Ensuring businesses fully comply with Australian taxation laws is a major focus of the Australian Taxation Office (ATO). For tax compliance purposes, the ATO broadly views the business community as comprising:
Large business: economic groups with combined turnover greater than $250 million.
Privately owned and wealthy groups: economic groups that are privately and locally owned with annual turnover above $10 million or are resident individuals controlling net wealth over $5 million.
Small Business: economics groups and sole traders with turnover up to $10 million.
As this segmentation is not legislative, the demarcations are fuzzy and the groupings may overlap as do some of the tax compliance and governance programs noted below. As a result, selection for particular programs can be unanticipated and notice periods, whilst reasonable, are based on an expectation of readiness. Accordingly, businesses need to be aware and well prepared for the programs potentially applicable to them.
ATO tax compliance and governance programs for business
The ATO has designed different programs to manage the tax compliance of each of these business segments. Broadly, all these programs are designed around the ‘cooperative compliance model’ and justified trust theme developed by the OECD over the last decade, and are thus relatively new (see Justified Trust – ATO Focus Tax Governance)
Entities of large business economic groups may include public, private and foreign-owned companies, partnerships, trusts and superannuation funds.
ATO compliance programs for large business include:
- annual compliance arrangements (ACA) which are administrative arrangements for managing the ATO – taxpayer compliance relationship in an open and transparent environment
- engagement with key taxpayers (KTE) on a multi-tax or whole-of-tax approach, including real-time interaction on significant transactions
- reportable tax positions (RTP) requirements for companies to disclose uncertain tax positions, by way of a schedule to the company income tax return
- tax governance reviews of the Top 100 and Top 1,000
Tax corporate governance reviews of large businesses are a key ATO initiative. Targeted programs are underway for the Top 100 and Top 1,000 businesses.
Top 100 reviews
The Top 100 are those public and multinational businesses and superannuation funds that are the largest contributors to the tax base for corporate tax, GST, excise and resource rent taxes. The review programs include:
- Top 100 justified trust program
- Top 100 GST assurance program
- Top 100 annual risk categorization
Top 1000 reviews
The Top 1000 includes large public and multinational companies, with income tax and GST turnover above $250 million (excluding the Top 100). The review programs include:
- Top 1000 combined assurance program
- Top 1000 GST assurance program
- Top 1000 Next Actions Program
Privately Owned and Wealthy Groups
The ATO includes in privately owned and wealthy groups:
- companies and subsidiaries with an annual turnover more than $10 million, not being public groups or foreign owned; and
- Australian resident individuals who, together with associates, control net wealth over $5 million.
The relevant grouping factor here is the individual with the primary decision-making role in the group and it is usually the head of the group to which the ATO seeks to engage in its enquiries.
The review programs include:
- Top 500
- Next 5,000
- Medium and emerging private groups
These include relevant private groups with:
- turnover of $350+ million, or
- net assets of $500+ million, or
- turnover of $100+ million and net assets of $250+ million, or
- a company having total business income of $250+ million and are in the large company tax gap population
- or otherwise are market leaders or of specific interest.
The program involves annual engagement by the ATO seeking tax compliance assurance to a high level.
This program targets Australian resident individuals, their associates and linked entities, controlling wealth of $50+ million.
The review program involves the conduct by the ATO of Streamlined Assurance Reviews. These may be conducted with three month’s notice or, at the taxpayer’s option, with immediate start and an up to 10 week response time for additional information requested by the ATO. The review covers the taxpayer’s significant transactions, events and activities and seeks an evidence-based conclusion of the correct amount of tax being paid.
Medium and emerging private groups
This is the largest population within the privately owned and wealthy groups segment and includes:
- private groups and associates, linked to an Australian resident individual, controlling wealth between $5 million and $50 million
- privately and locally owned Australian businesses with annual turnover of $10+ million, not linked to a high wealth private group.
The review program includes:
- enhanced data and analytics for risk identification and broad risk mitigation
- tailored tax compliance reviews
- pre-lodgement engagement
- risk-based reviews and audits, where appropriate.
Tax compliance review programs for the small business segment include:
- Random Enquiry Program (income tax reviews of randomly selected small businesses)
- third party data matching, including Taxable Payments Annual Report data of payments to contractors
- tax return monitoring of claims including, for example, tax losses, tax loss carry back, capital expenditure full expensing and apportionment of business expenses for non-deductible private usages.
SARs and CARs
Streamlined Assurance Reviews (SARs) and Combined Assurance Reviews (CARs) feature in particular tax corporate governance review programs mentioned above. However, SARs and CARs should be considered by taxpayers as generic review formats, as they are likely to be adapted and adopted across various segments.
In our experience, the essence of both review formats includes:
- an evidence-based assurance is required;
- an expectation of review readiness – ie that the evidence exists in the business, is readily identifiable and reviewable;
- an expectation of tax governance and tax compliance systems in the business that are appropriate for the nature, scale and complexity of the business;
- a requirement for assurance that tax governance and tax compliance systems are not only designed effectively but operate effectively to comply fully with the tax law; and
- a paramount objective of assurance that the business pays the correct amount of tax according to the law.
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The Partners at ICGTAX have deep expertise and extensive experience in advising businesses in tax governance and tax risk management systems, reviewing their tax governance and risk management frameworks and in testing and reporting to management and boards on the design and operational effectiveness of their business’ tax controls. We also have RAMPARTTM, our proprietary data analytics suite of tools to assist you with testing and reporting of your tax data controls.
Please contact us to discuss how we can assist your business to assure its owners and the ATO your business is fully compliant with the tax law
+612 8599 8320