Born out of various anti-avoidance reforms announced in the 2016-17 Federal Budget, the Australian Taxation Office (“ATO”) established a Tax Avoidance Taskforce to pursue tax avoidance activities of multinationals and high wealth individuals.
The Taskforce’s audit activities have been so effective that the ATO have reportedly raised tax liabilities of approximately $10 billion from large multinational groups and $4 billion from private groups and high wealth individuals with $8 billion collected to date.
With results as successful as these, it was only a matter of time before the Taskforce’s targets were broadened. That time has now come.
The Tax Avoidance Taskforce has been supported by legislative measures including the following:
- Multinational anti-avoidance law from 1 January 2016 – ensuring global groups pay the right amount of tax on profits derived in Australia;
- Diverted profits tax from 1 July 2017 – ensuring Significant Global Entities pay tax in Australia that is reflective of their economic activities in Australia; and
- OECD hybrid mismatch rules from 1 October 2019 – preventing global groups from exploiting differences in the tax treatments of an entity or instrument under the laws of one or more tax jurisdictions.
To date, the focus has been on reviews conducted under the Top 1,000 public groups and the Top 320 private groups tax performance programs. Assurance reviews for more than half of the entities within each category have since been finalised.
These performance programs are intended to increase ATO engagement directly with Taxpayers and, through its ‘justified trust’ strategy, aims to support and assist Taxpayers in ‘getting things right’ with prevention rather than correction being the key take away.
The 2018-19 Federal Budget announced the Government’s intention to expand the focus of the Tax Avoidance Taskforce with additional funding and an extended program completion date of 30 June 2023.
The next wave
Effective immediately, the Tax Avoidance Taskforce will dive deeper into the private group and high wealth individual space.
Specifically, there are now three tax performance programs for private groups, they are:
- Top 500 private groups program – this is a direct expansion on the current Top 320 private group tax performance program. A continued focus on regular one-to-one engagements to understand the taxpayers business, key drivers and tax risk position. The aim here is for the Taxpayer to continue to maintain good compliance hygiene and for the ATO to obtain an adequate amount of assurance that the Taxpayer is paying the right amount of tax;
- High wealth private groups program – Similar approach as per the Top 500 private groups program whereby, through one-to-one engagement, the ATO will seek to assist taxpayers with the development of strategies to mitigate tax risks for Australian resident individuals who, together with associates, control wealth of more than $50 million; and
- Medium and emerging private groups program – the sleeper in the new performance programs, the ATO will utilise enhanced data and analytics to understand a taxpayers operating environment to develop trends towards priority tax risks. The key groups that will form part of this program include:
- Private groups linked to Australian resident individuals who, together with their associates, control wealth between $5 million and $50 million; and
- Businesses with an annual turnover of more than $10 million, that are not public or foreign-owned and are not linked to a wealthy individual.
Taxpayers that meet the criteria for participation in any of the three extended tax performance programs will receive a notification letter from the ATO soon. There is no doubt that effective internal tax governance and a focus on the ATO’s key elements of justified trust will play a key role in Taxpayers gaining assurances from the ATO under these programs.
It is important to note that the private groups program can apply to companies, trusts and partnerships that meet the relevant thresholds.
Specifically, for Taxpayers that are likely to be caught in the next wave of tax performance programs, the time has come to reflect on your internal tax practices, commence documenting internal tax policies and consider your approach towards mitigating tax risks. For Taxpayers currently just outside the program thresholds, you are on notice. With the success the ATO is having under the tax performance programs, it’s only a matter of time before the programs are broadened further.
For more information
If assistance is required in relation to any of the tax performance programs, please contact your local tax adviser today.