Guide to reportable tax positions

Read our guides on RTP-related issues.

Category A: Tax uncertainty in your tax return

A Category A reportable tax position is one where, given relevant authorities, you consider the material position taken is either:

• about as likely to be correct as incorrect, even if it is reasonably arguable
• is less likely to be correct than incorrect.

You must disclose a material position, even if it is based on administrative or industry practice, that:

• doesn't have regard to relevant authorities, or there are none
• is not based on a well-reasoned construction of the applicable statutory provision.

You must have regard to all matters relevant to the position including:

• anti-avoidance rules
• integrity provisions
• transfer pricing
• market valuations.

A position will be material where the potential adjustment, should the position not be sustained, is equal to or exceeds your entity's materiality amount.

For more information, see:

• MT 2008/2 Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable – for the meaning of ‘about as likely to be correct as incorrect’, ‘more likely to be correct than incorrect’, and ‘relevant authorities’
• Disclosing reportable tax positions on the schedule – examples 1 and 2
• When a transfer pricing position is a Category A RTP

Relevant authorities

The relevant authorities are:

• a taxation law
• material for the purposes of subsection 15AB(1) of the Acts Interpretation Act 1901
• a decision of a court (whether or not an Australian court), the Administrative Review Tribunal or a Taxation Board of Review
• a public ruling, as defined in section 358–5 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

Relevant authorities do not include:

• announced but unenacted law changes
• our general administrative practices
• industry practices.

Positions based on anticipated legislation

If you rely on announced but unenacted legislation, you must determine whether the position your entity has taken is a material reportable tax position that must be disclosed.

Positions contrary to a public ruling

You must disclose a material position contrary to a public ruling where it meets the criteria for a Category A reportable tax position.

Positions relating to the exercise of a Commissioner’s discretion

In determining if a position involving an assumption about the way the Commissioner of Taxation will exercise a discretion is a Category A reportable tax position, you should consider:

• PS LA 2005/24 Application of General Anti-Avoidance Rules
• subsection 284-15(2) of Schedule 1 to the Taxation Administration Act 1953
• the Revised Explanatory Memorandum to A New Tax System (Tax Administration) Bill (No 2) 2000 at paragraph 1.29.

Where an assumption about the exercise of the Commissioner's discretion forms part of a material Category A reportable tax position, you must disclose the relevant legislative provision that relates to the discretion in the Basis for position field on the schedule.

Positions covered by a general administrative practice

You are required to include any industry or administrative practices your entity relied on to reach its position in the Basis for position field on the schedule.

Positions where the law is clear but the facts are uncertain (relating to valuation issues)

In determining whether a material position involving market values is a Category A reportable tax position, you should consider the guidance provided in Market valuation for tax purposes. This includes guidance in determining such things as the appropriate valuation methodology, documentation and allocations among assets.

Treating similar arrangements or transactions as a single position

Similar arrangements or transactions are treated as a single position when both:

• the facts used to determine their treatment for tax purposes are the same or similar, or are related to each other in a way that makes it necessary to take them into account together
• a common conclusion is reached on their tax treatment, that is, there is a common basis for lodgment.

These arrangements or transactions only need to be disclosed on the schedule once under a single RTP number. You must state in the Concise description field that the position relates to more than one similar arrangement or transaction.

Research and development tax offset claims

An R&D tax offset claim reflected on the tax return may not be a single Category A or B reportable tax position. Instead there may be several positions taken within the R&D tax offset claim, for example, whether the:

• entity is an eligible R&D entity
• expenditure included in the claim was incurred
• expenditure was incurred on eligible R&D activities
• expenditure was at risk for R&D purposes
• feedstock provisions are applicable.

Each of these positions must be considered separately to work out whether your entity has any material reportable tax positions you must disclose on the schedule.

If your entity has several projects that make up its R&D tax offset claim, this doesn't mean each project is treated as a separate Category A or B reportable tax position. If the criteria for treating similar arrangements or transactions as a single position are met, you only need to report the projects under a single disclosure.

Related party international dealings

Where your entity has multiple related party international dealings, if the criteria for treating similar arrangements or transactions as a single position are met, you only need to report the dealings under a single reportable tax position disclosure.

You can also combine all related party revenue dealings, or related party expenditure dealings, as a single Category A reportable tax position disclosure.

Category A and B positions relating to losses

Prior year losses deducted or applied

You may have to disclose a Category A reportable tax position if, in its tax return, your entity has either or both:

• deducted prior year tax losses
• applied prior year unapplied net capital losses to reduce the net capital gain included in its assessable income.

Only material positions must be disclosed.

Prior year losses carried forward

You don't need to disclose on the schedule any prior-year tax losses or prior-year net capital losses carried forward to later income years in your entity's tax return.

Current year loss position

Your entity may still have a reportable tax position that must be disclosed even if it reports a loss and potential adjustment that doesn't change its income tax liability for that income year. You must consider if your entity has any material positions and disclose them, even if your entity is in a loss year.

Compliance – administrative and failure to lodge penalties

The schedule is part of the company tax return and must be lodged by your entity's tax return due date.

Administrative penalties will apply if you:

• make a false or misleading statement, including omissions
• fail to lodge on time.

