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The ATO has announced its intention to target large private groups to ensure they are paying the correct amount of tax.

In a recent media release, 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.

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.

Be prepared
If you believe you are at risk after considering these behaviours, there are a number of steps to be taken so you’re prepared if you become subject to an ATO review.

  1. Where you have a high risk of adverse assessments under an ATO audit, you could consider making a voluntary disclosure to provide a stronger negotiating position and reduce the risk of penalties and interest.
  2. Where your risk of adverse assessment is high but you do 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.
  3. In our experience of negotiating with the ATO for clients, more favourable outcomes are achievable if we provide a detailed reasoned response before the ATO has adopted an adverse position, this requires early planning.
  4. Should the ATO commence a review, we recommend limiting face to face meetings with the ATO and avoid responding to ATO questions orally; request all questions from the ATO in writing and seek specialist legal advice on draft responses.

Hanrick Curran always take great caution in providing information to the ATO in response to requests for information, this is crucial to ensure the taxpayer is not disadvantaged should the matter not resolve following the initial audit. Hanrick Curran has the expertise and experience to support large private groups through ATO audits and recommend discussions at an early stage.

To ensure you're able to comply with the investigative demands of an Audit by a regulatory body, Hanrick Curran recommends our clients take out a Tax Audit Insurance Policy. This cover ensures you have access to a cost effective way minimising the financial stress and disruption that a government audit imposes on a business and/or individuals.

The policy will generally cover the reasonable professional fees that you incur following notice of an audit or investigation by:

  • a federal or state Commissioner of Taxation in relation to your liability to pay:
  • any other government authority in relation to:

The maximum amount paid in total for all claims during any one period of insurance is the limit of liability shown on the current Insurance Certificate. That amount is not cumulative from one period of insurance to another.

The cover only applies if you first become aware of an audit during the period of insurance and you formally notify your insurer either during, or within 30 days after the expiry of, the period of insurance.

Contact your usual Hanrick Curran adviser to discuss if you are at high risk of an ATO Audit, or new clients to the firm please contact our Business Advisory Team including Jamie Towers and Peter Maletz for a confidential discussion.

Thanks to Cooper Grace Ward for contribution to content.