Compliance with tax law is essential for all Australians; no exceptions are made for the wealthy.
The ATO’s Next 5,000 tax performance program seeks to ensure that Australia’s largest privately owned and most wealthy groups are paying the right amount of tax.
The program will run for four years, beginning in the 2019–20 financial year.
Who does this program target?
The Next 5000 program targets high wealth private groups, which the ATO defines as “Australian resident individuals who, together with their associates, control wealth of more than $50 million.”
The program doesn’t cover private groups that are already a part of the Top 500 program.
The reviews process
The ATO engages directly with each high wealth private group to identify specific trends and issues, conducting tailored reviews to address and mitigate tax risks, and combat tax crimes.
Streamlined assurance reviews are typically conducted, which apply the justified trust methodology to ensure that the group paid the right amount of tax. The review process generally includes the following steps:
- ATO issues notification letter (generally 3 months before commencement).
- ATO calls client.
- Client receives letter of commencement.
- Meeting (face-to-face or phone) to discuss timeframes and required information.
- ATO issues request for information (RFI) providing the client with 28 days to respond. This information will act as evidence to ensure that the right amount of tax is being paid. It is worth noting that the business may already provide documents such as financial and tax statements when the notification letter is received.
- Phone discussion.
- Client sends RFI response to ATO.
- Ongoing discussion or further request for information (if required).
- ATO issues streamlined tax assurance report (STAR) to client.
- Discussion about next steps. A meeting may be organised if areas of concern are identified.
In most cases, reviews will be completed within 4 months of the ATO receiving all information requested in the initial RFI.
Key review areas
The reviews consist of four key focus areas:
A review of the tax governance framework including processes and controls for preparing income tax returns, key roles and responsibilities for managing tax risks, and the testing of governance controls.
Tax risks flagged to market
The ATO seeks to identify whether risks communicated to the market, such as those published in Practical Compliance Guidelines and Tax Alerts, are present. If a risk is identified, the ATO will verify whether the transaction has been correctly reported, and the correct amount of tax paid.
New and significant transactions
Emphasis is placed on particularly significant or new transactions, and the tax outcomes. The ATO may also consider the GST consequences of the significant transactions.
Investigation of the difference between business performance and tax performance. This includes statement of taxable income for main trading entities, and trusts distributions.
What happens after the review?
At the end of the review, the ATO will share its findings which may include:
- Areas that have been “tax assured”, where the ATO agrees with the current tax treatment.
- Areas for improvement and guidance on risk mitigation.
- Identified risks and next steps for mitigation.
Future reviews will only be conducted if the ATO identifies issues that could not be tax assured, or where it becomes aware of significant changes in your tax situation.
Preparing for a review
Reviews generally focus on the past two years and will require the provision of documentation relating to areas including tax governance, the company’s group structure, and information used to prepare tax returns.
Questions and documents typically asked for are outlined here, however this is not an exhaustive list.
If you are a member of a high wealth private group and did not participate in the Top 500 program, it is likely that the ATO will engage with you under the Next 5,000 tax performance program, to ensure that your organisation is paying the right amount of tax.
This will typically center around a streamlined assurance review which focuses on corporate governance, financial and tax performance, and the identification of potential tax risks.