Medium and emerging private groups tax performance program
The ATO is continuing to run the medium and emerging private groups program under the umbrella of the Tax Avoidance Taskforce. What many taxpayers don’t know is that this program has a very low threshold and targets individuals who, together with their associates, control wealth of between $5 million and $50 million. The relatively low threshold of $5 million means that many business owners may not even know that they and their associates could be targeted. According to the ATO, it uses sophisticated data matching, data mining and analytic models to identify “wealthy” individuals.
ATO compliance programs
The ATO runs many compliance programs targeting privately owned and wealthy groups.
While the majority of attention is focused on the “Top 500 private groups tax performance program” and the “Next 5,000 private groups tax performance program”, little or no attention has been given to the “Medium and emerging private groups tax performance program”.
This is all about to change.
Medium and emerging private groups tax performance program
The medium and emerging private groups program is part of the Tax Avoidance Taskforce, which has been funded by the government to operate until the 2022-23 income year. According to the ATO, in the 2020-21 income year, the Taskforce raised approximately $1.5 billion in tax liabilities and penalties from privately owned and wealth groups.
Specifically, the medium and emerging private groups program targets private groups linked to Australian resident individuals who, together with their associates, control wealth of between $5 million and $50 million.
The program also covers businesses with an annual turnover of more than $10 million that are not public or foreign owned and are not linked to a high wealth private group.
The low threshold of $5 million of “wealth” coupled with current high property prices means that many business owners may not even know that they and their associates are targets under this program.
How does the ATO identify groups?
The ATO uses sophisticated data matching, data mining and analytic models to identify “wealthy” individuals and link them to associated entities, which it then looks at as a whole. This group approach enables the ATO to understand businesses better by allowing it to focus on specific entities when necessary.
The process of identifying a group includes connecting entities that are under the effective control of an individual and their associates, which may include companies, trusts, partnerships, and SMSFs. Effective control will be present where an individual or their associates have the primary decision-making role for the group.
Identification of risks
Once the ATO has identified a group, it uses analytics to identify trends and priority risks specific to the sector. The ATO then uses this information to tailor its approach and develop strategies to mitigate identified tax risks. This is done by using early engagement and pre-lodgment agreements for commercial deals to provide certainty on significant transactions and events, as well as conducting risk-based reviews and audits where appropriate.
ATO focus areas
Generally, the ATO will be focusing its attention on larger or higher risk private groups and entities, as well as those private groups experiencing rapid growth, those looking to expand offshore, or where controlling individuals are transitioning to retirement.
However, the ATO will also be looking at specific issues for various entities such as companies inappropriately applying the lower company tax rate either when ineligible as a base rate entity, or through artificial or contrived arrangements (e.g. inappropriate restructures or income shifting).
In relation to SMSFs, there are a range of issues the Taskforce will focus on in particular, including private company dividends and unit trust distributions being diverted to SMSFs, personal services income being diverted to SMSFs, and issues concerning the valuation of property purchased indirectly or directly from a private group.
For trusts, the ATO will be focusing on a number of specific risks including complex distributions, lodgment of trust and beneficiary tax returns and trust and taxable income mismatches.
ATO guidance
In addition to the compliance and enforcement activities, the ATO notes that it will also use the intelligence it collects to publish advice and guidance on significant or important issues faced by medium and emerging private groups. The ATO expects this guidance will enable group controllers to make well informed decisions regarding their tax affairs.
How will it affect you?
If you and your associates control wealth of more than $5 million (which may not be difficult given the current state of the property market around Australia), you may be grouped with other related entities and be captured under this program.
We have the expertise to ensure that if you’re targeted, you can respond appropriately and thereby avoid costly and protracted ATO enforcement activities.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.