideration and the date that it was received
- the relevant sale agreement or other transaction document, however described
- an explanation of how any deferred consideration (for example, earn-out arrangement) has been treated for income tax purposes.
Funding
Provide an overview of the funding structure of your group during the review period, including:
- composition of funding (debt versus equity), the entities involved and whether it is a related party or third party
- if it relates to debt, the purpose and cost of funding including details of
- the fees and charges to set up the finance arrangement
- the ongoing costs including interest
- changes to the funding arrangements during the last 2 income years
- whether the treatment of debt or equity is different for tax and accounting purposes
- details of any cross-border related-party financing arrangements
- all related party financing risk assessments you have performed as outlined in PCG 2017/4 (including risk rating and associated workpapers).
PCG 2017/4 is Practical Compliance Guideline 2017/4 ATO compliance approach to taxation issues associated with cross-border related party financing arrangements and related transactions.
Also, if any entity has used cryptocurrency, outline the type, how much, when and which entities were involved.
For more information see PCG 2017/4.
International tax issues
International related-party dealings
This applies if during the last 2 income years, you or any entity in your group have any arrangements with international related parties. These include your subsidiaries, branches and other entities.
Examples include:
- loan arrangements
- arrangements concerning intangible property
- distribution arrangements
- management or other service arrangements
- derivative transactions
- transactions involving no or non-monetary consideration.
If so, provide:
- a copy of the agreements covering the international related party arrangements – if a written agreement is not available, provide details of the terms and conditions in relation to these arrangements
- documents to substantiate that the transactions were at arm’s length, such as transfer pricing documents, including
- appendices and annexures
- benchmarking analysis
- valuation exercises
- a diagram of the global supply or value chain.
If you elected to apply an option from PCG 2017/2:
- provide documents substantiating your eligibility for that option
- if not, provide documents that were prepared to explain the transactions and pricing methodology applied.
PCG 2017/2 is Practical Compliance Guideline 2017/2: Simplified Transfer Pricing Record Keeping Options.
Significant global entities
From 1 July 2019, the definition of significant global entity (SGE) has been extended. It now includes business groups headed by individuals, proprietary companies, trusts, partnerships and investment entities where the SGE annual global income threshold is met. This is irrespective of whether audited consolidated financial statements have been prepared.
In addition, the definition of a Country-by-Country (CBC) reporting entity has been introduced. This defines the population that:
- is required to lodge CBC reporting statements
- may be required to give the Commissioner general purpose financial statements (GPFS).
Based on the new SGE and CBC reporting definitions:
- confirm whether you have assessed the effect of these on your group
- let us know if there been a change in your SGE or CBC reporting entity status as a result of the extended definition.
Interest and royalty withholding tax
With interest or royalty deductions that relate to an arrangement with a non-resident, provide:
- a brief description of what the amount relates to
- the name of the entity the amount was paid to and its country of residence
- the date of payment and the amount paid
- a reconciliation of the amount paid during the review period with amounts expensed for accounting purposes (if there is a difference in any income year)
- an explanation where either the
- withholding tax rate is less than 10% for interest or 30% for royalty
- payment is not subject to withholding tax.
Dividend withholding tax
With dividends paid to a non-resident, provide:
- the name of the entity the amount was paid to and its country of residence
- the date of payment and the amount paid
- an explanation where either the
- withholding tax rate is less than 30%
- payment is not subject to withholding tax.
Thin capitalisation
Provide the thin capitalisation calculations and working papers, including:
- the relevant calculation of
- adjusted average debt
- safe harbour debt amount
- arm’s length debt amount
- worldwide gearing amount
- supporting statements of financial position with notes or trial balances
- revaluation reports for any asset revaluations undertaken for thin capitalisation purposes
- signed elections if there has been a recognition or revaluation of intangible assets undertaken for thin capitalisation purposes
- arm’s length debt test analysis and supporting documents taking PCG 2020/7 into consideration if the arm’s length debt test has been applied
- supporting rationale for the application of any exemption from the thin capitalisation regime.
