Tax office plans crackdown on richest Australians

New data from the Australian Taxation Office shows the largest 500 private companies are not doing enough to ease the taxman’s mind.

‘They are looking at things like boats and aeroplanes that are held in companies that are being held effectively for private use,’ KPMG’s Belinda Cheesewright says. Picture: iStock

Australia’s largest private companies and wealthiest families face a crackdown by the Australian Taxation Office over governance and compliance measures as new figures suggest most of the top 500 private groups are falling short of its expectations.

As part of its “justified trust” initiative designed at ensuring the top end of town are paying their fair share, the ATO’s tax avoidance taskforce has launched the Top 500 tax performance program to evaluate the compliance and transparency of private groups.

A new ATO report on 403 of the biggest private entities surveyed in February revealed just 13 per cent achieved a level of “justified trust”

– that is, where the information in the accounts did not need further investigation.

The review found 46 per cent had no evidence to support a justified trust finding, raising the spectre of heightened tax office scrutiny and potential audits.

KPMG Enterprise tax leader Clive Bird said the ATO was looking for indicators of tax governance maturity such as documented tax procedures that private groups historically had seen no reason to invest in.

“The ATO wants to see large private groups having documented tax risk management procedures and documented tax governance processes. What the private groups are saying is they don’t see value in it for themselves,” Mr Bird told The Australian. “For that reason they haven’t invested in it in the past and the ATO notes that’s one reason why we aren’t seeing higher levels of justified trust.”

According to the ATO, the average top 500 group has 32 entities linked to it and has a net wealth of $271.8m.

The average private company has an income of $295m, around 365 employees and a group head about 71 years old.

The ATO’s tax avoidance taskforce has launched the Top 500 tax performance program to evaluate the compliance and transparency of private groups. Picture: AAP

The ATO says it evaluates the effectiveness of a group’s compliance along four pillars: the effectiveness of tax governance; tax risks flagged to the market by the ATO; significant and atypical transactions; and variances between accounting and tax results.

But it is also concerned with identifying key tax risks such as the misuse of tax concessions, inappropriate revenue characterisation and wealth extraction through external loans or the misuse of self-managed super funds.

“If in private groups the ultimate owners are getting access to the wealth that’s generated from the business, the ATO wants to make sure they are paying tax on it first,” Mr Bird said.

KPMG Enterprise tax partner Belinda Cheesewright said the ATO was also scrutinising certain group assets.

“They are looking at things like boats and aeroplanes that are held in companies that are being held effectively for private use,” she said.

“Things like the charter boat up in Port Douglas in the dock that’s not really rented out, it is for private use by the family.”

She also said the ATO was concerned with succession plans for client office staff.

“If something happens to a key person in a client office, because often these officers are smaller, how would you deal with the succession of who is managing tax risk?” she said.

The amount of inquiries the ATO is making of these top 500 companies have led some at the top end of town to complain the entire scheme is onerous.

Ms Cheesewright said the compliance work was well worth the reward.

“If you invest and you’re able to demonstrate your tax governance framework is in place and operational … the ATO move you to what is referred to as a partner role. You’ll see less of them,” she said.

“If you are unable to get to that justified trust and they have identified there are many errors in your historical positions, then you can expect a much higher level of scrutiny going forward.”

Originally published as Tax office plans crackdown on richest Australians