Update on ATO Private Groups Tax Performance Program and how it may effect you

UPDATE ON ATO PRIVATE GROUPS TAX PERFORMANCE PROGRAM AND HOW IT MAY EFFECT YOU

On 3 November 2023, the ATO announced details about its new audit and review program.

It is called the “Next 5,000 Tax Performance Program”.

While this ATO Program is focused on larger privately owned wealthy groups, it has given us key insights into what the ATO is looking at.

At some point of time in the future, the ATO will review your financial affairs and send out a questionnaire.

This does not mean that either you or we did anything incorrect. It simply means that we need to provide certain documents and information to the ATO to answer any queries they have based on their data matching of your information. This may satisfy the ATO, or the ATO may decide to ask more questions and start a tax audit process if they have concerns about any initial information provided to them.

We want you to be aware of what the ATO is focusing on, to ensure that you have the highest level of protection possible in the event of an ATO audit!

KEY ATO FINDINGS

The ATO have found that there were many related party transactions and trust distributions not being recorded correctly. In addition, they also found:

• assets sales and capital gains tax not being reported correctly
• incorrect GST calculations
• common mismatches between the reported income and expenses between related parties
• lack of independent valuations to support pricing of transactions between related parties such as involving real property
• omission of related party income such as rental income
• issues with family trust elections
• loans which are not compliant with Division 7A of the Income Tax Assessment Act 1936.

In addition to this, the ATO have highlighted key areas they will focus on this year for individuals, namely: 

• record keeping;
• incorrect claiming of work-related expenses;
• rental property income and inflated deductions;
• sharing economy income (i.e. air bnb); and
• capital gains from crypto assets, property and shares.

WHAT THIS MEANS FOR YOU

The key theme from this ATO Program is to ensure that every business group has appropriate TAX GOVERNANCE.

This includes:

• Clear roles and responsibilities – what you are responsible for and what we as your accountants are responsible for.
• Recognise tax risks and issues – ensuring that proper documentation exists for all agreements and transactions and that taxpayers meet their lodgement and payment obligations.
• Seek advice – ensuring that you seek advice at appropriate times from us as your tax advisors to ensure that you meet the ATO’s requirements.

GOOD NEWS!

The good news is that our high attention to the quality of our work ensures that in the event of an ATO audit, you will be in the best position possible to answer their questions in a way that they will be satisfied.

This includes:
The workpapers we prepare each year to back up your Financial Statements and Tax Returns.
The questions we ask about your financial transactions to ensure we understand them and classify things correctly.
The advice we give which is up to date and correct for its purpose.

While sometimes you may feel that we have to ask you a lot of questions and request many documents from you, please be assured that this is our way of giving you the best possible protection and peace of mind over the long term.

NEXT STEPS

There is nothing you need to do, we are simply informing you of the ATO’s most recent audit approach, and to assure you that our systems and processes align with Australian “best practice” to protect you.

You should have received by now our annual tax audit insurance overview from Accountancy Insurance – if you haven’t considered audit insurance in the past, it might be time to consider in line with the ATO’s clear mandate to ramp up audit activity, and enforcement of key compliance issues.

If you have any questions about any of the above, please feel free to contact Hansens on 03 8805 8000.