Pre-lodgement compliance review: what you need to know

Pre-lodgement compliance reviews (PCRs) are increasingly being used by the ATO to resolve potential compliance concerns as they arise. Previously, PCRs have only been applied to significant taxpayers such as public companies, international groups and large Australian businesses. However, PCRs may now be extended to all other business taxpayers where compliance obligations have not been met in a consistently timely manner in the past.

As a part of the ATO’s concerted efforts to engage taxpayers earlier and identify risks before they become an issue, pre-lodgement compliance reviews (PCRs) are increasingly being used. PCRs have previously exclusively been in the domain of higher consequence taxpayers such as public companies, international groups and other large businesses. However, the ATO may now be extending these reviews to all other business taxpayers in situations where timely compliance assurance is considered necessary.

“The aim of the PCR is to assure the right tax outcomes, and identify and manage material tax risks through early, tailored and transparent engagement. PCRs support our approach of raising and resolving potential compliance concerns as they arise – that is, prevention before correction.”

Put simply a PCR is an agreement between the ATO and a business to communicate and share information about significant transactions, tax positions taken, and potential tax disclosures. If the ATO deems that timely compliance assurance is necessary for your business and you become a part of the PCR process, there will be initial discussions to establish the framework in which it will be conducted.

Once the framework is established, the ATO will then have additional discussions with you throughout the income year, usually every quarter, where it can raise identified issues for discussion and your business can make disclosures of required information. The information you provide will be used in analysis to identify issues and make recommendations.

In terms of the actual tax return, PCR will allow businesses to have the opportunity to have a discussion with the ATO about the details of what will be included in their tax return as well as the tax preparation process. Where there is a point of conflict between your business and the ATO during the pre-lodgement period, alternative dispute resolution principles are available.

Although the PCR doesn’t provide the same level of certainty to businesses involved as an annual compliance arrangement, post-lodgement conversations allow businesses to discuss issues identified in the return and seek resolution. An amount of certainty can also be provided through other mechanisms, such as requesting a ruling as a part of the PCR process.

Each PCR covers one financial or income tax year, however, it usually runs for around 2 years, depending on the timing of disclosures and the resolution of issues. The 2-year period allows for the conclusion of the lodgement of tax return and a period of time after the lodgement, up to 5 months, to allow for analysis and discussion of outstanding issues where necessary.

Want to avoid PCR?

If you want to make sure your business avoids getting dragged into the PCR process, we can help you meet your compliance obligations in a timely manner. Remember, the PCR process may be applied to income tax as well as GST so don’t neglect any part of your compliance obligations – Talk to us today.

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