The Australian tax year runs from 1 July to 30 June. However, a corporation may apply to adopt a substitute year of income, for example, 1 January to 31 December.
A corporation (including the head company of a tax consolidated group) lodges/files a tax return under a self-assessment system that allows the ATO to rely on the information stated on the return. Where a corporation is in doubt as to its tax liability regarding a specific item, it can ask the ATO to consider the matter and obtain a binding private ruling.
Generally, the tax return for a corporation is due to be lodged/filed with the ATO by the 15th day of the seventh month following the end of the relevant income year or such later date as the Commissioner of Taxation allows. Additional time may apply where the tax return is lodged/filed by a registered tax agent.
Payment of tax
A PAYG instalment system applies to companies other than those whose annual tax is less than AUD 8,000 that are not registered for GST. Most companies are obligated to pay instalments of tax for their current income year on a monthly or quarterly basis. All companies with turnover of AUD 20 million or more pay instalments on a monthly basis.
Instalments are calculated by applying an instalment rate to the amount of the company's actual ordinary income (ignoring deductions) for the previous quarter. The instalment rate is notified to the taxpayer by the ATO and determined by reference to the tax payable for the most recent assessment. The ATO may notify a new rate during the year on which subsequent instalments must be based. Taxpayers can determine their own instalment rate, but there may be penalty tax if the taxpayer's rate is less than 85% of the rate that should have been selected.
Final assessed tax is payable on the first day of the sixth month following the end of that income year or such later date as the Commissioner of Taxation allows by a published notice.
Tax audit process
The Australian tax system for companies is based on self-assessment; however, the ATO undertakes ongoing compliance activity to ensure corporations are meeting their tax obligations. The ATO adopts the justified trust concept from the OECD, where it will seek objective evidence that would lead a reasonable person to conclude a particular taxpayer paid the right amount of tax and will tailor its assurance approach based on the unique business profile of a taxpayer. This generally means that the ATO will take a risk-based approach to compliance and audit activities, with efforts generally focused on taxpayers with a higher likelihood of non-compliance and/or higher consequences (generally in dollar terms) of non-compliance. Compliance activities take various forms, including general risk reviews, questionnaires, reviews of specific issues, and audits.
Statute of limitations
Generally, the Commissioner of Taxation may amend an assessment within four years after the day of which an assessment is given to a company. Under the self-assessment system, an assessment is deemed to have been given to the company on the day on which it lodges its tax return. The four-year time limit does not apply where the Commissioner is of the opinion there has been fraud or evasion, or to give effect to a decision on a review or appeal, or as a result of an objection made by the company, or pending a review or appeal. For certain small business entities and, for assessments for income years commencing on or after 1 July 2021, medium business entities (i.e. those with aggregated turnover of between AUD 10 million and AUD 50 million), a two-year amendment period generally applies. A seven-year period of review applies to an assessment to give effect to a transfer pricing adjustment raised for an income year commencing on or after 29 June 2013.
Topics of focus for tax authorities
The ATO has a 'Top 1000' program that aims to obtain additional evidence to achieve greater assurance that the largest 1,000 public and multinational companies are reporting the right amount of income tax and GST in Australia. This program supports and expands the ATO’s existing compliance approaches. Under the program, ATO teams engage with each taxpayer using tailored compliance approaches to assure they are reporting the right amount of income tax or identify areas of tax risk for further action.
The ATO periodically releases its compliance focus areas that are attracting its attention. The following are current areas of focus by the ATO for large and multinational businesses:
- A strong focus on shifting of profits to lower tax jurisdictions and the cessation of Australian operations, including a focus on cross-border transactions (in particular, related-party financing).
- Structuring and business events, such as mergers and acquisitions, divestment of major assets and demergers, share buy backs, capital raisings and returns of capital, private equity entries and exits, and initial public offerings.
- Capital gains tax, losses (capital and revenue), tax consolidation, infrastructure investments, and financial arrangements.
- GST and property transactions, cross-border issues, and financial supply transactions.
- Sharing data and intelligence on risks and opportunities, sharing capabilities and strategies, and joint compliance action with other jurisdictions.
- R&D tax incentive.