In the quiet of the first week of February, as Australia is getting back to work after the holiday period, the Australian Taxation Office (ATO) announced sweeping changes to its Reportable Tax Position (RTP) Schedule criteria.
The changes were released without any fanfare by way of an update on the ATO’s website. Their effect is to significantly increase the pool of taxpayers required to lodge a Reportable Tax Position Schedule.
For the 2010/11 income year, the ATO introduced a Reportable Tax Position Schedule as part of the company tax return form. This schedule was designed to collate information on uncertain tax positions adopted by Australia’s very largest taxpayers. Furthermore, taxpayers were only required to lodge this schedule when notified in writing by the Commissioner of Taxation.
For the 2017/18 income year, the ATO broadened the pool of taxpayers required to lodge the schedule by extending it to selected companies in public or international economic groups with a turnover greater than AUD $250 million.
On 5 February 2019, the ATO announced that it is dispensing with the notification process for the RTP Schedule for the income years ending on or after 30 June 2019. This moves the process to a self-assessment system, requiring taxpayers to determine for themselves whether lodgement is required. Accordingly, taxpayers who meet the following criteria will be required to prepare and lodge the RTP Schedule:
- public company or foreign-owned company
- total business income (as disclosed in the company tax return form) is at least AUD $25 million, and
- part of a public or foreign-owned economic group with a total business income of AUD $250 million or more in the current or immediately prior income year.
This drastically increases the reporting obligations for many corporate taxpayers and has the potential to put a range of issues on the ATO’s radar. According to their website, the ATO uses the data reported in the RTP Schedule to, among other things:
- tailor its focus on taxpayers and work with them on complex high-risk arrangements
- better understand tax risks for taxpayers, and
- improve dialogue with large businesses about matters such as risk profile and corporate governance.
This can be seen as a further step along the road to increased tax transparency for taxpayers. The measure will allow the ATO to streamline its audit approach to focus on taxpayers’ soft points. Gone are the days where such issues would only come to light after investigation – the ATO will now be able to conduct its own research and develop positions all before notifying the taxpayer of a review.
The RTP Schedule contains three sections:
- Section A: material positions adopted that are about as likely to be correct as incorrect
- Section B: material positions where uncertainty about tax payable or recoverable is recognised and/or disclosed in the taxpayer’s (or a related party’s) financial statements
- Section C: where the answer to any one of 21 questions is 'yes'.
For the purposes of Sections A and B, a 'material' position is one where the amount of tax at stake is at least 5% of the taxpayer’s Australian current tax expense, subject to a minimum and maximum threshold. Where 5% of the taxpayer’s Australian current tax expense is greater than AUD $30 million, a position is material where at least AUD $30 million of tax is involved. Where 5% of the taxpayer’s Australian current tax expense is less than AUD $3 million (or there is no Australian current tax expense), the materiality amount is AUD $3 million.
For Section C, there is no materiality threshold.
It is important to note that the RTP Schedule is not just about uncertain tax positions. Section C contains a series of 21 questions covering everything from schemes identified by the ATO and documented in taxpayer alerts, to vanilla cross-border financing arrangements. If a taxpayer answers 'yes' to any of these questions, a disclosure in the RTP Schedule is required.
Taxpayers should not underestimate the seriousness of these disclosures. Any company that meets the above criteria for lodgement of the RTP schedule should engage with us immediately to determine the implications for them.
For further information
Please contact your local RSM adviser for assistance regarding the changes to Reportable Tax Position Schedule criteria.