For more information, see:

• Failure to lodge on time penalty
• PS LA 2011/19 Administration of the penalty for failure to lodge
• PS LA 2012/4 Administration of the false or misleading statements penalty – where there is no shortfall amount
• PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount.

Interaction with voluntary disclosure provisions

A statement made in the schedule isn't a voluntary disclosure for the purposes of section 284-225 of Schedule 1 of the Taxation Administration Act 1953. Completing and lodging the schedule, as per the schedule instructions, doesn't satisfy the voluntarily tell requirements.

If the information provided in the schedule allows the Commissioner to identify and calculate the shortfall amount, this may lead to a remission of the shortfall penalty for:

• not having a reasonably arguable position
• making a false or misleading statement.

For more information, see Miscellaneous Taxation Ruling MT 2012/3 Administrative penalties: voluntary disclosures.

When a transfer pricing position is a reportable tax position

You must report a transfer pricing position not covered by section 284-255 (Taxation Administration Act 1953) compliant transfer pricing documentation in Category A on the schedule. The lack of compliant documentation means there's insufficient information to determine if it's more likely to be correct than incorrect.

If your dealings are covered by compliant documentation, your position is a Category A or B reportable tax position if it falls within the high-risk zone of published ATO guidance and isn't a Category C position.

Where a transfer pricing position is a Category C reportable tax position you must disclose this position in section C not in section B as a Category A or B reportable tax position.

You need to separately report revenue and expenditure-based transfer pricing positions. However, you can combine and report all related party revenue, or related party expenditure, as a single Category A reportable tax position.

Exemption for foreign banks or other qualifying financial entities

If your entity is a foreign bank or other qualifying financial entity to which Part IIIB of the ITAA 1936 applies and hasn't elected out of Part IIIB, you don't need to disclose a transfer pricing position for a notional borrowing it holds where:

• the notional borrowing is in a currency(ies) quoted in the London Interbank Offered Rate (LIBOR) or an agreed proxy and in a comparable tenor, and
• the deductions associated with the notional borrowing have been capped at the appropriate LIBOR.

A number of LIBOR rates either ceased to be published or representative as of 31 December 2021.

In line with the administrative solution provided to the Australian Financial Market Association, from 1 January 2022 the exemption for disclosing a transfer pricing position for a notional borrowing will also apply where:

• the deductions associated with the notional borrowing have been capped using a reasonable proxy rate in lieu of LIBOR, if the notional borrowing is in a currency(ies) where LIBOR was never quoted or ceased being quoted, or
• the deductions associated with the notional borrowing have been capped at the appropriate LIBOR, if the notional borrowing is in a currency(ies) where LIBOR continues to be quoted, including LIBORs which are published on a synthetic basis.

This exemption applies even if your entity's notional borrowing isn't covered by section 284-255 compliant documentation.

This exemption does not apply if your entity has a notional borrowing that:

• has not been capped at the appropriate LIBOR or a reasonable proxy rate in lieu of LIBOR, and
• is not covered by section 284-255 compliant documentation.

In this case, you must disclose the transfer pricing position associated with the notional borrowing as a Category A reportable tax position.

For more information, see:

• Taxation Ruling TR 2014/8 Income tax: transfer pricing documentation and Subdivision 284-E
• Treating similar arrangements or transactions as a single position

Calculating materiality for transfer pricing positions

You only have to disclose Category A reportable tax positions where the tax (or notional tax) affected by the position exceeds your entity's materiality amount. You can base the materiality calculation on either:

• applying the relevant accounting standards to quantify the uncertainty
• arm's length calculations.

Applying accounting standards to quantify the uncertainty

AASB 112 Income Taxes specifies requirements for current and deferred tax assets and liabilities. An entity applies the requirements in AASB 112 based on applicable tax laws. AASB Interpretation 23 Uncertainty over Income Tax Treatments explains how to apply the recognition and measurement requirements in AASB 112 when there is uncertainty over income tax treatments.

Where you have used the recognition and measurement methods specified in AASB Interpretation 23 to calculate the value of tax uncertainty for a tax position, your entity's position is material where that value exceeds its materiality threshold.

For more information, see Guidance on AASB Interpretation 23 (PDF, 325KB)This link will download a file.

Arm’s length calculations

If your entity has conducted a comparability study that has established an arm's length range, its materiality calculation is based on the difference in the tax it paid, and what it would have paid, if the transfer price was based on the median of that arm’s length range.

If your entity hasn't conducted a transfer pricing comparability study, you can base its materiality calculation on either:

• the benchmarks listed in Practical Compliance Guide PCG 2017/2 Simplified transfer pricing record keeping options if your entity meets the relevant qualifying requirements in PCG 2017/2 for the benchmark you are applying
• a conservative approach, where a transaction type isn't covered by PCG 2017/2 or your entity doesn't meet the conditions in PCG 2017/2.

If using a benchmark in PCG 2017/2, the materiality calculation is the difference between the tax your entity paid and what it would have paid had its transfer price been based on the benchmark from PCG 2017/2.

The materiality calculation, under the conservative approach, is:

• outbound transactions – the cost of the outbound supplies your entity is making multiplied by the tax rate
• inbound transactions – your entity's total deduction for inbound supplies multiplied by the tax rate.

Continue to: Definitions used in RTP schedule