Duediligence Checklist

Tax

Review a detailed group structure diagram and provide a summary of share owner-ship. In particular, review for any ownership by trusts.
Review tax returns for the past four years, and supporting work papers, including detailed reconciliations of profit/loss as per the financial statements and taxable income/loss.
Review copies of FBT returns and supporting work papers for the past four years.
Review copies of company franking accounts for each of those years, including details of dividends paid and the extent of franking.
Review copies of both accounting and tax fixed asset registers and related fixed asset reconciliation schedules for those years.
Review a schedule of any carried-forward revenue and capital gains tax losses of the company and details of losses utilised during the past five years, and ascertain whether there are any losses transferred in or out.
Review any bad debt deductions claimed for tax purposes over the last four years.
Review copies of any correspondence with the Tax Office for the past four years, including (but not limited to):
all private ruling requests, requests for the Commissioner’s opinion or objections lodged, and all responses received;
requests for an amended assessment; and
requests for information from the Tax Office, whether as part of a formal audit or otherwise, and all responses provided. Otherwise, confirm that the company has no knowledge of any intended audit activity.
Review the consolidated group that the company is a member of for tax purposes. Review details of any tax sharing agreements.
Review position papers supporting any positions adopted by the company on tax matters in the past four years.
Review details of any significant transfers of employee leave entitlements to or from the company in the past four years.
Obtain details of any direct or indirect interests held in foreign entities.
Determine whether there is any ownership of the company by non-residents, and any interests held by the company in offshore entities.
Obtain details of any foreign permanent establishments of the company; including any offices, employees, substantial equipment or projects in foreign countries.
Obtain details of all interest, royalties and dividends paid to non-residents and withheld and/or remitted in the past four years.
Obtain details of any insurance premiums paid to non-resident insurers in the past four years.
Obtain details of all income derived from foreign sources, and foreign taxes paid in the past four years.
Review the nature of foreign currency transactions under-taken by the company and its policy concerning the tax and accounting treatment of foreign currency movements.
Determine whether there have been any transactions with any international related parties in the past four years. Consider transfer pricing issues.
Assess whether any transactions may not have been undertaken on arm’s length (market value) terms between related parties, including both domestic and international transactions.
Assess the company’s interest expense over the last four years, and any interest deductions disallowed under the thin capitalisation rules (if applicable).
Determine whether there have been any capital gains tax roll-overs to or from the company since 1985. Obtain details of the assets involved, their cost base and potential market value at the time of transfer.
Determine whether the company acquired any of its assets before 19 September 1985.
Determine whether there have been any asset rollovers for depreciation purposes involving the company.
Review any intra-group asset transfers during the past four years.
Obtain details of any changes in share ownership of the company since incorporation. Detail significant or abnormal changes in indirect ownership through interposed group companies.
Determine whether any debts owed by or to the company have been forgiven in the past four years, and if so, what tax adjustments or capital loss claims resulted.
Determine whether the company received dividends from shares held for less than 45 days, or from shares where there is diminished risk of ownership.

Determine whether all appropriate returns have been lodged and all appropriate accruals have been made for applicable taxes, including, but not limited to:
income tax;
FBT;
GST;
payroll tax;
PAYG;
superannuation guarantee charge;
stamp duty;
customs duty; and
franking additional tax, franking deficit tax, or deficit deferral tax.
Obtain proof of future tax benefits and/or deferred tax liability balances and:
review for reasonableness;
ensure appropriate tax rates have been applied; and
assess whether the future income tax benefit should be carried forward.
Determine whether there are, or have been:
any significant items in dispute with the Tax Office (i.e. outstanding ruling requests, ATO audit issues, objections to assessments, appeals);
any ‘exposures’ to inter-company pricing or allocation of expenses between related entities;
any aggressive tax positions taken in tax returns and whether they are adequately provided for in the relevant balance sheets; and
any liabilities for tax penalties.
Review any private rulings or advice upon which the company is relying.
Summarise the taxation implications for the purchaser and the company (the entities and shareholders) that will arise from the proposed transaction; including, but not limited to:
entitlement to carry forward tax losses;
CGT and cost base issues; and
stamp duty and other taxes payable.

GST and Other Indirect Taxes

Review GST returns for all periods from 1 July 2000, including summary sheets, schedules and other doc-uments used in the preparation of the BAS returns.
Obtain and review a copy of the Running Balance Account from the Tax Office and review.
Review copies of any Recipient Created Tax Invoice agreements, sample copies of invoices and adjustment notes issued by the company.
Review copies of any material agency agreements, franchise agreements, lease agreements, loyalty payments or rights agreements.
Review copies of any assessments or requests for payment received from the Tax Office.
Assess whether the entity is part of a group, partnership or joint venture.
If a member of a group, determine whether there are any other members of the group with outstanding income tax, GST or other liabilities that could be offset against the Running Balance Account.
Determine whether the company transacted with related members of a company group over the past four years and whether GST has been accounted for on such transactions.
Determine whether all BASs have been lodged for the period since 1 July 2000 and payments have been made for GST and PAYG.
Determine whether payroll tax returns have been lodged and payroll tax paid in each jurisdiction.
Consider whether the entity is appropriately grouped or not grouped for payroll tax purposes.
Assess whether the amount of salary and wages shown in the accounts approximates the amount declared for payroll tax.
Review to ensure that independent contractors have been properly treated for tax purposes.
Determine whether there are any outstanding assessments or refund claims.

WorkCover

Review copies of WorkCover premiums for the past three years.
Review WorkCover correspondence to determine whether there are any documents advising of WorkCover premium rates or industry classifications, outstanding claims or claims history.
Determine whether WorkCover premiums and payments are up to date.
Assess whether there are any outstanding obligations, assessments or challenges currently undertaken in relation to WorkCover.

Superannuation

Review copies of all superannuation guarantee payments for the most recent financial year.
Determine whether all superannuation guarantee payments have been made.
Determine whether there have been any shortfall penalties in the past four years.

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