Continuing its focus on privately owned and wealthy groups (Private Groups), the ATO has released an online resource (Resource) to assist Private Groups“get things right” when it comes to managing tax risks.

What constitutes a Private Group?

The ATO views Private Groups as:

  • companies and their associated subsidiaries that have an annual turnover greater than $2 million and are not public groups or foreign owned; or
  • resident individuals who, together with their business associates, control net wealth over $5 million.

What does the guide mean for privately owned and wealthy groups?

The release of the Resource is a clear example of the ATOs vow to build relationships and work alongside Private Groups– a foundational theme drawn from the ATO’s Reinvention Programme (as discussed in our earlier Riposte). The Resource, amongst other things, provides a detailed guide on how the ATO will engage with Private Groups - starting from risk factors that “attract” the ATO’s attention, all the way through to the ATO’s audit process.

The introduction to the Resource notes that “investing in effective tax governance that supports appropriate tax outcomes can influence your tax profile with the ATO, with the potential to save you time, money and effort.”

The ATO details seven principles of effective tax governance for Private Groups. Amongst others, these principles include: accountable management and oversight, recognition of tax risks and clearly defining arrangements for escalating tax issues and seeking advice. These principles, whilst not identical, are reminiscent of the tax governance principles that the ATO expects of large public groups.

The Resource is structured around major events in the business lifecycle including starting a business, business expansion, funding and finance, succession planning and exiting a business. The ATO describes the tax governance policies and procedures that should be in place at each of these critical points to support the decisions that are made.

Where the ATO has the assurance that appropriate tax governance is exercised in a business such that tax and superannuation risks are being managed, it will reduce the amount of interaction required with that business. The logical extension of this is that if appropriate tax governance is not exercised, the business will attract greater scrutiny from the ATO.

This is a clear signal from the ATO that Private Groups should start considering what an effective tax governance framework would look like for their business. To this end, the ATO has invited Private Groups to work with their advisers and use the principles in the Resource to:

  • develop an effective tax governance framework as part of corporate governance;
  • identify how a business can make improvements to its existing governance frameworks; and
  • understand how to demonstrate that tax governance is effective.

It is acknowledged that the right tax governance framework will depend on a range of factors including the size, complexity, history and culture of the business.

As noted in our previous Riposte, the ATO will continue to have discussions with Private Groups as a part of its Reinvention Program. Having an effective tax governance framework in place will foster “mutual trust between the ATO and private groups”.