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Australian Tax Office launches ‘high wealth private groups’ tax review programme

Monday, 2 December, 2019

The Australian Taxation Office (ATO) has launched a four-year investigation of the country's 500 wealthiest high wealth private groups (HWPGs).

HWPGs are defined as Australian-resident private groups who, along with their associated entities, control over AUD500 million of net assets, or have businesses with a gross annual turnover of AUD350 million.

During the campaign, the Commissioner of Taxation's Tax Avoidance Taskforce will be requesting information from HWPGs about their intergroup dealings and general business conduct. It will use the responses to assign each group a risk rating and triage each for its turn to undergo a full audit.

These questionnaires will try to identify any unusual behaviour or activity which suggests a need for further investigation, including:

  • whether the group's tax or economic performance is comparable to similar businesses;
  • low transparency of tax affairs;
  • large, one-off or unusual transactions, including the transfer or shifting of wealth;
  • aggressive tax planning;
  • tax outcomes inconsistent with the intent of the tax law;
  • choosing not to comply, or regularly taking controversial interpretations of the law, without engaging with the ATO;
  • lifestyles not supported by reported after-tax income;
  • accessing business assets for tax-free private use;
  • poor governance and risk-management systems.

If in the initial review the ATO comes across unusual activity and considers that there are potential risks, it will initiate a 'streamlined assurance review'.

As part of the review program, the ATO is specifically targeting HWPGs where there is activity falling within the categories including significant tax deductions and losses; related party transactions; use of private company assets; unpaid present entitlements from trusts to private company beneficiaries; payments from trusts and small business capital gains tax concessions.

'HWPGs should carefully consider their responses to the ATO as this will generally determine whether you will be subject to a more rigorous audit regime in the future', commented Damien Bourke of law firm Holding Redlich. 'Once audit activity is undertaken, amended assessments and penalties may follow. It is uncommon for the ATO to progress through that stage without seeking to recover [payment]…Where voluntary disclosures are made prior to audit, notwithstanding the announcement of this program, taxpayers can generally access an 80 per cent penalty discount on penalties’, he says.

Sources