All legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated.
Accounting principles
Accounting principles has the meaning given by subsection 995-1(1).
Economic group
An economic group includes all entities (companies, trusts and partnerships, etc) that lodge an Australian tax return under a direct or indirect Australian or foreign ultimate holding company or other majority controlling interest.
This includes all entities under a single ultimate holding company or under the ownership of a single individual, trust or partnership.
For more information see examples – economic group.
Financial statements
Financial statements are the documents that represent the financial position and financial performance of an entity, prepared in accordance with accounting principles. They include:
- financial reports prepared pursuant to Chapter 2M of the Corporations Act 2001
- statements (however described) that cover the activities of the Australian operations, where the taxpayer is a foreign resident operating through a permanent establishment in Australia
- reports prepared for submission to the Australian Prudential Regulation Authority (APRA) that cover the activities of the Australian operations, where the taxpayer is a foreign bank with an Australian permanent establishment.
If there are one or more sets of financial statements relevant for an entity, the financial statements that apply are those that recognise or disclose the uncertainty about taxes payable or recoverable to which the position relates.
For guidance on what is considered a financial statement see how to prepare a GPFS.
Hybrid mismatch rules
Hybrid mismatch rules collectively refer to Division 832 and amendments to:
- Subdivision 768-A
- Section 23AH of the Income Tax Assessment Act 1936 (ITAA 1936)
- Part IIIB of the ITAA 1936.
Loan amount
For loans or borrowings, trade financing and other types of debt interests under Division 974 of the ITAA 1997, the average balance of the loan, borrowing or other debt interest during the income year is calculated the same way as quarterly balances of borrowings and loans shown at Item 11a of the International dealings schedule.
Majority controlling interest
An entity holds a majority controlling interest in another entity where it holds more than 50% of the voting power at a general meeting of that entity.
Materiality amount
An entity's materiality amount is 5% of its Australian current tax expense, except where:
- 5% of its Australian current tax expense exceeds A$30 million – the materiality amount is then A$30 million
- 5% of its Australian current tax expense is less than A$3 million – the materiality amount is then A$3 million
- it has no Australian current tax expense – the materiality amount is then A$3 million.
You must calculate your entity's Australian current tax expense in accordance with accounting principles. If your entity is the head company of a MEC group, Australian current tax expense is the aggregate of the current tax expense of all members of the MEC group.
Use A$3 million as the materiality amount if:
- your entity doesn't calculate its Australian current tax expense and doing so requires significant additional effort
- you consider the materiality amount for RTP purposes isn't appropriate to your entity's circumstances.
International related parties
International related parties are persons:
- not dealing wholly independently with one another in their commercial or financial relations and
- whose dealings or relations can be subject to Subdivision 815-B of the ITAA 1997 or the associated enterprises article of a relevant double tax agreement (DTA).
The term includes any overseas entity:
- or person who participates directly or indirectly in your entity's management, control or capital
- your entity participates directly or indirectly in the management, control or capital of
- who has the same entity or person participating directly or indirectly in its management, control or capital as your entity.
Position
A position is the effect, for taxation purposes, given to particular arrangements or transactions, as reflected in the statements made in your entity's 2022–23 company tax return.
This includes positions:
- due to interpretative matters – for example, legislative construction
- due to findings of fact – for example, market valuations
- where the effect for tax purposes is an omission from your entity's tax return.
Potential adjustment
Potential adjustment means the sum of the following amounts in the 2022–23 income year should the RTP not be sustained:
- your entity's tax rate multiplied by an amount, or part of an amount, that would be included in its assessable income
- your entity's tax rate multiplied by a deduction, or a part of a deduction, that wouldn't be allowable to your entity
- your entity's tax rate multiplied by a capital loss, or a part of that capital loss, that wouldn't be incurred by your entity
- a foreign income tax offset that wouldn't be allowable to your entity
- a tax offset that wouldn't be allowable to your entity.
Your entity's tax rate is the applicable tax rate specified in the Income Tax Rates Act 1986.
Total business income
Total business income is the amount reported in the total income label of the company tax return. For 2023, total income is reported at label 6S.
Total business income of an economic group is the sum of all income labels in the Australian tax returns of every group member, including trusts and partnerships. There is no total income label on trust and partnership tax returns. This needs to be added up manually for all income labels.
All Australian income of group members is included in the calculation. Foreign income of group members is only included where the entity generating that income is an Australian resident entity.