Practical Compliance Guideline 2020/7: ATO compliance approach to the arm's length debt test.
Loans or payments to shareholders, directors or associates
During the last 2 income years, identify if any entities advanced a loan or made a payment to the shareholders (or their associates) of any private company within your group. If so:
- ascertain if the loan or payment was not fully repaid before lodging the most recent tax return
- identify if there are existing shareholder loan accounts (including any loan accounts arising from an unpaid present entitlement).
If either of the above apply, then for the largest 5 loans and payments, provide:
- an explanation and details of payments and interest
- copies of the relevant loan agreements, if available
- details about how these have been treated for tax.
If the group extinguished any unpaid present entitlement, provide:
- an explanation of the arrangement
- copies of the relevant deeds and agreements.
If shareholders or associates have used any of the assets owned by the group, provide a list of:
- relevant names
- corresponding assets.
Trust distributions
If you have unpaid present entitlements (UPE) as at 30 June (or at the end of your SAP year) during the review period, provide:
- an explanation of how the UPE was treated for tax purposes
- details of the 5 largest UPEs made by private companies within the group, including explanations of why the present entitlement was not repaid
- a copy of the investment agreement entered into by the trust
- a copy of the investment agreement entered into by the corporate beneficiary if the UPE has been placed in a sub-trust.
Provide a breakdown of the largest 5 deductions you or your associates have claimed against discretionary trust income during the last 2 income years. For each deduction item, provide a brief description of the nexus between the discretionary trust income and the beneficiaries’ expense.
You may have had an entitlement to trust income conferred to a non-resident beneficiary during the review period. If so, provide an explanation of how the trustee has satisfied or proposes to satisfy the entitlement.
You may have had a trust estate that had a nil liability under subsection 98(3) of the Income Tax Assessment Act 1936 for the net income referable to the non-resident beneficiary’s entitlement. If so, explain why this liability is nil.
If any entitlement to trust income was conferred to a tax-exempt entity during the review period, provide:
- documents relating to the satisfaction of any of the entitlement or explain why the entitlement has not been satisfied
- evidence that the beneficiary has been notified of the entitlement if full payment has not been made.
Concessions and losses
Accounting losses
You may have had a net accounting loss position for the last 2 income years. If so, explain how you have funded your business and investment activities given its net loss position.
You may have provided an itemised description in the statement of comprehensive income with notes relating to this entity at an earlier question. If you haven't provided this, indicate on the trial balance or similar documents which expenses you have included in the All other expenses tax return label.
With losses (capital or revenue) utilised during the last 2 income years explain what caused these losses.
For companies, provide the working papers and analysis performed to demonstrate that you have satisfied either the:
- continuity of ownership test
- business continuity test.
For trusts, provide the working papers and analysis performed to demonstrate that the relevant trust loss tests were satisfied.
If excess franking tax credits have affected losses, provide details and a reconciliation of losses carried forward.
Research and development tax incentive
For the Research and development (R&D) tax incentive claimed in the last 2 income years, provide the following:
- working papers such as those supporting the completion of the R&D tax incentive schedule with
- a breakdown of the expenditure including entities and amounts for each of the registered R&D activities
- the calculation of notional R&D deductions
- the calculation of any feedstock adjustments made to assessable income
- the calculation of any assessable government recoupment that was received
- a description of how expenditure is distinguished and apportioned between eligible and non-eligible R&D activities
- if any expenditure incurred involved an associate, affiliate or connected entity, for each payment explain the
- amount paid
- work conducted
- source of funds
- if any R&D results (for example, intellectual property, feedstock outputs) were disposed of, or payment received for the results of the R&D, provide an explanation of the transactions.
Small business CGT concessions
You may have claimed a small business CGT concession for the disposal of a CGT asset. If so, provide the working papers, analysis and supporting documents confirming that you met the specific conditions required by the:
- 15-year exemption concession
- retirement concession
- rollover concession.
