The ATO’s current approach to engaging with the thousands of private groups includes two key streamlined assurance review programs – the Top 500 Program and the Next 5,000 Program.
These programs cover Australian resident individuals who, together with their associates, control wealth of more than $50 million.
The ATO is not currently reviewing all of the Next 5,000 Program client groups, but they expect to have contact with everyone over the course of four years from 2019 to 2023.
Notices for the Next 5000 Program started to come through in 2020, although the level of activity has varied only gained momentum in the second half of 2021.
A key principle underlying these reviews is “justified trust”, where the ATO seeks to gain a full understanding of the group’s tax situation by focusing on four key areas, including:
- Tax risks
- New and significant transactions
- Book to tax performance.
Getting a tick from the ATO means they have a degree of comfort the group is appropriately meeting their tax obligations and can be relied upon to continue doing so; in turn, minimising the need follow up reviews in future years.
If there are any concerns, the ATO will provide detailed feedback on areas for improvement, including on managing risks and, where applicable, will give the client an opportunity to take action to correct an error or mitigate a risk going forward. Depending on the nature and extent of the issue, however, it could also lead to further ATO action.
HLB Mann Judd has been notified of over 20 Next 5000 Program reviews for clients, with the Sydney firm receiving around a dozen such letters for private client groups. While the ATO website sets out a broad framework for the way these reviews are to be carried out, in practice, we have seen great variation in the specific processes followed.
Some have involved an initial video meeting with the ATO (either with the client attending or with advisers only), followed by tailored information-gathering letters covering different issues to varying levels of detail. For another review, the initial meeting was not required; instead, the ATO sent a lengthy, more generic information-gathering letter for which the responses were prepared collectively by the client and the HLB Mann Judd team.
The ATO’s stated timeframe for the streamlined reviews is around four months from the time information is submitted in response to their questions. It has also been accommodating in allowing extra time where needed to provide requested information.
The clients who cope best with these situations, and who are able to satisfy the ATO with the least possible stress, time commitment and disruption to their business, are the ones who have their systems in order before the ATO comes knocking. They have well documented procedures and processes, written tax advice for complex transactions, and a consistent approach in ensuring their tax compliance and risks are managed correctly.
This article was published in the 2021-22 Summer Issue of Financial Times.