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In addition, as cash-strapped governments seek to improve their budgets, there is both a diminishing access to government services and increased exposure to taxation. This is especially the case in the private market.
Approximately 56 per cent of Australia’s GDP is driven by SMEs and many large businesses are also privately owned. So it is no accident that the Australian Taxation Office is very focused on what they term the “tax performance” of private groups.
The rationale is perhaps underpinned by estimates of the so-called “tax gap”, which means the difference between the amount of tax expected to be collected, based on economic data, from a particular tax or market segment and the tax actually collected. The most recent figures published suggest the tax gap for SMEs and High Net Worth taxpayer groups is $21.8b, reduced to $20.2b if one accounts for the impact of “compliance activity” and self-reporting. Even if the figures and rationale might seem rubbery, they are large figures which no doubt has influenced the ATO’s approach. To put these figures in perspective, the numbers quoted for large corporate groups (some of whom are privately owned) are $6.1b and $3.6b respectively. Interestingly, the tax gaps for “individuals not in business” are $11.5b and $10.6b respectively but there is potential overlap with the SME and High Net Worth market for these. Irrespective of any overlap, it is likely that some, if not all, compliance measures will impact both aspects.
The reduction in this tax gap so far has been relatively modest for SMEs and individuals broadly. While there may be more compliance to be done, the current outcomes reinforce that tax reform must be considered.
A number of programs are being conducted by the ATO and most privately owned and wealthy groups have been affected by at least one of these: Top 500, Next 5,000 and Medium and Emerging Private Groups.
While most accept that such reviews are part of life, this focus has proved very unsettling for members of private groups and the associated uncertainty has been compounded by the ATO taking a “refreshed look” at a range of “sleeping provisions”.
The 12 June 2025 decision by the High Court to grant Special Leave to the Commissioner to appeal the Full Federal Court’s decision in Bendel v FCT won’t make operating private groups any easier. This case involves if and when Division 7A will cause a deemed dividend to arise when a trust is yet to pay distributions owing to an associated private company. We will watch that appeal with interest, however irrespective of the outcome, inevitable legislative reform will attempt to clarify these rules.
While that seems necessary, to still have such uncertainty 27 years after the commencement of Division 7A compounds the bottleneck that owners of private groups face each day when managing their tax affairs.
We’ve previously published articles to assist private groups understanding key tax issues including:
We are now publishing further articles to outline other key areas of focus that all private groups need to be aware of:
