Medium and emerging private groups ATO program

1 October 2021

The ATO continues to run the medium and emerging private groups program under the umbrella of the Tax Avoidance Taskforce. Many don’t know that this program has a low threshold and targets individuals and their associates, controlling the wealth between $5m and $50m. The low threshold of $5m means that many business owners may not even know they could be targeted.

The ATO uses sophisticated data matching, data mining, and analytic models to identify “wealthy” individuals. In the 2020-21 income year, the task force helped to raise approximately $1.5bn in tax liabilities from privately owned and wealthy groups.

The ATO runs many compliance programs targeting privately owned and wealthy groups. While the majority of the attention is focused on the “Top 500 private groups tax performance program” and the “Next 5,000 private groups tax performance program”, little or no attention has been paid to the “Medium and emerging private groups tax performance program”.

Once the ATO has identified a group, it uses analytics to identify trends and priority risks specific to the sector. It then uses it to tailor its approach and develop strategies to mitigate these tax risks. This work is done by using early engagement and pre-lodgement agreements for commercial deals to provide certainty on significant transactions and events and conduct risk-based reviews and audits, where appropriate.

Generally, the ATO will be focusing its attention on more significant or higher risk private groups and entities, as well as those private groups experiencing rapid growth, looking to expand offshore, or where controlling individuals are transitioning to retirement. However, it will also be looking at specific topics for various entities, for example, companies inappropriately applying the lower company tax rate either when ineligible as a base rate entity or through artificial or contrived arrangements (i.e. restructures or income shifting).

Concerning SMSFs, the task force will focus on private company dividends and unit trust distributions being diverted to SMSFs, personal services income being diverted to SMSFs, and issues around the valuation of a property indirectly or directly purchased from a private group. For trusts, the ATO will be focusing on many specific risks, including complex distributions, lodgment of trust and beneficiary tax returns, and trust and taxable income mismatches.

In addition to the compliance and enforcement activities, the ATO notes that it will also use the intel collected to publish general advice and guidance on significant issues faced by a medium and emerging private group to enable to best decision to be made by the controllers.

According to the ATO, mistakes can delay tax returns and the associated refund processing, so to ensure that your business gets its refund as quickly as possible, do a careful review of the records relating to the losses and a calculation of the offset should be undertaken.

How will this affect me?

Suppose you and your associates control the wealth of more than $5m, which is not difficult given the current state of the property market around Australia; you may be grouped in with other related entities and be captured under this program.

To ensure you’re paying the right amount of tax and to avoid potential future enforcement activities get in contact with us today at our offices or email enquiries@rm.net.au

**The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

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