Tax Returns and Lodgements

Effective tax governance helps your business comply with tax administration obligations. Operating without required tax registrations or failing to lodge returns on time will attract our attention and potentially expose your business to interest and penalties.

It's important that you understand your obligations, including any registration and reporting requirements, both for tax and other regulators. Regulatory and tax obligations vary according to the type of entity structure (trust, company, partnership or super fund) you choose.

Your business should have procedures to capture all tax administration obligations and review them annually for any changes that impact your business. For tax registrations, effective tax governance processes include:

• annual review of all tax and corporate registrations to identify gaps or lapsed registrations
• comprehensive payroll and superannuation procedures for registering new and departing staff
• defined accountabilities for ensuring registrations are complete
• assistance from a tax adviser for new, complex or unfamiliar registrations

It's good practice to adopt decision-making that is transparent and accountable and aligns with corporate policies and procedures. In an effective governance model, tax risks are properly factored into decision-making, particularly for larger, new or one-off transactions, such as acquisition or disposal of business and assets.

How you document your policies and procedures will depend on your business size and needs. Whatever your circumstances, a good starting point would be to incorporate tax governance principles and policies into your overall governance framework, and day-to-day tax governance procedures into your operational business procedures.

Business should have clear policies and procedures for making and recording key decisions. This may include permanent files with details of all meetings held (formal and informal) to discuss business affairs. The formality of such processes generally matches the size and complexity of a business.

An ethical tax governance framework includes systems and controls to ensure accurate reporting and identify, assess and manage any tax risks. To address these risks:

• establish effective procedures for correcting errors or oversights that impact on tax obligations, including raising the issue with relevant stakeholders, advisers and the ATO where necessary
• have tax and accounting staff with the knowledge and skills to properly manage your tax affairs and the opportunity to engage with external advisers where necessary on more complex matters
• put systems in place (such as exception reporting) to identify, flag and address unusual transactions or events when they occur
• document any reasonably arguable position in relation to the tax treatment of transactions, particularly those outside the ordinary dealings of the business
• consider engaging a tax agent or adviser to lodge tax returns and other statements and adopt procedures to address enquiries or information requests from the ATO and other regulatory bodies
• establish procedures to ensure all advice sought is adhered to and practically applied – and where there are deviations from the advice or recommendations, these are articulated along with their supporting reasons
• ensure senior decision-makers are aware of any outstanding issues or disputes with the ATO
• ensure procedures are in place to raise tax provisions for higher-risk transactions, and where statutory financial accounts are prepared, the tax note details these extraordinary transactions and their associated tax impact
• document any significant changes to the business operations by way of minutes of meetings.

To be effective, tax governance needs to support an appropriate tax outcome. Ensure your tax governance framework remains effective by:

• testing systems and controls
• regularly reviewing your tax governance arrangements to make sure they suit your business
• regularly checking that your policies and procedures are up to date with current tax laws
• having policies that refer to current reference materials and examples available to staff from various resources (including the ATO website)

ensuring staff responsible for the taxation function maintain knowledge, skills and experience to perform their core duties, with practices such as

• continuing professional development
• hiring practices that reflect the skills and experience required
• encouragement for staff to identify and address emerging skill gaps
• annual reviews of staff resourcing and capability during periods of expansion

maintaining up-to-date tax modules in your accounting systems, with all outputs (such as reports, ledgers and accounts) reviewed for accuracy and completeness, including procedures to detect and deal with system output or accuracy errors.

Record keeping and documentation

Under tax law, you must keep records to support your liabilities and claims, including documents evidencing an intention, election, choice, estimate, determination, valuation or calculation. Establish record-keeping systems and practices that are appropriate to the size, scale and complexity of your business. Consider implementing internal controls, such as secondary sign-offs and reconciliations, to ensure the integrity of all accounting records. Ensure that all the founding documents and any subsequent amendments or variations are complete, executed or signed and stored for easy access when needed. Maintain records relating to your annual tax obligations, including asset registers. Documents that you're required to keep can be in written or electronic form. If you store your records electronically make a backup copy to ensure the evidence is easily accessible if the original becomes inaccessible or unreadable. Good practice includes ensuring that business decisions makers and advisers have full access to key documents.

