The Australian Taxation Office (ATO) has issued a release on new offshore hybrid mismatch questions in the 2022 International Dealings Schedule (IDS).
New offshore hybrid mismatch questions in the IDS
The recently released 2022 International Dealings Schedule (IDS) includes a new Q47, Q47a and Q47b. These questions help us assess tax risks associated with offshore hybrid structures and arrangements.
You need to indicate 'Yes' at Q45 of the IDS if during 2021–22 you had an arrangement which had the potential to give rise to a hybrid mismatch under Division 832 of the Income Tax Assessment Act 1997 (ITAA 1997), regardless of its impact on your taxable income or whether any of your deductions were denied under the Division.
This means you need to answer 'Yes' if an offshore hybrid or another hybrid entity or instrument is present. Examples of where you need to say 'Yes' at Q45 include:
- after requesting your Division 832 control group to provide information about the group's offshore hybrids in order to complete your income tax return, you have knowledge of an offshore hybrid mismatch (regardless of whether you think it has been imported into Australia under Subdivision 832-H of ITAA 1997)
- a hybrid mismatch arrangement was in place but there was no operative effect of the hybrid provisions for a given year because there is dual inclusion income (reducing the neutralisation amount to nil)
- a hybrid entity or hybrid financial instrument was in place but there were no 'payments' giving rise to a hybrid mismatch in a given year
- you have directly or indirectly paid amounts of interest or under a derivative to an international related party and the amount is subject to foreign income tax at a rate of 10% or less.
These disclosure requirements for Q45 are unchanged from 2019–20 and 2020–21.
Where you have answered 'Yes' at Q45, you need to answer new offshore hybrid mismatch questions. These questions cover:
- Q47 – any importing payments you made under a structured arrangement
- Q47a – any offshore hybrid mismatches that exist within your Division 832 control group(s), regardless of whether deductions are denied under Subdivision 832-H
- Q47b – your top 3 most material offshore hybrid mismatches of any kind.
When completing your disclosures, we don't expect you to make enquiries or obtain information beyond what is required to prepare your income tax return(s). You are required to disclose any offshore hybrid you have knowledge of for any reason.
If you do not have sufficient information to enable you to comply with Subdivision 832-H, you must obtain the relevant information from your Division 832 control group (or from other foreign entities you have dealings with). Refer to Practical Compliance Guideline PCG 2021/5 Imported hybrid mismatch rule - ATO's compliance approach for more guidance. Paragraph 24 of the PCG provides:
'A taxpayer should not claim a deduction for a payment unless they are able to obtain sufficient information to support a conclusion that the deduction in respect of the payment is not disallowed under Subdivision 832-H. Where the taxpayer later obtains further information that confirms entitlement to a deduction for that payment, they can lodge an amendment request to claim the deduction.'
Refer to the 2022 IDS Instructions for more guidance and examples of how to complete the IDS.