Last month, the Tax Office released draft practical compliance guideline PCG 2018/D5 outlining its compliance and administrative approach for corporate entities facing uncertainty in determining their corporate tax rate and franking credit rate for the 2015–16, 2016–17, and 2017–18 income years.
The PCG recognises the uncertainty arising from a series of tax law changes, including Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017, which proposes the removal of the ‘carrying on a business’ requirement and replacing it with the criteria of having no more than 80 per cent of assessable income as passive income to qualify for the reduced rate.
Accordingly, the ATO will not allocate compliance resources to conduct reviews if taxpayers have applied the correct rate of tax or franked at the correct rate, and will not impose penalties for providing an incorrect distribution statement for frankable distribution.
Speaking to Accountants Daily, Pitcher Partners client director, Peter Gillies said that despite the concessionary approach taken by the ATO, there would be no rush for corporate clients to anticipate any changes ahead of the 1 December income tax deadline for medium to large taxpayers.
“Regardless of whether you anticipate or not, if what you lodge results in a shortfall in tax payment, then theoretically they could be exposed to interest and penalties in respect to that shortfall so waiting until it is certain eliminates that need or that problem,” said Mr Gillies.
“However, I’m talking about this from a tax perspective – one of the issues that overlays all of this is the need for companies to finalise their financial statements and in finalising their financial statements, they will often have to take a position as to what their income tax provision or liability for income tax is in their accounts and that will be need to be done before the lodgment due date so it’s more of an accounting-driven problem for companies than it is a tax-driven shortfall issue.
“Accountants and auditors will have to take a view on what they do about the uncertainty so it will cause some angst but not necessarily cause problems in the sense that they are not insurmountable.”
Mr Gillies is hopeful that Parliament will consider the bill during the current sitting and provide certainty sooner rather than later.
“Parliament has been preoccupied with other stuff other than focusing on the bills that are before it,” he added.
“We are all hoping that it will get resolved sooner rather than later but we just don’t know when and it has dragged on far too long.”