Documenting key decisions to support tax treatment

Adopt practices that ensure key decisions are documented at the time they are made. Key decisions made at the formation of a business and at the start of transactions often impact future tax outcomes. Contemporaneous records of such decisions can form crucial evidence to support your tax treatment of major transactions and may prove valuable should we later review your tax affairs.

Appropriate tax governance arrangements will ensure continued access to source documentation, such as the trust deed, detailed records of proceeds and expenditures relating to the sale of property, financial statements, trust income distribution resolutions and other key evidence supporting tax treatment.

When making decisions to undertake new projects or ventures, keep a record of any advice received, as well as contemporaneous statements from business owners on their plans and intentions.

Timelines for tax lodgements

A good tax governance model will provide for documented timelines to ensure income tax returns, excise returns and activity statements are lodged by the due dates. Timelines should allow sufficient time for tax agents to be appointed (unless the entire tax function is in-house), financial records to be reviewed, key tax treatments to be agreed and final returns prepared. At any time, you may identify errors in registrations, governing documents or lodgments. Routinely review ongoing tax positions and foster a culture of self-correction. Promptly and voluntarily disclosing errors to us is an indicator of good tax governance and suggests regular self-review undertaken. A reporting and lodgment procedure may include processes such as:

• annual review to identify, and capture in a calendar, all due dates for all tax obligations
• defined accountabilities within your business and with your tax agent for ensuring lodgments are on-time
• engagement with the ATO to request lodgment extensions where appropriate
• identifying trigger points for key non-tax reporting, such as corporate law reporting obligations and deadlines.

Tax liabilities and cashflow management

Staying on top of your business debts and operating cashflow requirements is critical to the success and even the survival of your business. Tax liabilities often arise irregularly and can impact cash flow.

Poorly managed tax liabilities are an indicator of inadequate tax governance.

To demonstrate effective governance around tax liabilities, consider adopting the following practices:

• establish a corporate debt management policy including management of tax liabilities
• prepare a schedule of income tax, PAYG withholding, GST, excise and customs duties and other tax-related payments
• include estimates of tax payments in formal cashflow budgets
• apply formal processes to ensure that tax, finance and treasury functions share tax payment information and forecasts
• contact the ATO to propose and agree on payment arrangements where tax payments can't be paid on time.

Tax risk is that companies may be paying or accounting for an incorrect amount of tax (including both income and indirect taxes), or that the tax positions a company adopts are out of step with the tax risk appetite that the directors have authorised or believe is prudent. The presence and testing of a tax internal control framework are an integral part of the risk-assessment protocols used by tax authorities.

It was developed primarily for large and complex corporations, consolidated tax groups and foreign multinational corporations conducting business in Australia. The principles outlined can be applied to a corporation of any size if tailored appropriately.

A risk-identification process that accounts for qualitative and quantitative risk factors.

Examples of typical risk factors include:

• volume of transactions affecting disclosures in the tax return, excise return or BAS
• financial accounting and tax reporting complexities and inconsistencies
• volume of manual adjustments made by management
• related-party transactions
• dealings involving low-tax jurisdictions
• year-end arrangements resulting in tax benefits
• revaluations resulting in tax benefits
• transactions or arrangements where there
• a legal versus substance disconnect
• steps added to a transaction making it more complex than necessary, resulting in a tax preferential outcome.
• the use of new and complex financial instruments or arrangement.
• manual coding and classification of transactions for GST and excise where systems were overridden Intra group transactions with GST groups
• reversals or corrections to lodged BAS
• tax risks have been rated, for example high/medium/low, with the appropriateness of the rating evaluated on a yearly or half yearly basis.
• reporting templates that are adhered to.

Establish a framework to identify and manage tax risk

The board of directors (or authorised board-level sub-committee) oversees an internal control framework that provides guidance on how all risks, including tax risks, are identified and managed within the business. For a business headquartered overseas, would expect the Australian-based board to perform the oversight role in respect of Australian tax risks including excise, GST and other applicable indirect taxes.

A formalised tax control framework

The board endorses a formalised tax control framework prepared by management that is understood across the organisation. Better practice can be demonstrated by a tax strategy document prepared by management, such as a board tax policy that provides details of how the organisation identifies and manages tax risk across all taxes. This would include policies prepared by management and endorsed by your board of directors that:

• outline the organisation's tax risk appetite
• detail an acceptable level of tax risk for day-to-day operations and what requires escalation
• are published internally and in your annual report.

Roles and responsibilities

The board understands and formalises company director roles and responsibilities for tax risk management. Better practice can be demonstrated by:

• documented role and responsibility descriptions for company directors
• programs for inducting new directors include briefings on key accounting and tax issues so they can perform their oversight of tax risk management strategies
• ongoing support and briefings by management for directors regarding tax risk management strategies
• allocating tax risk to an appropriate and independent board sub-committee – for example, an audit committee
• clear communication of expectations for managing tax risks from the board or sub-committee to management.

The board is appropriately informed

The board (or sub-committee) needs to brief management on tax risk matters and the effectiveness of their tax control framework. Consideration should also be given to the tax risk matters and effectiveness of the control framework relating to excise, GST and other indirect taxes applicable to the organisation. Better practice can be demonstrated by:

• board or sub-committee charters include oversight of tax risks
• regular summarised progress updates to the board or sub-committee by management on how tax issues and risks are trending (i.e. high, medium or low risk) at board meetings
• board (or sub-committee) minutes or documentation that demonstrate members have been briefed by management on the effective tax rate of the business, including whether the amount of tax paid aligns with business results and, where relevant, reasons for significant misalignment
• board (or sub-committee) endorsement for positions taken by management that fall outside published ATO safe harbours or arrangements subject to tax-payer alerts issued by the ATO
• tax-risk registers tabled by management and escalation of issues by management where appropriate – note if you have sought external advice on the relevant risk or issue
• an annual report that includes a statement from the board attesting that they have effective policies and processes in place to manage tax risk – for example, a statement prepared in accordance with the principals in the Tax Transparency Code

Senior management confident of capacity and capability

Senior management, such as the CFO/CEO or head of tax, are confident in the capacity and capability of tax governance processes and personnel for income tax, excise and GST and other indirect taxes.

Better practice can be demonstrated by:

• a control framework approved by senior management that includes both preventative and detective controls
• clearly identified key controls, including how often they are tested by staff with appropriate experience designated as control owners
• senior management approval of the design and operating effectiveness of the internal controls governing tax compliance
• internal or external assurance reviews of tax corporate governance or control framework procedures
• staff training on tax-related topics including excise, GST and other relevant indirect taxes
• staff reviews, KPIs and performance agreements that incorporate tax corporate governance and risk management elements
• key personnel with professional qualifications and standards to ensure capability
• impacts of tax compliance risks considered by an appropriate management or board sub-committee; for example, a mergers and acquisitions sub-committee considers the tax risks of acquiring an entity
• existing channels for personnel outside of the tax function to identify and escalate tax risks
• tax-related reports generated and presented to senior management.

Staff, management and board roles and responsibilities are clearly defined and documented within the control framework to ensure tax obligations are well managed and satisfied. Better practice can be demonstrated by formal documents, policies or procedures for all roles and responsibilities relating to tax compliance and risk management. In detail;

• role descriptions for tax compliance, administration and risk management
• roles and responsibilities for reporting of tax matters formalised and understood by management and appropriately trained personnel formal delegations (or authorisation levels)
• segregation of duties – for example, dual sign-off, Business Activity Statement (BAS)/ excise return preparation is segregated from review and authorisation prior to lodgment

policies or committee charters that specify methods and frequencies for reviewing and escalating risks in the tax risk register, including follow-up of identified tax risks.

Periodic internal control testing

Periodic internal control testing is conducted to assure the board that the internal control framework is robust enough to effectively manage income, excise and indirect tax compliance risk. Better practice can be demonstrated by:

• a testing plan prepared by management to determine the effectiveness of the control framework. (this may include a gap analysis to identify which key controls are not tested via existing assurance processes – for example, internal or external audits)
• reports from independent assurance providers (internal or external) that present findings on the effectiveness of the tax control framework, whether conducted primarily for tax controls or other interdependent controls
• evidence that the board (or sub-committee) has reviewed the results presented by management of control framework testing and any proposed remediation plans to be implemented by management for tax control failures
• documented assurance (such as an attestation) from senior management concerning the capability and capacity of the tax control framework.

