Dec 2020 3 Minutes
New ATO Focus – Private Wealth
The ATO’s private wealth groups program is extensive and should not be ignored as just another ATO initiative. Having delivered on their Top 1,000 and Top 500 reviews, the ATO’s broader private wealth groups review program targets:
- Next 5,000 – group controlled wealth of > $50M.
- Medium and Emerging (M&E) – controlled wealth of >$5M or Australian business turnover > $10M
These initial assurance reviews are anticipated to lead to a number of income tax and GST reviews, audits and disputes for private groups.
The ATO’s approach under the Next 5,000 & M&E programs will involve an initial Streamlined Assurance Review. Where a private group scores a low assurance rating, they will be referred to the next stage for a comprehensive Streamlined Assurance Review (income tax) and/or GST Assurance Review. Essentially, the ATO are taking a targeted, systematic approach to reviewing private wealth groups by assessing their risk (income tax and GST) under the four pillars of the “justified trust” methodology.
ATO Assurance Reviews – Four Pillars
1. Effective Tax Governance & Risk Management
- Documented tax risk management and governance guidelines;
- Internal & external use of advisors;
- Information Systems risk assessment.
- Periodic independent internal controls testing for GST
- Data controls in place for GST purposes
- Documented GST control frameworks
2. Significant & New Transactions
- Group structure
- Tax Losses (including capital vs revenue)
- Financial acquisitions
- Acquisitions & disposals
- International issues
- Property transactions
3. Tax Risk Flagged to Market (ATO Rulings/Advice)
- Tax consolidations
- Tax deductions & tax losses
- Dividend withholding
- International transactions TP/TOFA
- Self-managed super funds
- Property contracts & recognition
- Loans and/or shareholder/associate payments
- Uncertain tax positions
4. Alignment of Accounting and Tax Results
- Tax effect accounting
- Reconciliation of tax to financial information
- Elections or choices
- Tax return schedules & disclosures
- Differences in BAS and financial information
What actions are needed?
First and foremost, is to be prepared. The ATO is essentially conducting risk profiling on the private wealth group segment. Where a private wealth group is assessed at a low assurance level, these reviews can soon turn into lengthy and costly disputes and will impact the level of ATO scrutiny of the group going forward.
If you or your client are likely to fall within the Next 5,000 or M&E private wealth groups segment, there are practical actions that can be taken to prepare for these assurance reviews.
Proactive actions you can take to prepare include:
- Conducting a gap analysis by assessing your governance framework and controls compared to ATO best practice guidelines to determine areas where you can improve.
- Assessing any tax risks flagged to the market and documenting how these risks have been managed where they apply to your group.
- Formally documenting your tax risk management and governance framework and/or tax processes with regard to the size and complexity of your group.
- Ensuring that all contemporaneous documentation and advice has been retained and collated that supports the tax treatment of your significant or new transactions.
- Reviewing all material tax and GST transactions and BAS adjustments to ensure they are explainable and supported by documentation.
Typically these reviews cover two financial years and/or 3 consecutive BAS periods. Where gaps or risk areas are identified, seek further advice to mitigate and manage these potential deficiencies.
For further details on the above, and how we can assist in preparing your private wealth group please contact Iggy Moro.