In the past few years, we’ve seen increased focus from the Australian Tax Office (ATO) encouraging organisations to be transparent, demonstrate good corporate governance and have strong tax risk management frameworks in place.

The ATO is now focusing on the tax governance of high-net-wealth privately owned groups – as part of their Top 500 and Next 5,000 programs.

The support and information required as part of these reviews can take significant time to produce, so it’s important to have frameworks in place to mitigate risks and increase the chance of a smooth review process.

Many privately-owned and wealthy groups have recently been approached to document their tax governance process, in particular economic groups with an annual turnover greater than $10 million and Australian residents who control net wealth over $5 million.

Within this large cohort the ATO have identified three key segments of focus:

  1. Top 500 (turnover of $100+ million and/or net assets over $250 million)
  2. Next 5,000 (control wealth of more than $50 million)
  3. Medium & emerging private groups (those who control wealth of between $5 million and $50 million or businesses with annual turnover above $10 million)

To ensure private groups are paying the right amount of tax, the ATO has tailored their performance programs to each segment on the basis of ‘justified trust’. To achieve justified trust, the ATO seeks objective evidence that would lead a reasonable person to conclude a particular taxpayer paid the right amount of tax based on four key areas:

  1. Understanding a taxpayer’s tax governance framework;
  2. identifying tax risks flagged to market;
  3. understanding significant and new transactions; and
  4. understanding why the accounting & tax results vary.

This allows the ATO to gain an objective reflection of the taxpayer’s approach to tax governance. Guidance suggests that documented processes and procedures need to be in place to ensure tax risk is mitigated for wealth creation and wealth extraction activities.

Should the review reveal cracks in tax governance frameworks, further compliance activity may be required – resulting in costly and time-consuming activities and additional Audits.

How this affects privately-owned and wealthy groups

Many private groups manage their tax obligations and risk as part of their overall operations. Given this experience, most groups will be able to leverage existing paperwork where tax governance already exists. For example, as part of organisational responsibilities, month end procedures, payment authorisations, board discussions and regular engagement with your external advisers.

Though this process seems straightforward, some areas may cause confusion, create additional work to provide evidence, and, for some, result in a detailed review by the ATO of business or wealth extraction activities.

Working with clients

Grant Thornton support clients at all stages of the tax governance journey – from identifying, managing and documenting tax risks, to helping you present your tax governance and processes in the most cost efficient way. This will help your organisation avoid unnecessary post-review compliance activities and associated costs.

If you need any help with your ATO reviews, please contact us.

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