Ensuring sufficient capacity and capability

Management should ensure there are sufficient capacity and capability to enable effective management of tax risk.

Identifying significant transactions

Transactions or arrangements with a significant tax impact are systemically identified, categorised and reported on – for example, into strategic, operational, reputational, compliance and financial matters. Better practice can be demonstrated by a policy for significant tax transactions that:

• specifies the value of what would constitute a significant transaction requiring authorisation from the tax area
• details the types of transactions, issues or risks that are significant enough to be escalated to senior management or the board (and, by default, tax matters not requiring escalation)
• outline the threshold where independent external tax advice should be sought and levels of management sign-off required for the transaction.

Ensuring information technology controls are in place

The internal control framework includes the implementation of appropriate Information Technology General Controls (ITGCs) to ensure information systems that process and store financial data accurately calculate, allocate, record and report tax data correctly.

Controls in place for data

Data integrity as a result of data transfer between various accounting/subsidiary systems should be subject to internal control processes.

It is generally understood that the information technology (IT) function will provide assurance that appropriate ITGCs are in place to support the various operations of the business including tax.

General IT controls

ITGCs are policies and procedures that relate to applications that support the effective functioning of those controls. ITGCs that maintain the integrity of information and security of data commonly include controls over:

• data centre and network operations
• system software acquisition (change and maintenance)
• program change
• access security
• application and system acquisition (development and maintenance).

Where IT poses a risk to the entity's general control environment, these controls are generally implemented to address:

• reliance on systems or programs that are inaccurately processing data or processing inaccurate data
• unauthorised access to data – particular risks may arise where multiple users access a common database or IT personnel gain access inappropriately
• unauthorised changes to systems, programs or data in master files
• failure to make necessary changes to systems or programs
• inappropriate manual intervention
• the potential loss of data or inability to access data as required.

Record-keeping policy

Better practice can be demonstrated by:

• a formally documented record-keeping policy for tax, including appropriate timeframes for the retention of records
• staff access to guidance notes via an intranet, or a set of procedures that are readily accessible explaining record-keeping requirements
• internal or external audits that verify compliance
• evidence that staff have trained on

Documented control frameworks

Better practice can be demonstrated by:

• documented procedures for reviewing the tax return, including reconciliation back to the audited financial statements with retention of working papers detailing the calculation of the tax, excise and BAS return
• working papers reviewed and approved by management, indicating that they have checked the correct application of tax law to accounting transactions and accurate calculation of the tax, excise and BAS return.
• Documented procedures and process manual/s for preparing the excise return and the BAS including the supporting reconciliations.
• Retention of working papers and reports supporting the excise return and the BAS
• documented processes and procedures for terminal/site level inventory controls and stock reconciliations affecting the calculation of the excise liability
• Working papers and reports reviewed and approved by management, indicating they have checked the correct application of tax law to transactions and accurate reporting for excise returns and the BAS.
• documented 'system map' showing the general process flow of how transactions are captured and flowed through to the GST/excise returns.

Better practice can be demonstrated by documented procedures detailing:

• methods for reconciling the tax calculation prepared for the financial statements and the completed tax return
• methods for preparing deferred tax assets and deferred tax liabilities calculations for the financial statements
• methods for preparing tax calculations based on accounting transactions
• management has a mechanism in place to appropriately explain the tax performance of the entity when compared to the accounting result
• narratives to explain variances between tax expense for the financial statements and the tax paid/payable as per the completed tax return
• methods for reconciling the BAS and the excise return to the source systems data and the general ledger
• procedures in place requiring explanations for significant movements or deviations in the amounts reported in the BAS and the excise return compared to prior comparable periods or to the business operations of the entity.

Adjusting with law and administrative changes

Better practice can be demonstrated by:

• walkthroughs of process change to assess whether changes to the law require updates to the internal control framework and development of new controls
• change requests submitted to senior management and changes to systems or control mechanisms implemented
• documented procedures to deal with difficulties implementing change due to law updates

Data validation and troubleshooting

Business accounting system software should examine data for errors according to the specified Practitioner lodgement services (PLS) error codes. If an error found, the software will not allow the data to be transmitted until you have corrected the error.

