16RU-007 ATO consults on general purpose financial statements

16RU-007

The ATO has released a consultation paper on the provision of general purpose financial statements by significant global entities as a result of amendments to tax law. The practical implication of the requirements could result in an entity that previously only prepared special purpose financial statements, or is relieved from preparing or lodging financial statements, now being required to prepare general purpose financial statements for lodgment with its tax return.

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Do you need to provide GPFS to the ATO?

Well, it's here. The Australian Taxation Office (ATO) has released a consultation paper seeking to provide more guidance on the new requirement that significant global entities provide the Commissioner of Taxation general purpose financial statements (GPFS) if they do not already lodge a set with the Australian Securities and Investments Commission (ASIC).

The tax law amendments, enacted in December 2015, will impact many Australian companies and not just Australian subsidiaries of multinational groups. The amendments will potentially impact entities that previously only prepared special purpose financial statements (SPFS) or are relieved from preparing or lodging financial statements.

The consultation paper raises a number of questions for consultation with an overarching aim of keeping taxpayers obligations 'as simple as possible'. The consultation paper is also seeking input to highlight any areas that are unclear or are causing difficulties for a taxpayer in understanding their obligations. The consultation paper provides clarification on some issues previously raised when the legislation was enacted, but it still leaves open questions over other issues. We have discussed significant issues below.

The consultation period will close on 30 September 2016. You should engage with your KPMG advisor to determine if you are affected, to discuss implementation issues given your particular group structure and when you need to lodge your first set of GPFS with the ATO.

KPMG awaits with interest to see the results of this consultation process, including:

  • if it results in any changes to the tax law
  • how it may impact the implementation of these tax law amendments.

Whatever happens we hope that the ATO can finalise the process as soon as possible to allow impacted entities enough time to organise their affairs prior to the first year end – 30 June 2017.

Summary of tax law amendments

The Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 amended the tax legislation to require certain entities to prepare and lodge GPFS with the ATO at the time it lodges its tax return. These GPFS will be provided by the ATO to ASIC.

The practical implication of the requirements could result in an entity that previously only prepared SPFS, or is relieved from preparing or lodging financial statements, now being required to prepare GPFS for lodgment with its tax return.

The following decision tree provides an overview on assessing the potential impact on an entity.

An entity is a corporate tax entity if it is a company, corporate limited partnership, corporate unit trust or public trading trust (as defined in the income tax law).

An entity is a significant global entity if it is one of the following:

  • a global parent entity with an annual global income of A$1 billion or more
  • a member of a group of entities consolidated for accounting purposes and one of the other group members is a global parent entity with an annual global (consolidated) income of A$1 billion or more.

The consultation paper confirms that an entity will not be impacted by the requirement to lodge GPFS if it is not required to lodge an income tax return – for example:

  • an income tax exempt charity
  • a subsidiary member of a tax consolidated group or multiple entry consolidated (MEC) group
  • a non-resident entity for Australian taxation purposes that is not operating through a permanent establishment in Australia.

Issues considered

Refer to the series of Appendices (PDF 402KB) that consider a number of issues and questions, some of which are contemplated in the ATO’s consultation paper on the tax law amendments enacted in December 2015. The list below will assist in focusing on information relevant to your specific circumstances.

1. GPFS prepared on what basis?

  • What are accounting principles?
  • What are GPFS?
  • Discussion on the consultation paper’s two views, including practical differences between the two views
  • Examples in Appendix 5 illustrate some further specific fact patterns

2. Consolidated groups – lodge single entity or consolidated report?

  • Examples in Appendix 5 illustrate some further specific fact patterns

3. Issues where further clarification is now provided

  • What type of GPFS?
  • Is an audit required?
  • Impact on branch operations?
  • Companies who receive lodgement relief from ASIC
  • Grandfathered large proprietary companies
  • Can I still lodge SPFS with ASIC?
  • Application date and timing of ATO lodgement

4. Other issues which would still benefit from further clarification

  • What is meant by ‘global income’?
  • Defining the term ‘financial year’ and clarifying the meaning of the phrase ‘...a GPFS for the financial year most closely corresponding to the income year’.

5. Illustrative examples

  • Overseas ‘owned’ group with no Australian tax consolidation group and the overseas parent is an Australian registered foreign company
  • Overseas ‘owned’ group with an Australian MEC group and the overseas parent is an Australian registered foreign company
  • Overseas ‘owned’ group with an Australian MEC group and the overseas parent is not an Australian registered foreign company
  • Australian ‘owned’ group with an Australian tax consolidation group and the Australian parent is a listed disclosing entity
  • Australian ‘owned’ group with an Australian tax consolidation group and the Australian parent is a non-reporting entity (i.e. prepares SPFS)
  • Australian grandfathered large proprietary company
  • Overseas ‘owned’ group with no Australian tax consolidation group, but all entities are part of deed of cross guarantee (CO 98/1418)
  • Overseas ‘owned’ group with an Australian MEC group, but all entities are part of deed of cross guarantee (CO 98/1418)
  • Australian large proprietary company which prepares and lodges but receives audit relief (CO 98/1417)
  • Overseas ‘owned’ group with no Australian tax consolidation group, overseas parent is an Australian registered foreign company but receives lodgement relief (CO 02/1432) and Australian subsidiary receives preparation and lodgement relief (CO 98/98)

6. Extracts of law

   

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