The ATO are not shy about being forward, especially when it concerns its compliance programs for its “clients”. Put another way, the ATO are often very clear about where they will invest their time, energy and resources. Following the big corporate groups and Top 500 Private Groups they have their sights on someone else.
The Next 5,000 program is an expansion of the Top 500 Private Groups program – which is broadly a mirror of the program applied to public and multi-national companies in the sense that streamlined assurance reviews will be undertaken. The purpose of the reviews is designed to give the community (i.e. the ATO) confidence that the appropriate amount of tax is being paid by these high net worth groups.
Whilst the Next 5,000 program has been scheduled for a while, the ATO has been forced to divert resources to deal with the JobKeeper program deferring its roll out. The expectation now is that the resources will be turned to the roll out of the program over the coming months, given the ATO recruitment drive and the gradual end of the JobKeeper program.
The target in the Next 5,000 program are individuals who together with their associates and connected entities control net wealth of more than $50 million. If taxpayers are already captured under the Top 500 Private Group program, they are excluded from the Next 5,000 (in other words the ATO are looking at private groups numbered 501 to 5,500).
As a standard approach to performing the streamlined assurance reviews, the ATO will seek to apply their ‘justified trust’ methodology. In essence this is based on four pillars.
- Effective Tax Governance
Does the group have a documented tax governance framework which details tax compliance processes, roles and responsibilities and post implementation reviews? Whilst this documentation does not need to be as comprehensive as those required for larger taxpayers, the ATO will seek to identify documentation demonstrating that there is effective oversight of tax processes.Where there is no documentation, this will result in an increased risk profile and an increased chance of the streamlined review moving on to a new and more involved phase – clearly something to avoid if possible.Furthermore, the ATO will look at the identification of tax risks, whether professional tax advice has been sought and if tax compliance is timely and accurate.
- Tax Risks Flagged
Has the group been involved with any transactions that are identified by way of Taxpayer Alerts or are subject to Practical Compliance Guides? If so, has the matter been correctly addressed?
- New and Significant Transactions
Are there any new or unusual transactions that need to be considered? For example, the tax treatment of the disposal of an asset and whether it’s on capital or revenue account given the ATO’s draft views on when a change of intension occurs.
- Accounting and Tax Differences
Are the differences between accounting and tax results clearly identified and explainable? How are these tracked from year to year? The ATO want to ensure that an appropriate analysis is undertaken and that the positions adopted, can be supported and aligned to the relevant supporting records.
Where to from here?
With the ATO having issued the first round of notification letters, high net worth groups that may be close to or within the Next 5,000 program should ensure they are positioned to respond to the ATO in respect of the Justified Trust methodology. When the ATO comes calling, private groups need to be in a position where they can respond quickly and easily. From a practical perspective, what does this mean?
You need to formally document your tax risk management and governance framework.
This should include documentation of the relevant tax processes undertaken by the group;
- Engaging early with your professional advisors to ensure that when transactions are progressing, the appropriate tax outcomes can be determined. This will help ensure that contemporaneous documentation is retained that supports the tax treatment;
- Monitoring the ATO’s views as to tax risks and addressing them as / if required;
- Ensuring there is a clear and referenced reconciliation between book to tax results supported by applicable documentation.
At ESV we understand what the ATO is looking for in these reviews. We can help you to get ready so when the ATO comes knocking you are able to respond quickly and efficiently. If you’d like to understand how we can assist, please reach out to ESV – we’d be happy to assist.