Pre-lodge checks (validation of forms)

Pre-lodge checks confirm details and highlight any discrepancies before company lodge the tax return and it may also be called a validation check in business accounting software. Checks are designed to ensure the integrity of the data transmitted via SBR-enabled software. These checks ensure that returns are correct and, as far as possible, data will be accepted for processing.

Pre-lodge checks may built into your software. These checks perform tests on the data on the return before lodgment and advise you of any errors. The simplest example of this process is the check for an invalid TFN. If you use a TFN that is invalid, your software package should alert you. You must correct the TFN before you transmit the return.

If you use pre-lodge checking well before your clients' lodgment due dates, you can ensure that you have enough time to correct or verify any discrepancies and lodge on time. You can complete a pre-lodge check before seeking your client's declaration to lodge the form.

Interactive check

The interactive check is an enhanced pre-lodge check of activity statements and individual returns.

The PLS can scan for a number of different errors or discrepancies before lodgment. With SBR-enabled software, these errors should be reviewed before the forms are lodged. Refer to the error messages generated by your software for more information.

Pre-filling of returns

The pre-fill function is designed to be a part of normal business processes when lodging an individual income tax return. Pre-filling is not compulsory but it usually provides a more precise, easier and quicker way to lodge. The pre-fill function can be used for either:

• one client in a single request
• multiple clients in a batch transaction.

Pre-fill within the PLS will return the same data as that provided in the myTax pre-fill service, including “myDeductions” data uploaded to the ATO by your clients.

Prior-year returns and amendments

The PLS allows you to lodge most prior-year returns. They can be submitted using the PLS; however some returns may require an Electronic lodgement service approval number in order to complete lodgment. You will need to retain your ELS registration or register for ELS to be able to lodge these returns. Your ELS registration type must be as a 'transmitter'.

New functionality in the PLS such as pre-fill, pre-lodge and interactive return checking may not be available for prior year lodgments. You may need to refer to your software supporting documentation or contact your software provider to determine which prior-year returns can be lodged by your software package.

Future-year lodgments

A future-year return is a return that is lodged before the end of the current reporting period – for example, a 2018–19 tax return lodged before the end of the 2019 financial year. Future year lodgments must be made no later than 15 June. Alternatively, the lodgment can be made as normal after 1 July.

Future-year returns are available for the following form types:

• Fringe benefits tax return
• Individual tax return
• Company tax return
• Trust tax return
• Self-managed super fund return
• Partnership tax return
• Superannuation fund return.
• Attribution managed investment trust return.

The current-year form may be used to lodge a future year. The tax return form in Standard Business Reporting (SBR) -enabled software has an option to indicate the lodgment is for a future year.

ATO will accept early lodgment of returns up to and including 15 June of the relevant financial year, if the return is lodged via SBR-enabled software and is lodged either:

by a foreign resident for tax purposes who

• is leaving Australia permanently
• will no longer derive Australian-sourced income (other than interest, dividend and royalty income).

by an Australian resident for tax purposes who

• is leaving Australia
• is ceasing to be an Australian resident for tax purposes
• will no longer derive Australian-sourced income (other than interest, dividend and royalty income)
• on behalf of a deceased client to finalise probate.

Generally, prefill data will not be available for early lodged returns.

Lodging activity statements

Before lodging activity statements for a client, a relationship must be created in the PLS between the registered agent and the client. You can use the client update (CU) service to add a client to your client list. However, check whether the client is already on your client list before updating.

If you are a tax agent linked to a client's IT role, you will be able to lodge activity statements without sending a client update. Activity statements received by other electronic channels or paper can also be lodged through the PLS, provided the client is listed on your client list.

The activity statement list interaction and the activity statement lodgment report (ASLRPT) will contain the unique document identification numbers (DINs). A DIN is required to request pre-fill information for a specific activity statement and to lodge the activity statement.

Client update (CU) - A relationship (client link) must be established before accessing or using the PLS for a particular client. Tax agents can update client details for both activity statements and income tax and BAS agents can update client details for activity statements. You can add or remove a link between a client and yourself. If a relationship already exists for that client with another registered agent, that relationship will be end-dated at the time of the new update. If a client is removed from your client listing and later restored, all client data will be accessible from the restoration date. Clients may have different registered agents for different roles.

