Membership changes
Louise Clarke advised of recent Private Groups Stewardship Group (PGSG) membership changes:
- Leah Edwards, Spotlight Group and Kenny Cheong, 7-Eleven Group resigned as members, effective March 2024.
- Meng Lee, Andersen Australia and Alexis Kokkinos, Pitcher Partners have been appointed as new advisory members for the remainder of 2024.
- Andrew Watson, ATO has been appointed as a standing member, replacing Emma Rosenzweig, ATO.
Action item update
220309-04 – ATO to provide PGSG members with updates on the progress of Section 99B draft guidance.
This item was discussed at the March meeting and is now closed. Further updates on developments will be disseminated through member emails and/or future meetings as needed.
20230918-1 – An out-of-session discussion on issues raised around corporate residency and intangible migration.
This item was discussed at the March meeting and is now closed.
20230918-2 – ATO to provide overview of the Modernisation of Trust Administration Systems (MTAS) communication strategy planned for the Tax Practitioners Stewardship Group.
This item was discussed at the March meeting and is now closed.
20231121-1 – Members to provide feedback on Top 500 engagements to be incorporated in nationwide internal sessions.
This item is awaiting feedback.
Environmental scan
New Commissioner of Taxation
Commissioner Rob Heferen commenced 1 March 2024 and has been focused on connecting with ATO staff and external stakeholders. He is mindful of the important role stewardship groups play in improving the administration and operation of the tax and superannuation systems and will connect with each stewardship group in the coming months.
Senate consulting inquiry
The Inquiry into management and assurance of integrity by consulting services continues. The ATO, consulting firms, and other government organisations are participating in the inquiry.
Adviser communications
The ATO has recently published an article on Supporting advisers who set the standard for tax and super integrity. The article highlights the importance of ensuring advisers are set up to be compliant with their tax and super obligations.
Analysis of some professional firms within the privately owned and wealthy group population reveals that partners’ lodgment compliance is lower than expected. The ATO has also seen examples of professional firms’ partner distributions reported incorrectly or omitted.
Members were encouraged to share the article with their networks.
Valuations
Members shared their experiences of obtaining and using valuations of intangible assets in engagements with the ATO. Members expressed concern that the valuations team is under-resourced, and suggested improvements around the communication of issues.
The ATO acknowledged the feedback and confirmed its commitment to finding the balance between building internal expertise and engaging external valuers.
Private equity
The ATO led a discussion on the current landscape of private equity in the private groups population.
Historically, the ATO has focused resources on reviewing the tax consequences of private equity exits and transactions in the pre-acquisition and acquisition phases. The Tax Avoidance Taskforce has enabled a broader approach to private equity investment. This has allowed the ATO to take a more holistic view and increased its ability to detect activity such as exits.
The ATO has started profiling higher-risk private equity firms to better understand the tax risks that arise throughout the lifecycle of an investment. The insights from this work will help shape the ATO's compliance approach and will assist to identify opportunities for public advice and guidance.
Members discussed their experiences advising on private equity related activities and identified areas requiring public advice and guidance or clarification of the ATO's view. Members acknowledged existing ATO guidance on some topics but noted it can be difficult to find. Members stated the ATO should actively advise on key issues and risks.
The ATO will consider how to consolidate and communicate existing guidance in the first instance and continue to engage on additional topics that would benefit from ATO guidance.
Private Wealth International Program
Topics discussed included:
- new public advice and guidance
- Practical Compliance Guideline PCG 2024/1 Intangibles migration arrangements
- Draft Taxation Ruling TR 2024/D1 Income tax royalties – character of payments in respect of software and intellectual property rights
- Practical Compliance Guideline PCG 2018/9 Central management and control test of residency: identifying where a company's central management and control is located
- guidance on related party financing for the property and construction industry
- guidance on significant global entity status
- non-residency withholding tax
- controlled foreign companies
- high risk service arrangements
- a recap on upcoming legislation.
The ATO has observed instances of individuals relocating their business offshore without fulfilling tax obligations, as well as structuring transactions aimed at shifting or concealing profits offshore. These issues are of paramount concern and advisers are encouraged to examine the information provided by clients regarding their offshore assets and business holdings.
Members highlighted situations where a business reaches a stage in its lifecycle where further growth within Australia becomes unattainable, necessitating offshore expansion. Such moves are motivated by commercial factors rather than tax avoidance.
Members noted it is not uncommon for clients to withhold information from their advisers, making it challenging to ascertain the full facts. In other instances, clients can be unaware of offshore assets in their name, or cultural factors may mean they are reluctant to disclose the source of their wealth. Cultural factors may also influence how businesses are operated. The ATO should be mindful that cultural factors can influence decision-making and tax outcomes.
