The Australian Tax Office’s ("ATO") focus on large privately owned and wealthy groups ("Private Groups") is in full swing with no sign of slowing down in the 2017 year.
With the top 320 large Private Groups holding A$112 billion of net assets and A$122 billion in total business income (2014/2015 year), there is no doubt that the ATO views Private Groups as an integral part of the tax system.
Vast as the Private Groups sector may be, the ATO has taken a renewed approach to building and maintaining “excellent working relationships” with these groups. The ATO now knows what Private Groups want: certainty, timely interactions, engagement and support.
Moving away from the (arguably archaic) adversarial approach, the ATO’s new approach has been developed under the blueprint of its Reinvention Program and is focused on:
- Providing ongoing relationship management;
- Real-time interactions (prevention before correction);
- Providing tailored engagement solutions;
- Reducing compliance costs; and
- Seeking to provide assurance or certainty where possible.
As foreshadowed in our earlier Riposte – ATO reinvents, targets private groups – the ATO has started visiting Private Groups under the new program. To date, the ATO has made 155 “initial visits” with the balance of visits for the top 320 Private Groups to be completed by 30 June 2017.
We understand that the feedback on the ATO’s new program has generally been positive. It is clear that the ATO is working with Private Groups to “get things right” up front. Indeed, some clients have preferred this continuous engagement over formal ATO reviews, which are time-consuming and involve reproduction of background information.
Whilst the ATO may be viewing the first year of the program as an initial investment with long-term benefits for clients and the ATO, the ATO has already reaped the fruits of its labour. We are aware that a number of risk reviews and audits are underway as a result of the ATO’s consultations with Private Groups. On the other hand, we understand that the ATO’s early engagement approach has also gone a long way towards preventing numerous formal reviews and audits – the clear benefit of this being lower compliance costs for Private Groups (especially when compared to the costs associated with the audit and dispute management process).
Tax governance, of course, has been at the forefront of the ATO’s Private Groups initiative. In the past, the ATO has strongly encouraged Private Groups to have an effective tax governance framework (see our earlier Riposte – Does your Tax Governance Framework Live Up To ATO Expectations?). The ATO’s message has been reiterated clearly: effective tax governance mitigates tax risk. Indeed, Private Groups with a strong tax governance framework are more likely to receive a lower tax risk rating from the ATO (resulting in lower future compliance costs). Therefore in light of the ATO’s early engagement approach, it seems that an effective tax governance framework is a pre-condition to having a successful long-term relationship with the ATO.
Therefore, the key message for Private Groups is simple: be prepared. With the ATO’s new approach currently in “investment phase”, future engagements will be on-going and tailored around tax governance. The ATO is going to focus on developing a better understanding of how the top 320 Private Groups operate in their respective industries and the interactions between them. With the balance of visits to be completed by 30 June 2017, it is only a matter of time until the ATO will be asking questions and looking for answers.