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Taxpayers can rely on this practice statement to provide them with protection from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty.
Nor will they have to pay interest on the underpayment provided they reasonably relied on this practice statement in good faith. Context and scope 1A. This practice statement sets out the factors you need to consider when actioning a request to allow an alternative accounting period known as a substituted accounting period, SAP.
A decision on whether to allow an entity to adopt a SAP involves balancing the interests of that entity with the general public interest of an efficiently administered income tax system.
It is not possible to set out all the circumstances in which leave may or may not be granted. Each case must be considered on its merits, taking into account all the relevant facts. In considering whether allowing an entity to adopt a SAP would be detrimental to the efficient administration of the income tax system, you should consider the consequences of making the same decision in relation to like-situated entities and the potential effect of granting SAPs to such entities generally.
The following principles must be taken into account when considering applications for a SAP. Applications should be lodged in a timely fashion, ideally when the circumstances that give rise to need for the SAP first arise. You should apply this approach when making any decision, including a decision on whether to approve a request for a SAP.
Proper consideration of a SAP application requires you deciding whether there is a demonstrated business need that makes 30 June inappropriate or impractical as a balance date.
The type of entity requesting a SAP may mean that additional factors have to be considered when reaching your decision. Demonstrated business need that makes 30 June inappropriate or impractical as a balance date 3D.
Circumstances indicative of being out of the ordinary run include, but are not limited to: Ongoing circumstances that make 30 June inappropriate or impractical 3E. Whether or not an entity is able to demonstrate that their business involves an ongoing event, industry practice, business driver or other ongoing circumstance that takes them out of the ordinary run will be determined on a case-by-case basis.
While it is not possible to set out all the circumstances in which the discretion may or may not be exercised, the following examples provide an indication of the facts and circumstances that may be relevant, and how they could be weighed up.
Cases that appear similar in nature may have different outcomes depending on the specific circumstances. Example 1 - an ongoing event 3G. A vast cattle station in northern Australia finds that it is impractical to ascertain an accurate inventory for stock valuation purposes as at 30 June.
Muster can extend over several months and its timing depends on the cattle season, which extends from April to November. Stock valuations can therefore only be made at certain times of the year.
These circumstances make an accurate calculation of taxable income at 30 June impractical, and it may therefore be appropriate to grant the entity leave to adopt a SAP.
Example 2 - a business driver 3H. While on its own this requirement does not make a 30 June balance date inappropriate or impractical, the additional costs associated with having multiple financial reporting requirements could be a determining factor in deciding whether to approve a SAP request.
Example 3 - an ongoing circumstance 3I. A company operates under a franchise. The franchisee is not a subsidiary of the franchisor, but is an independent entity. The terms of the franchise agreement require the franchisee to report its annual financial position to the franchisor as at 31 May each year.
In these circumstances, it may be appropriate to grant the franchisee a SAP on the basis of the additional costs associated with satisfying multiple financial reporting requirements.
Example 4 - an ongoing circumstance 3J.Financial Accounting Tools for Business Decision Making Kimmel 5th Edition Solutions Manual Kimmel Accounting 4e Solutions Manual Ch 17 - Kimmel accounting 4e solution manual - Video Photo Booth Rentals Financial Accounting 4th Edition.
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