Privately owned and wealthy groups remain a focus of the Australian Taxation Office (ATO) as they play a crucial role in Australia’s tax system. In recent times, the ATO has committed substantial resources to compliance efforts, including advanced data analytics and targeted education initiatives.
For the 2024–2025 financial year, the ATO has outlined several key priorities including:
Accuracy and timeliness
Maintaining accurate and timely reporting remains essential. The ATO has prioritised accurate registration, timely lodgment, and prompt payment of tax obligations. Non-lodgment or late lodgment of tax returns, fringe benefits tax (FBT) returns, and activity statements, as well as unpaid tax debts, are of particular concern.
Division 7A compliance
The ATO has intensified its focus on Division 7A compliance, which governs loans from private companies to shareholders or their associates. Key risks include unreported shareholder loans, the absence of written loan agreements prior to the company’s lodgment date, failure to make minimum yearly repayments, and inadequate record-keeping. The Division 7A Calculator and Decision Tool are available to assist businesses in meeting these compliance requirements.
CGT and GST risks
The ATO is monitoring capital gains tax (CGT) risks in restructures and intergenerational wealth transfers, particularly misuse of small business concessions, incorrect asset classifications, capital losses from related party transaction (market value substitution rule) and incorrect application of Division 855 (non-resident access to concession). In the GST space, retail and construction industries are under closer scrutiny for GST compliance activities. Businesses with recurring issues may be moved to monthly BAS reporting, and efforts to detect fraudulent GST refund schemes are intensifying.
International transactions
Cross-border activity is under increased scrutiny, particularly around intangible migration arrangements, mischaracterised service transactions, withholding tax compliance, significant global entity compliance and related-party financing involving non-commercial terms aimed at inflating costs in the property and construction sectors. The ATO has introduced practical compliance guidelines, taxpayer alerts, and a Private Wealth International Program to help businesses assess risk and meet their obligations.
Emerging risks
The ATO has identified several emerging risks requiring attention, such as trusts over-claiming deductions, misuse of income tax-exempt entities to obtain tax concession and private benefits, inappropriate generation and use of losses, share buyback arrangements and the application of thin capitalisation rules. New compliance challenges arising from cryptocurrency-related business models are also under close examination.
Targeted focus areas
Several industries and transactions are subject to increased focus, including property development, retail, construction, retirement villages and private equity investments. Specific concerns include misclassification of income, underreporting of GST, and non-compliance with reporting obligations. Succession planning and governance practices within privately owned and wealthy groups have also been identified as critical focus areas requiring attention to ensure compliance.
To mitigate compliance risks and align with the ATO’s expectations, privately owned and wealthy groups are urged to adopt robust governance frameworks, uphold meticulous record-keeping practices, and proactively engage with the ATO when compliance uncertainties arise. Taking these steps will be vital in managing risks effectively and avoiding potential penalties.
This article was co-written by Yi Xia, Special Tax Counsel at HLB Mann Judd Sydney.