Background
As part of the Next 5,000 program, we also undertake reviews that apply a risk-based approach to privately owned and wealthy groups. This is different from an assurance approach such as the streamlined assurance reviews that apply our justified trust methodology.
We base case selection for risk-based reviews on our profiling and data analytics. These relate to:
- the presence of key priority areas
- any new emerging issues affecting private groups.
Risk-based reviews may be conducted at the group or entity level depending on the presence of tax risk.
Key priority areas
These areas are a combination of behaviours and transactions that we have observed in the Next 5,000 population. They include privately owned and wealthy groups that are:
- experiencing rapid growth, which may lead to incorrect reporting if the tax governance framework isn't fit for purpose for a growing business
- expanding offshore or entering into cross-border transactions with related parties
- entering into arrangements such as intra-group transactions to inappropriately transfer domestic wealth
- considering inappropriate tax structures to pass on wealth to the next generation
- undertaking wealth extraction, including by the use of private equity funds.
Comprehensive risk reviews
A comprehensive risk review is used where we have identified one or more of the key priority areas, issues or risks through our profiling and data analytics. We also use comprehensive risk reviews for those private groups that did not have appropriate governance processes and procedures in place as identified in a streamlined assurance review.
As risk reviews are identified based on issues or risks, in the event that you don't believe you fall within the Next 5,000 population, the risk review will continue and we'll discuss referrals to the appropriate population program on a case-by-case basis.
Next action reviews
We also undertake Next Action reviews. In some circumstances, these reviews can include an escalation to a further risk review after a streamlined assurance review where there are certain risks or behaviours present. In other circumstances, a Next Action review will monitor the specific recommendations made to Next 5,000 groups during a streamlined assurance review or risk review and assess what steps the Next 5,000 group has taken since the finalisation of these reviews.
Risk-based review approach
Through a risk-based review approach we'll:
- notify you in writing
- meet you to understand your business
- write to you to request information
- contact you to discuss next steps
Notify you in writing
We'll notify you in writing that we plan to start a comprehensive risk review or a Next Action review.
Commencement of a comprehensive risk review will be no earlier than 28 days from us notifying you in writing (or less as agreed).
Upon notification of a comprehensive risk review, we will also invite you to provide readily available documents. Providing documents you should already have (for example, financial statements and tax reconciliations) will help us to refine and tailor our preliminary areas of focus to your circumstances, when we commence our comprehensive risk review.
Meet you to understand your business
This step generally applies to comprehensive risk reviews where we'll meet with you to get a better understanding of your business and to discuss timeframes and the information we'll need from you.
Write to you to request information
We'll write to you setting out the information we need you to provide. This information will clarify our understanding of risks within the context of your circumstances. Keeping good records will also help you with our enquiries.
Where you are unwilling to work with us in an open and transparent way in responding to our requests for information, we will use our formal information gathering powers.
Contact you to discuss next steps
After we receive your response and consider the information you have provided, we'll contact you to discuss our analysis and next steps.
Where we are undertaking a comprehensive risk review, we may also organise a meeting to discuss areas of concern we have identified.
How to prepare for a risk-based review
Prepare for a risk-based review by considering the documents we typically request, such as:
- information used to prepare your tax return
- your company’s group structure
- financial statements
- agreements.
Our risk-based reviews generally focus on the latest 2 tax returns (lodged prior to the commencement of the review), so we're likely to request information for this time period.
Based on the information we invited you to provide in the notification letter, we'll refine and share our preliminary areas of focus before we issue our request for information at the commencement of the comprehensive risk review. This request for information will be tailored to your business, focusing on the tax risks and issues identified from our review of the information you've shared with us.
If you choose not to provide information before the commencement of the comprehensive risk review, we may request it as part of the request for information. This may mean that we will not be able to share our preliminary areas of focus or tailor our request for information to your business until after receiving your response.
You can find out more about the questions and documents we may request, that apply to the tax risks and issues identified in our risk-based reviews where relevant, in our streamlined assurance review guidance.
Voluntary disclosure
When you are notified of your risk-based review, we encourage you to review your records and recent significant transactions or business events and correct any mistakes by making a voluntary disclosure.
When reviewing your records you may wish to contact your adviser and discuss any tax risks you identify. You can make a voluntary disclosure at any time during a risk-based review.
What to expect at the end of the review
At the end of a risk-based review we will discuss our outcomes with you and provide you with a finalisation letter that sets out the tax risks identified and if Next Actions are required. This may include:
- outlining the tax risks and issues of the transactions, events and activities reviewed
- providing specific feedback, which may highlight areas for improvement and provide guidance on what you can do to mitigate future tax risks
- outlining where we're unsatisfied with your treatment of tax risks and detailing corrective action to be undertaken
- escalating the review to an audit.
In addition to the above, Next Action approaches considered under a comprehensive risk review may also include:
- self-corrective actions to mitigate a tax risk or correct an error with future limited follow up to ensure you have taken action
- discussing risk mitigation options, including early engagement on events which have future tax implications
- extending our review to resolve the issue collaboratively.
If there are no outstanding concerns, we will conclude the review.
Any future risk-based reviews will be based on:
- the identification of one or more of the key priority areas, issues or risks through our profiling and data analytics
- issues where risk mitigation or early engagements options were not adopted.