Types of client updates currently available, depending on your digital service provider, include:

• add or remove a relationship with a client – (CUREL)
• advise date of death – (CUDTL)
• update the legal name of a trust, super fund or partnership (CUDTL)
• add or remove activity statement roles – (CUMAS)
• update lodgment status (RNN or FRNN) – (CURNN)
• update addresses (business, residential, postal) – (CUADDR)
• update electronic details (email, telephone numbers) – (CUEC)
• update financial institution details (CUFI).

Amendments and revisions

Forms that can be amended or revised through the PLS include:

• Activity statement (AS)
• Individual tax return (IITR)
• Company tax return (CTR)
• Fringe benefits tax return (FBT)
• Superannuation fund tax return (FITR)
• Self-managed super fund return (SMSF)
• Trust tax return (TRT)
• Partnership tax return (PTR)
• Attribution managed investment trust return (TRTAMI).

Activity statement revisions

The PLS may be used for a revision if the lodged form is allowed to be revised. However, the only way to determine whether a form can be revised through the PLS is by attempting to lodge the revision. An error will be returned if the lodgment is not revisable.

Assessments made on activity statements that are greater than four years old cannot be revised.

The revision indicator must be completed with a number sequentially selected between one (for the first revision) and nine. If the revision is required and the indicator is not completed, our systems will treat the revision as an original activity statement and will generate an error that will result in a processing delay.

A maximum of nine revisions can be lodged electronically for a particular activity statement period for a client. The same revision indicator number cannot be used more than once for the same activity statement.

If there is a subsequent revision of an activity statement, the revision indicator number must be higher than one previously used for the same activity statement.

The document identification numbers (DINs) used to lodge the revision must be the DIN from the activity statement that is being revised.

A revision to an activity statement can be lodged through the PLS, even if the original activity statement or the previous revision was not made through the PLS.

Indirect taxes four-year time limit

A four-year time limit applies to claim a refund or credit for indirect taxes. Entitlements to credits or refunds must be made within four years from the end of the tax period that the refund relates to. If you are revising an activity statement, the claim must be made within four years from the day after the notice of assessment is given.

Income tax and FBT amendments

Preparing an amendment for lodgment through the PLS is similar to lodging a revised activity statement:

• Lodgment of an electronic amendment is done using the PLS form that applies to the return being revised
• The amendment indicator must be completed with an amendment number starting with one (for the first revision) followed with subsequent numbers – if the revision indicator is not completed, the return will be treated as an original return
• If there is a subsequent amendment of a return, the amendment indicator number used must be higher than one previously used for the same return
• The reason for amendment must also be provided
• The amended return must pass the PLS validation rules to be accepted; therefore, all labels, including those with amended values should be transmitted.

An amendment to a return can be lodged through the PLS, even if the original return or a previous amendment was not made through the PLS. However an original return must be lodged (through any channel) before an amendment can be made, you will receive an error message if an original has not been lodged.

What cannot be updated via an amendment

The purpose of an amendment is to request an alteration to an income tax assessment; it is not a request to update taxpayer details. Details you cannot update include items such as taxpayer name, address, gender and date of birth.

Client declarations and lodgment online

Each time you lodge an approved form on behalf of your clients, the law requires you to have first received a signed declaration in writing from your client. This requirement includes all approved forms such as activity statements and tax returns.

Requirements

The client declaration must state both that:

• they have authorised you to lodge the document
• the information is true and correct.

The client can choose to provide this declaration by email, fax or in paper form. Certain requirements must be met when providing a declaration electronically. Sections 9 and 10 of the Electronic Transactions Act 1999 require:

If information is required to be given in writing it can be given electronically if the person receiving the information consents to receive it electronically.

Consent does not have to be explicit and can be inferred from a person's conduct.

A method that is reasonable is used to identify the person's signature (for example, their email address).

You consent (noting this can be inferred by your conduct) to your client's signature being sent to you by this method.

It is required to retain the declaration (or a copy) for up to five years, depending on their circumstances. Also, recommend keeping a copy of the declaration for company records. This declaration can be stored electronically regardless of whether it was received by email or in paper form. Paper declarations can be scanned and stored electronically.

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