This question asks whether you had international related party dealings of a non-revenue (capital) nature, apart from the dealings covered by questions 5 to 11.
The dollar amounts or values asked for in this question are all based on your accounting records.
We expect the majority of international related party dealings entered into by taxpayers to come within the types of dealings covered by questions 5 to 11.
An international related party dealing that you included at questions 5 to 11 should not be included at this question, regardless of whether it was reported using tax or accounting figures.
Capital or revenue in nature?
Whether dealings are capital or revenue in nature is a matter to be decided based on the facts and circumstances of each case. The leading Australian case on this topic is Sun Newspapers Ltd and Associated Newspapers Ltd v. FC of T (1938) 61 CLR 337; 5 ATD 87.
This case established that expenditure incurred in establishing, replacing and enlarging the profit yielding structure (the business entity and structure) is of a capital nature and should be contrasted with working or operating expenses incurred to operate the business or profit yielding structure. The test laid down in the Sun newspapers case requires the following three factors to be considered and weighed in deciding whether expenditure is capital or of a capital nature:
- The nature of the benefit or advantage obtained or secured by the incurrence of the expenditure, for example, whether the expenditure secures an enduring benefit.
- The manner in which the benefit or advantage so obtained or secured is to be relied upon or enjoyed.
- The means adopted to obtain or secure the benefit or advantage.
There are many other decisions of the Australian courts applying these principles in Sun Newspapers to various cases. For more information, see ATO guidance such as taxation rulings. We strongly recommend that you obtain appropriate guidance or professional advice in relation to the particular facts and circumstances of your case.
If you had international related party dealings of a non-revenue (capital) nature, apart from the dealings covered in questions 5 to 11, answer Yes at A item 13 and complete the following.
13a Disposal or acquisition of tangible property
Tangible property includes plant and equipment.
Item 13a is completed as follows in relation to your international related party dealings of a non-revenue (capital) nature involving disposal or acquisition of tangible property:
- At C, write the total consideration paid in respect of these international related party dealings of a non-revenue (capital) nature involving disposal or acquisition of tangible property.
- At D, write the total amount of consideration received in respect of these international related party dealings of a non-revenue (capital) nature involving disposal or acquisition of tangible property.
- At G, write the Appendix 10 code for the principal method you used for pricing these acquisitions or disposals involving disposal or acquisition of tangible property.
- At F, write the Appendix 9 code for the percentage of your international related party dealings of a non-revenue (capital) nature involving disposal or acquisition of tangible property for which you have documentation.
Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this item for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this item.
13b Assignment of intellectual property
Assignment includes assignment in law or in equity, including assignment by declaration of trust.
Intellectual property includes:
- trademarks
- patents
- registered designs
- copyright
- other intellectual property or similar property or rights including rights granted or protected under foreign law
- interests in or rights granted in respect of any of the above, for example, a license to use a copyright.
Item 13b is completed as follows in relation to your international related party dealings of a non-revenue (capital) nature involving assignment of intellectual property:
- At C, write the total consideration paid in respect of these international related party dealings of a non-revenue (capital) nature involving assignment of intellectual property.
- At D, write the total amount of consideration received in respect of these international related party dealings of a non-revenue (capital) nature involving assignment of intellectual property.
- At G, write the Appendix 10 code for the principal method you used for pricing these international related party dealings involving assignment of intellectual property.
- At F, write the Appendix 9 code for the percentage of your international related party dealings of a non-revenue (capital) nature involving assignment of intellectual property for which you have documentation.
Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this item for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this item.
13c Assignment of shares or other equity interests
Assignment includes assignment in law or in equity, including assignment by declaration of trust.
Equity interests include an equity interest under Division 974 and section 820-930 of the ITAA 1997. For more guidance on what is an equity interest under Division 974, refer to Guide to the debt and equity tests.
Item 13c is completed as follows in relation to your international related party dealings of a non-revenue (capital) nature involving assignment of shares or other equity interests:
- At C, write the total consideration paid in respect of these international related party dealings of a non-revenue (capital) nature involving assignment of shares or other equity interests.
- At D, write the total amount of consideration received in respect of these international related party dealings of a non-revenue (capital) nature involving assignment of shares or other equity interests.
- At G, write the Appendix 10 code for the principal method you used for pricing these international related party dealings involving assignment of shares or other equity interests.
- At F, write the Appendix 9 code for the percentage of your international related party dealings of a non-revenue (capital) nature involving assignment of shares or other equity interests for which you have documentation.
Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this item for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this item.
13d Assignment of loans or debts (not liabilities)
Assignment includes assignment in law or in equity, including assignment by declaration of trust.
Loans or debts (not liabilities) include debt receivables and loan receivables.
