The Reportable Tax Position schedule will soon apply to large private companies. From 1 July 2020, the ATO will require large businesses to disclose their most contestable and material tax positions via the schedule. The purpose of this, according to the ATO is to align the treatment of large businesses, whether they be public, foreign-owned or private. However, some large private companies may have another year of reprieve, during the 2020-21 income year, only those companies notified by the ATO will need to lodge the schedule.
Large private companies will soon have to deal with an added compliance burden, the Reportable Tax Position (RTP) schedule is set to apply to all large companies from 1 July 2020 (ie the 2020-21 income tax year). The reportable tax position (RTP) schedule is a schedule to the company income tax return and requires large businesses to disclose their most contestable and material tax positions.
It is used by the ATO for a range of purposes including:
- tailoring engagement to specific businesses on complex or high-risk arrangements;
- identify areas where it needs to provide further clarification or certainty on the correct treatment of transactions and complex high-risk tax arrangements;
- better understand tax risk for taxpayers, industries and the large market;
- improve dialogue with businesses about risk profile and corporate governance; and
- allow businesses to make informed decisions about positions it has taken or are considering taking that are considered to be high-risk.
Previously, the RTP only applied to public companies or foreign-owned companies that has a total business income of either $250m or more in the current year, or $25m or more in the current year and is part of a public or foreign-owned economic group with total business income of $250m or more in the current year or the immediate prior year.
The expansion is seen by the ATO as a way to level the playing field in the large market. The same turnover thresholds and economic group definition will be used for public, foreign-owned and private companies. Due to 2020-21 income tax year being the very first year that the RTP will apply to private companies, the ATO will take a go-slow approach.
It will notify selected large private companies by the end of July 2020, if not earlier, that they will be required to lodge the RTP schedule.
Those private companies that have not been notified will not have an obligation to lodge the schedule for the 2020-21 income tax year. However, for subsequent income tax years, it is the ATO’s intention that all large private companies will self-assess their lodgement requirement for the RTP, which aligns with the current public and foreign owned companies’ RTP schedule instructions.
As a part of the expansion, the ATO consulting on the addition of 4 new questions to Category C section of the schedule. The additional questions relate to the following:
- head company of a consolidated group: loans to shareholders or associates which were not repaid before the lodgement date;
- trust arrangements involving debt and/or rollover relief (ie arrangements that are in a similar vein to Taxpayer Alert TA 2019/2);
- more than 10% of issued shares owned by a single shareholder acting as a trustee of a trust; and
- claims for foreign income tax paid where less than 100% of the related foreign income (including capital gains) is included in Australian assessable income.
These questions are the ATO’s attempt at working out whether certain private companies have issues with distributable surplus or avoiding CGT by exploiting restructure rollovers for example. These issues tend to be complex, so large private companies which may be caught up in the RTP schedule from next year onwards may need to start planning now.
What to do now?
The ATO’s notification for the RTP schedule will be based on the total business income in the last lodged tax return of the company and other entities in the economic group, if you think your large private company may be required to lodge an RTP schedule in the next financial year, we can help you prepare. Contact us today.