Self-managed superannuation fund
The self-managed superannuation fund (SMSF) may have received non-cash contributions from the members or their associates. If so, provide an explanation of:
- the nature and market value of the non-cash contributions
- how the contributions were treated for tax purposes by both the transferor and the SMSF.
The SMSF may have loaned money or provided any financial assistance to a member of the fund or an associate of a member of the fund. If so, provide a copy of the agreement governing the money lent or the financial assistance provided.
If the SMSF derived any income or receive any distributions from a company or a trust within your group:
- explain whether any of the income or distribution is non-arm’s length income
- provide documents confirming whether the SMSF has a fixed entitlement to the income
- provide the most recent market value calculation for the units held by;
- the SMSF in related trusts
- any related party investments if applicable.
The SMSF may have entered into transactions such as investments, asset acquisitions or leasing arrangements with a related trust. If so, provide an explanation of the nature of the transactions and any written agreements in relation to these transactions.
Provide the SMSF's investment strategy.
Private ancillary fund
If you operate a private ancillary fund (PAF), provide the following:
- a document outlining the fund's investment strategy
- documents supporting any asset revaluations.
The fund may have entered into any agreements or transactions with:
- associates
- any of the parties referred to in Guideline 22 of the PAF Guidelines 2019External Link
- any entities it has an ownership interest in.
If so, provide the relevant names and a copy of the agreements or documents related to the transaction.
The fund may have received donations from related parties, associates or employees (for example through a workplace giving program). These donations may be cash, unlisted shares or property. If so, provide:
- names and identifications of the donors
- the value of each donation
- the valuation methodology used if the donation is not in cash.
Also, provide a list of the distributions made by the PAF for the period under review to associated entities. Include the ABN and the amounts distributed.
Tax consolidation
Provide working papers for the consolidation entry calculations (both the allocable cost amount calculation and the tax cost setting amounts) if any entities in your group:
- formed a tax consolidated group or a MEC group within the review period
- joined the consolidated group during the review period.
Transferred losses – capital or revenue – may have been used during the review period or carried forward to later income years. If so:
- explain how the losses were eligible to be transferred into the tax consolidated group
- provide working papers for the calculation of the available fraction for each bundle of loss transferred to the head company.
Entities may have exited the consolidated group during the review period. If so, provide working papers for the exit calculations including the date of exit.
Taxation of Financial Arrangements
Some financial arrangements may have existed during the review period that are subject to the Taxation of Financial Arrangements (TOFA) rules. If so, provide a brief summary. Also, for each financial arrangement, explain:
- what each financial arrangement involves
- the treatment adopted under the TOFA rules
- the accounting treatment (initial recognition and over the life of the arrangement).
For each financial arrangement, provide working papers supporting the calculation of amounts reported at relevant TOFA labels on the tax return.
Fringe benefit tax
Our records may indicate that one of your entities has motor vehicles registered in its name but has not:
- lodged a fringe benefit tax (FBT) return
- declared employee contributions in the tax returns for the FBT review period.
If so, provide for all cars:
- the calculations of the car fringe benefit
- amounts of any employee contributions paid
- details of where any employee contributions received were reported in the tax returns.
Tax treatment of property disposals – property development business
Our records may indicate that one of your companies reported disposals of property on capital account during the review period. If so, for each disposal explain:
- why the underlying property was not sold as part of a property development business
- how the underlying property was treated for accounting purposes (for example, non-current asset or trading stock)
- the purpose of acquiring the underlying property
- the details of any development activities that were undertaken with the land (for example, applying for planning permits, subdivision, construction) before the sale
- how the acquisition or construction of the property was funded.
Construction contracts
You may have construction contracts. If so, provide a brief description of:
- your tax policy about recognising long-term contracts
- in what situations the relevant entity can deviate from that policy.
For the largest current contract (in terms of revenue) that has been in operation over the review period, provide:
- a brief description of the contract and what it relates to
- parties to the contract
- detail about whether the contract is with a related or third party
- a copy of the contract
- an explanation of when revenue is recognised for both tax and accounting purposes
- a brief description of the book-to-tax adjustments to reflect the tax treatment.