ATO scrutiny heats up for private groups

The ATO has recently expanded its private groups tax compliance program to focus on medium and emerging private groups.

Broadly, a private group consists of a group of entities under the control of an individual and their associates. Because such private groups are not listed and generally have limited disclosure and less publicly available information, the ATO hopes to engage early with such groups to understand their business better and ensure the correct amount of taxes are paid.

If you are a private group, you may be contacted by the ATO.

What happened?

The ATO is expanding its Tax Avoidance Taskforce[1] to help ensure private groups and high wealth individuals pay the right amount of tax.

The ATO uses the following three updated tax performance programs to scrutinise the tax affairs of private groups:

No

Name of Program

Type of taxpayers affected

1

Top 500 private groups program [2]

Australia’s 500 largest private groups

- More than $350 million in turnover;

- More than $500 million in net assets;

- More than $100 million in turnover and more than $250 million in net assets;

- Company with more than $250 million business income; or

- Market leader of specific industry;

2

High wealth private groups program

- Australian resident individuals (and associates) that have more than $50 million in wealth

3

Medium and emerging private groups program

- Private groups linked to Australian resident individuals (and associates) that have between $5 million and $50 million in wealth

- Businesses (not public, foreign owned or linked to a wealthy individual) with an annual turnover of more than $10 million

Taxpayers that fall into either the Top 500 or High Wealth private groups program can expect regular contact from the ATO that has been specifically tailored, such as a one-to-one engagement strategy.

Medium and Emerging private groups represent around 97% of the total private group population, and the ATO is now using enhanced data mining and analytics to identify tax risks affecting this group.

Specific risk factors that may attract the ATO’s attention include:

  1. Tax or economic performance not comparable to similar businesses;
  2. Low transparency of tax affairs;
  3. Large, one-off or unusual transactions or shifting of wealth;
  4. Aggressive tax planning, non-compliance or controversial interpretations of tax laws;
  5. Lifestyle not supported by after-tax income;
  6. Accessing business assets for tax-free use;
  7. Poor governance and risk-management systems.

What does this mean for you?

If you have attracted the attention of the ATO during their review, you can expect individual contact from them in the form of a notification letter. You should be able to provide information to the ATO about your:

  1. business operations (e.g. details about the business structure, information on significant transactions, financial statements, tax workpapers and reconciliations between accounting and taxable income);
  2. tax governance (e.g. details of risk management policy, tax reporting process and controls in place to test the accuracy of reporting);
  3. significant and new transactions;
  4. key tax risks (e.g. common tax issues affecting private groups such as tax issues affecting trusts and private company loan issues); and
  5. why accounting and tax results may vary.

This information will enable the ATO to better understand your circumstances or business, and develop strategies to help you address and mitigate tax risk by:

  • informing you about issues that attract ATO attention;
  • publishing public advice and guidance on relevant issues;
  • partnering with you through early engagement and pre-lodgement agreements for commercial deals to provided certainty on significant transactions and events; and
  • engaging with you through streamlined assurance reviews and audits.

Findex can help you manage the ATO early engagement process

Our ATO Early Engagement Check can help you prepare for an ATO review by examining your tax position to identify and address potential tax risks. This review process can also help reduce penalties through early detection and voluntary disclosure of errors.

With our large geographical presence across Australia, Findex has the necessary knowledge and experience to help you meet your compliance, risk and governance obligations. Enquire about our ATO Early Engagement Check here.

[1] The Tax Avoidance Taskforce was established to ensure multinational enterprises, large public and private businesses (and associated individuals) pay the right amount of tax in Australia.

[2] The Top 500 program is an expansion of the ATO’s previous Top 320 program.