The ATO has announced its intention to target large private groups to ensure they are paying the correct amount of tax.
In a media release on 16 April 2015, Acting Second Commissioner Michael Cranston announced the ATO plans to be more proactive in assessing taxpayers that fall into this category.
‘We are shifting our approach and will be visiting our largest private groups to look at their tax affairs in real time, raise any concerns and resolve issues before companies lodge their tax returns,’ he said.
All large private groups (and their advisers) are now on the ATO radar and can expect an approach from the ATO under this revised program.
The ATO categorises large private groups into the following three sub-groups:
- private groups – annual turnover in excess of $2 million;
- wealthy Australians – individuals who control assets with a net value of $5 million to $30 million; and
- high wealth individuals – individuals who control assets with a net value of more than $30 million.
However, the ATO accepts that these categories are not mutually exclusive and some taxpayers may fall into more than one group.
The ATO has identified the following behaviour as being high risk for attracting its attention:
- tax or economic performance that is not comparable to similar businesses;
- low transparency of tax affairs;
- large, one-off or unusual transactions, including transfer or shifting of wealth;
- a history of aggressive tax planning;
- tax outcomes inconsistent with the intent of the law;
- choosing not to comply or regularly taking controversial interpretations of the law;
- lifestyle not supported by after-tax income;
- treating private assets as business assets;
- accessing business assets for tax-free private use; and
- poor governance and risk-management systems.
If taxpayers meet a number of these characteristics, they may be deemed to be a high risk taxpayer.
Clients who may be at risk of review should consider a number of steps so they are prepared if they are subject to an ATO review.
- Clients who have a high risk of adverse assessments if they are audited could consider making a voluntary disclosure to provide a stronger negotiating position and reduce the risk of penalties and interest.
- If a client has particular risk issues but does not want to make a voluntary disclosure, it is important to document a ‘reasonably arguable position’ so that this material can be produced to the ATO early in the review process.
- Our experience is that it is easier and less expensive to provide a detailed reasoned response before the ATO has adopted an adverse position.
- If the ATO commences a review, advisers and clients should:
- try to limit face to face meetings with the ATO and avoid responding to ATO questions orally;
- get the ATO to put all questions in writing; and
- take care in drafting responses to ATO queries and get advice before responding.
We have seen many tax disputes arise because the initial responses have not been properly prepared. A common theme is advisers making statements and providing information in response to ATO requests that subsequently put the taxpayer at a disadvantage at the objection and appeal stages.