ATO tax performance programs – are you review ready?

COVID-19 and subsequent Government stimulus packages have resulted in historically large budget deficits, due to both the temporary drops in tax revenues and record expenditures.

Typically, around 80% of Government revenue is derived from the collection of taxes, highlighting how dependent the Government is on tax revenue. It’s not surprising then, given the success in recent ATO programs and levels of funding through the Tax Avoidance Taskforce, that the ATO has ramped up its resourcing and review activities.

Current ATO tax performance programs

The ATO has increasingly focused on structured review programs to systematically review the largest taxpayer and wealthiest family groups in Australia.

The current ATO programs include the following:

• Top 1,000 Combined Assurance Program – this focuses on listed and international groups with greater than $250 million turnover.
• Top 500 Private Groups Tax Performance Program – this focuses on Australia’s largest private groups.
• Next 5,000 Private Groups Tax Performance Program – this focuses on privately owned and wealthy groups that control wealth greater than $50 million.
• Medium and Emerging Private Groups – this focuses on privately owned groups controlling between $5 million and $50 million and businesses with greater than $10 million turnover.

Previously, the ATO selected targets on an ad hoc basis, based on risks they identified in the taxpayer’s affairs. These programs target the entire tax population within the respective parameters, ensuring that all taxpayers within the target population are reviewed.

My focus has been on the Next 5,000 Private Groups Tax Performance Program. Like the Top 1,000 Program, the ATO adopts the Justified Trust principle when conducting the Next 5,000 reviews to determine whether a taxpayer has paid the “right amount of tax”.

What learnings can we take from the ATO reviews to date

The Next 5,000 Private Groups Tax Performance Program is a streamlined assurance review, not an audit. The ATO takes information in income tax returns and Business Activity Statement returns and matches against other information at its disposal, including publically available information and information obtained through its various data matching programs.

The reviews aim to identify areas of risk within the particular business or family group – however there are a number of areas of ATO focus which we have found to be recurring.

The ATO looks at the existence and application of a group’s tax governance framework when assessing the level of reliance on the group’s internal processes to identify and appropriately deal with tax risks. The expected sophistication of a group’s tax governance framework will be commensurate to its size and complexity.

An appropriate tax governance framework will address the main tax risks of the group, and include:

• Documenting the main areas of tax risks in the context of the business, including addressing any published areas of ATO concern such as Taxpayer Alerts;
• Documenting the interaction between the tax management function and the Board, including how significant tax risks are addressed and mitigated;
• Addressing how significant tax positions are substantiated and the positions adopted, when external advisors are consulted, Reasonably Arguable Positions are adopted, or Private Binding Rulings sought from the ATO;
• A mechanism to periodically review systems and processes as well as the tax governance framework to ensure they are updated to reflect changes in the business.

At Grant Thornton, we have considerable experience in assisting taxpayers through the Next 5,000 reviews, as well as preparing businesses to be review ready and in documenting a business’s tax governance framework. We are here to help.