How to Prepare for ATO Justified Tax Reviews

Taxation and Revenue

minutes reading time

DATE PUBLISHED: December 15, 2021

‘Justified Trust’ is a concept the Australian Taxation Office (ATO) uses to be confident taxpayers are paying the right amount of tax. Whilst compliance programs have been in effect for a while now (and have targeted a number of larger taxpayers), there is a particular focus on the top 5000 private groups and medium and emerging private groups in Australia in the next few years.

Who is Affected?

Taxpayers and private groups with an income and/or wealth control of greater than $5 million are at risk of review under the Top 500, Next 5000 and medium and emerging private group compliance programs. Larger taxpayers are covered by the Top 100 and Top 1000 combined assurance programs.

Activities, themes and behaviours that can initiate a review (or bring forward a review) for you may include:

  • Levels of the complexity of business affairs of the group;
  • The complexity of taxation arrangements including GST treatment, CGT concessions, etc;
  • Recent transactional activity including IPOs, share activity, acquisitions/disposals, shifting of wealth, etc;
  • Inability to reconcile tax reported amounts to broader financial data or similar profile organisations;
  • Complex, unusual and/or material transactions;
  • Taxpayer history;
  • Adequacy of systems, processes and controls;
  • Poor tax governance and risk management controls.

Focus areas of the ATO

The ATO will tailor the exact engagement and review strategy, as well as the review's level of detail, on the nature and size of your business. However, their general focus areas will remain to be:

  • The existence and operational effectiveness of appropriate tax risk and governance frameworks;
  • No tax risks that have been flagged to market are present in the business;
  • The appropriateness of tax outcomes associated with atypical, new or large transactions; and
  • The inability to explain discrepancies (if any) between tax performance and broader financial performance.

How can you prepare?

Whilst there is no single formula to get a strong rating or feedback in an ATO review, there are preparatory activities that can assist with engaging with the ATO in a positive manner and minimising the risks of the review progressing to an audit. These activities could include:

  • Reviewing tax governance and risk management frameworks in place;
  • High-level gaps analysis against the ATO’s board-level and managerial controls and associated expectations;
  • Periodic internal and external audits of systems, controls and testing processes from a tax lens;
  • Having reasonably supportable positions for all tax positions adopted (and amounts reported to the ATO);
  • End-to-end review of income tax return and Business Activity Statement preparation processes;
  • Ensuring you have up-to-date group structures and organisational charts;
  • Analysis of tax performance against financial/accounting performance and developing reasonable explanations for unexpected variances;
  • Undertaking mock interviews; and
  • Early engagement and voluntary disclosures where issues are identified.

McInnes Wilson Lawyers Taxation and Revenue team have years of experience assisting their clients in matters of this type.

If you require any assistance or more information, please fill out the enquiry form below to receive an obligation-free appointment.

Taxation and Revenue, Commercial

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