Item 13d is completed as follows in relation to your international related party dealings of a non-revenue (capital) nature involving assignment of loans or debts (not liabilities):
- At C, write the total consideration paid in respect of these international related party dealings of a non-revenue (capital) nature involving assignment of loans or debts (not liabilities).
- At D, write the total amount of consideration received in respect of these international related party dealings of a non-revenue (capital) nature involving assignment of loans or debts (not liabilities).
- At G, write the Appendix 10 code for the principal method you used for pricing these international related party dealings involving assignment of loans or debts (not liabilities).
- At F, write the Appendix 9 code for the percentage of your international related party dealings of a non-revenue (capital) nature involving assignment of loans or debts (not liabilities) for which you have documentation.
Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this item for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this item.
13e Other disposal or acquisition of intangible property
Other disposal or acquisition of intangible property includes the issue of new shares or other equity interests.
The issue of equity interests include the issue of an interest which is an equity interest under Division 974 and section 820-930 of the ITAA 1997. For more guidance on what is an equity interest under Division 974, refer to Guide to the debt and equity tests.
Item 13e is completed as follows in relation to your international related party dealings of a non-revenue (capital) nature involving other disposal or acquisition of intangible property:
- At C, write the total consideration paid in respect of these international related party dealings of a non-revenue (capital) nature involving other disposal or acquisition of intangible property.
- At D, write the total amount of consideration received in respect of these international related party dealings of a non-revenue (capital) nature involving other disposal or acquisition of intangible property.
- At G, write the Appendix 10 code for the principal method you used for pricing these international related party dealings involving other disposal or acquisition of intangible property.
- At F, write the Appendix 9 code for the percentage of your international related party dealings of a non-revenue (capital) nature involving other disposal or acquisition of intangible property for which you have documentation.
Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this item for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this item.
Example 11
An Australian taxpayer had the following international related party dealings of a non-revenue (capital) nature during the income year that are not covered at questions 5 to 11. The taxpayer had documentation for 100% of the dealings.
Nature of dealing |
Country |
Consideration paid $ |
Consideration received $ |
Pricing methodology code |
|---|---|---|---|---|
Plant |
Germany |
1,550,000 |
0 |
2 |
Equipment |
Japan |
2,200,000 |
0 |
3 |
Total |
na |
3,750,000 |
0 |
na |
Nature of dealing |
Country |
Consideration paid $ |
Consideration received $ |
Pricing methodology code |
|---|---|---|---|---|
Patents |
United States |
0 |
1,500,000 |
2 |
Copyright |
United Kingdom |
0 |
250,000 |
4 |
Total |
na |
0 |
1,750,000 |
na |
Nature of dealing |
Country |
Consideration paid $ |
Consideration received $ |
Pricing methodology code |
|---|---|---|---|---|
Shares |
United Kingdom |
0 |
500,000 |
6 |
Total |
0 |
0 |
0 |
0 |
Nature of dealing |
Country |
Consideration paid $ |
Consideration received $ |
Pricing methodology code |
|---|---|---|---|---|
Loans |
Canada |
1,750,000 |
0 |
4 |
Debts |
Singapore |
0 |
650,000 |
2 |
Total |
na |
1,750,000 |
650,000 |
na |
Nature of dealing |
Country |
Consideration paid $ |
Consideration received $ |
Pricing methodology code |
|---|---|---|---|---|
Goodwill |
United Kingdom |
2,350,000 |
0 |
4 |
Issue of ordinary shares |
United Kingdom |
0 |
1,000 |
1 |
Total |
na |
2,350,000 |
1,000 |
na |
With this information the Australian taxpayer completes question 13 as follows:
13f Cost plus remuneration for R&D type services
This question aims to identify whether you have performed research and development (R&D) type activities for the benefit of a related party in another country where you received or were entitled to receive remuneration for performing these activities at an amount based on the costs of these activities plus an agreed margin (cost plus basis). This includes expenses qualifying for the R&D tax incentive and all other R&D expenses which do not qualify for the R&D incentive.
If you have performed R&D for the benefit of a related party in another country where you have been remunerated on a cost plus basis, answer Yes at A item 13f.
If you answer Yes, you must specify the amount of your relevant R&D costs at C item 13f, and the amount of the cost plus margin received at D item 13f.
For information on the R&D incentive, see Research and development tax incentive.
For more information on transfer pricing and the cost plus method, see Chapter 3 of TR 97/20 Income tax: arm's length transfer pricing methodologies for international dealings.
Example 12
ABC Co is an Australian resident company which performed R&D for the benefit of a foreign related company, IP Co. The costs incurred by ABC Co in connection with performing R&D were $10,000,000. IP Co agreed to pay ABC Co for the R&D on a cost plus 10% basis. During the income year ABC Co obtained $11,000,000 for the R&D work performed for the benefit of IP Co.
ABC answers Yes at item 13f, writes $10,000,000 at C item 13f, and writes $1,000,000 at D item 13f.
End of example