The Australian Taxation Office (ATO) is encouraging taxpayers to engage with the ATO if they want certainty on the tax implications of complex or unusual commercial deals and avoid future compliance action.

The ATO’s commercial deals service enables taxpayers to engage with the ATO after the relevant transaction has been completed but prior to lodgment of the tax return. The idea is that this service assists taxpayers and the ATO to reach mutual agreement on the tax implications of the deal and resolve any tax issues before lodgment.

The commercial deals service can be used in a range of situations, including significant business transactions that may impact on the structure of the business. For example:

• Financing and refinancing
• Initial public offerings
• Mergers and acquisitions
• Restructures
• Sale of business (partial or complete) or business assets
• Sale of commercial property
• Share buybacks
• Takeovers

The ATO has also updated its website guidance with case studies to provide examples of how the commercial deals service might be utilised. These include:

• Applying the market value substitution rule when siblings sell shares in a family company to other siblings
• Applying the general value shifting regime to a company restructure
• Negotiations with the ATO regarding capital gains liabilities and variation of the foreign resident capital gains withholding (FRCGW) amount.

The ATO is also focusing its pre-deal completion and pre-lodgment compliance activities for commercial deals where there is a potential risk of:

• Misapplication of the capital gains tax exemption for foreign residents and taxable Australian property under Division 855;
• The dissipation of assets, such as the movement of funds outside Australia (for example, where a foreign resident is selling their sole Australian asset).

Advantages of engaging with the ATO

If you have recently completed a commercial deal, the ATO can work with you to understand your circumstances and address any potential issues as soon as possible.

The ATO can:

• help resolve tax technical issues relating to the deal
• work towards agreement on the tax position you intend to take
• help you meet your tax obligations and reduce the likelihood of a review.

Working transparently with the ATO can mutually resolve tax issues prior to lodgment and help avoid tax disputes post-lodgment.

If agreement is reached, and lodgment is received as agreed, the ATO have indicated they will not conduct a review or audit for that commercial deal, increasing certainty on how tax law applies to your circumstances.

Engage with us early

The earlier you discuss your completed commercial deal with the ATO the better. They can work with you to get the right tax position before you lodge your tax return. By reaching a pre-lodgment agreement, you can avoid potential post-lodgment tax disputes or shortfall penalties and interest.

Once you have completed a deal, the ATO will work together to ascertain the relevant facts to reach an agreement on how the transaction will be reported for tax purposes. They may still contact you post-lodgment to confirm you reported as agreed.

Contact Indigo Financial on (08) 8212 8585 for all your accounting needs.

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.