ATO - Targeted Areas of Focus 2024-25

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ATO focus for private wealth

Our key areas of focus are based on the risks and issues identified through our intelligence collection, risk detection and analysis and case work. While we are focused on improving tax performance across all tax and superannuation compliance obligations for the privately owned wealthy groups population, these are the foundational, emerging and evolving risks and targeted focus areas where we are investing more resources.

Foundational issues

Registration, lodgment and payment

Registration, lodgment and payment risks and issues include:

• not registering for obligations where required, or being registered under the incorrect basis (accounting basis or reporting cycle)
• failure to lodge tax returns, fringe benefits tax (FBT) returns or activity statements when required
• not paying tax debts on time and not engaging with us.

Incorrect reporting

Incorrect reporting risks and issues include:

• incomplete reporting of returns, activity statements and schedules (including information labels such as shareholder loans, assets and liabilities)
• omitted income and sales (income tax and GST)
• incorrectly claiming GST credits
• ineligible research and development (R&D) expenditure being claimed
• ineligible R&D activities being claimed
• incorrectly claiming base rate entity status.

Tax advisers and professional firms

Risks and issues with tax advisers and professional firms include:

• failure to lodge own tax returns or business activity statements (BAS)
• failure to lodge partnership returns or statements of distributions
• failure to pay own tax debts on time
• inappropriate allocation of professional firm profits (PCG 2021/4)
• intermediaries (including R&D consultants) encouraging aggressive tax arrangements or promoting tax avoidance or exploitation schemes.

Division 7A

Division 7A risks and issues include:

• unreported shareholder loans
• non-complying loan agreements
• failure to make minimum yearly repayments or not applying the correct benchmark interest rate
• inadequate record keeping
• section 109R loan repayment arrangements including loans repaid just before the private company’s lodgment day with the intent to reborrow similar or larger amounts from the same company
• requests for section 109RB discretions.

Capital gains tax (CGT)

CGT risks and issues include:

• eligibility criteria when claiming small business CGT concessions
• inappropriate calculations of the CGT discount
• using the small business restructure rollover (Subdivision 328-G) incorrectly, including for reasons other than a genuine restructure of an ongoing business
• capital losses from related party transactions (market value substitution rule)
• incorrect application of Division 855 (non-resident access to concessions).

Property and construction

Risks and issues related to property and construction include:

• capital versus revenue misclassification on disposal of real property
• omission of income on disposal of real property
• failure to lodge or report sales or GST on income tax returns or BAS as identified by the taxable payments reporting system
• misreporting or underreporting of GST for real property
• failure to meet GST reporting obligations for real property
• failure to meet GST registration obligations for real property.

International transactions

Risks and issues related to international transactions include:

• intangible migration arrangements
• mischaracterisation of service transactions which results in mispricing and creates risk from a corporate residency and controlled foreign companies' perspective
• withholding tax compliance
• significant global entity compliance
• related-party financing (including concerns with the use of non-commercial terms to push up financing costs in the property and construction industry).

Other domestic transactions

Risks and issues related to other domestic transactions include

• non-arm’s length income in self-managed super funds
• misinterpretation or disregard for family trust elections
• residents not including distributions from foreign trusts (section 99B)
• franking account balance discrepancies
• 45 day holding rule (franking credit integrity rules).

Emerging or evolving risks and issues

Incorrect reporting

Emerging or evolving risks and issues with incorrect reporting include:

• trusts over-claiming deductions that inappropriately reduce trust net income
• increasing lodgments in industry sectors where R&D activities and expenditure may not be eligible
• incorrectly claiming GST credits on employee allowances
• incorrectly claiming GST refunds without sufficient evidence to substantiate claims.

CGT

Emerging or evolving risks and issues with CGT include:

• Division 149 (pre-CGT asset)
• reduction in capital gains and losses arising from CGT events in relation to certain voting interests in active foreign companies (Subdivision 768-G).

Other emerging areas

Other emerging or evolving risks and issues are:

• inappropriate use of income tax exempt vehicles, including ancillary funds, to access tax concessions and private benefits where there is no entitlement
• trust loss trafficking (inappropriate generation and use of losses)
• share buyback arrangements
• thin capitalisation rules
• cryptocurrency based business models
• possible passage of the Better Targeted Superannuation Concessions measure (yet to be re-introduced post-election).

Targeted focus areas

Succession planning

We continue our focus on risks that are arising in relation to the ageing demographic and succession planning.

We have seen an increase in succession planning activities as private groups restructure, dispose of assets or transfer wealth. This may be through mature family-controlled businesses being sold or passed onto the next generation, or the accumulated wealth from those businesses being transferred.

Transactions we commonly see that facilitate succession planning can include:

• assets being moved around the group
• family member interests being restructured
• concessions, exemptions and rollovers being accessed
• loans to shareholders or associates settled (Division 7A loans)
• trusts being used to transfer wealth.

For more information, see Succession planning tax risks.

Private equity

A targeted focus area is the risk across the life of the private equity investment, including all private equity participants (firms, funds, target entities and investors) at different stages of the private equity lifecycle (pre-acquisition, acquisition, holding, pre-exit and exit).

Retirement villages

Targeted focus areas for retirement villages include:

• reviewing the GST and income tax through the retirement village cycle
• incorrect application of GST-free provisions
• incorrect application of Division 135 (supplies of going concern)
• related-party transaction and incorrect valuations between related parties
• contentious land-lease structure.

GST focus areas

From a GST perspective, we're focusing on our 2 largest industries, retail and construction.

Retail

Our retail focus includes:

• transactions between entities within the same private group
• errors arising from systems with poor controls
• omission of income from sales
• misclassification of vouchers sales and warranty payments
• claiming input tax credits for non-creditable acquisitions
• failure to meet GST reporting obligation
• failure to meet GST registration obligations.

Construction

Our construction focus includes:

• misclassification of commercial adjustments such as contract variations
• omission of income from sales
• transactions between entities within the same private group
• failure to lodge or report sales or GST on BAS as identified by the taxable payments reporting system
• misreporting or underreporting of GST for construction sales or payments to suppliers, employees or contractors
• failure to meet GST reporting obligation
• failure to meet GST registration obligations.

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