Jenny Wong explains the ATO's guidance on who should lodge general purpose financial statements (GPFS).
Last month the Australian Taxation Office (ATO) released long awaited guidance on who should prepare general purpose financial statements (GPFS) aimed at better promoting tax transparency of a company’s Australian tax affairs.
Some Australian companies have been lodging special purpose financial statements or have been exempt from the requirement of lodging any accounts under the corporation’s law. They need to revisit this and determine whether they should instead lodge GPFS to meet the new tax law requirements.
The starting point in working out whether you have an obligation to lodge GPFS with the ATO involves answering these five questions:
The first two questions should be relatively easy to work out. The ATO has clarified that, for the purposes of working out a SGE, it’s your global revenue that hits the profit and loss account (not amounts in an equity). The third and fourth questions should be answered through a joint effort between a tax and accounting expert as you need to work out things like: has a set of GPFS has already been lodged with the Australian Securities and Investments Commission (ASIC); if not, the taxpayer needs to lodge GPFS but in what form (e.g. standalone vs consolidated) and in which accounting standards?
Overlaying all this, you should also have regard to the ATO’s best practice comments in the ATO’s Guide to inform your decision as to the type of GPFS that should be prepared and lodged.
The most affected group of taxpayers under this new tax law obligation are those that are foreign owned. Some groups have been lodging special purpose accounts at the Australian level in the past and some have ASIC relief in place from lodging any accounts. For these groups, the Australian taxpayer may not be able to rely on the global parent accounts to meet its obligations. It’s most likely they will need to consider the options of preparing their own set of General Purpose Financial Reporting Standards (GPFRS), consolidated or standalone with additional information attached when you consider the ATO’s best practice commentary.
Those with an ASIC class order in place are exempt from the obligation to prepare accounts and you need to work out whether the GPFS should be prepared under Australian Accounting Standards or the home country commercial accepted accounting principles or whether you can lodge the home country parent consolidated accounts (which includes the Australian results) with some additional disclosures to meet the ATO’s best practice.
You should also note there is transitional relief in the first year these new requirements take effect. During the first year i.e. an income year that commenced between 1 July 2016 and 30 June 2017, the ATO will not review whether a GPFS given to the Commissioner is prepared in accordance with Australian Accounting Standards. This is as long as it is prepared consistently with another country's commercially accepted accounting principles.
For foreign owned Australian groups, the ATO are particularly interested in comments as to how parent accounts prepared in accordance with home country accounting standards could meet Australian Accounting Standards. This may be, for example, through commonality with the Australian standards or through the provision of supplementary information to address additional items required by the Australian standards.
Comments on the ATO GPFS guidance are due 27 October 2017.