Regarding related party financing in the property and construction sector, members expressed interest in the ATO’s views around arm’s length terms and conditions. Proposed web guidance will be shared with the PGSG as part of the ATO's external consultation process. A member suggested guidance on the tax implications for build to rent arrangements is needed.
Members enquired about subsequent guidance to PCG 2024/1 tailored to the lower end of the private groups population. A member also raised concerns around the potential impact of TR 2024/D1 (the draft 'software royalties' ruling) for Australian third-party software distributors in trying to determine the royalty component of payments made to offshore software suppliers.
The group also discussed the need for guidance on central management and control for companies over and above the existing guidance, particularly on private group arrangements where the ATO will commit compliance resources, and how taxpayers manage the practical issues of lodgments.
The ATO noted member feedback and will review applicability to current guidance products.
Thin capitalisation rules amendment
The ATO provided an update on the proposed amendments to the thin capitalisation rules.
The ATO is seeking feedback on public advice and guidance topics, prioritisation and form for the new thin capitalisation measures.
A consultation document has been distributed to ATO stewardship groups. The ATO has received written submissions and will meet with stakeholders to discuss the prioritisation of issues. The ATO confirmed it is not compulsory for stakeholders to submit written feedback prior to these discussions, but it is helpful.
Members emphasised the importance of practical guidance on the risk assessment framework for applying the debt creation rules to assist taxpayers in their reporting. Members expressed their willingness to further collaborate with the ATO to formulate practical guidance targeting specific areas of concerns.
The ATO emphasised the importance of submissions including real life examples and noted there are key themes emerging around the third-party debt test, the debt deduction creation rules and the interaction of transfer pricing provisions with the thin capitalisation rules.
Behaviours of concern and the promoters and tax exploitation program
The ATO gave an overview of the Behaviours of Concern business line, which focuses on behaviours that deliberately and persistently undermine the tax, superannuation and registry systems.
The overview provided visibility of the promoters and tax exploitation program, including:
- the program’s role in detecting, disrupting and deterring the concerning behaviours of tax practitioners, advisers and other intermediaries, who influence or encourage their clients to enter into tax avoidance or tax evasion arrangements
- the program's tailored approaches to treating concerning behaviours
- the program’s proactive engagement with the community to provide information about tax schemes and public outcomes
- a summary of the promoter penalty laws and the proposed amendments in the Treasury Laws Amendment (Tax Accountability and Fairness) Bill 2023
- guidance for private groups and advisers servicing the private groups sector on ways to manage promoter risks within their firms and for their clients.
Members discussed the role delineations between the ATO and Tax Practitioners Board (TPB) and discussed the notification of breach requirements within the TPB’s Code of Professional Conduct. The TPB will release on this topic guidance in due course.
Section 99B draft guidance
The ATO gave an update on the draft practical compliance guideline. Following initial feedback provided by members, further consultation was undertaken to better understand the documentation and information obtained or considered by advisers when advising on the corpus exception in paragraph 99B(2)(a) of the Income Tax Assessment Act 1936 (ITAA 1936).
Members discussed the types of information or documentation available and outlined the challenges of obtaining documentation from non-resident trust estates in more complex circumstances. Members noted clear guidance would be beneficial to understand the ATO’s compliance approach to evidentiary requirements when considering the corpus exception.
Division 7A
The ATO has commenced its Division 7A education campaign and roadshow with a webinar focusing on fundamental aspects of Division 7A of the ITAA 1936, breaches, and requests for discretion under section 109RB of the ITAA 1936. The webinar attracted nearly 3,000 participants, predominantly tax practitioners, who were highly engaged. The ATO is partnering with professional associations to undertake further presentations and workshops and provide further key messages.
Members expressed support for the ATO’s Division 7A education campaign and roadshow initiative.
The ATO is concerned that some tax practitioners are not paying sufficient attention to basic, core elements of Division 7A. There have been instances where practitioners have repeatedly applied to the Commissioner to exercise his discretion under section 109RB for the same issue, often relating to fundamental aspects of Division 7A.
The Division 7A benchmark interest rate for 2024 has increased from 4.77% in 2023 to 8.27%. This is the highest annual increase since 2009. Clients need to be aware of and consider the increase to ensure they can meet annual minimum repayments on Division 7A loans by 30 June 2024. The ATO will continue communications about the increased Division 7A benchmark interest rate.
Members emphasised the importance of ensuring that taxpayers do not feel discouraged from coming forward to rectify issues due to concerns that the section 109RB discretion will not be exercised. The ATO stated the discretion is, and continues to be, available to clients in the circumstances of genuine mistakes and inadvertent omissions. The ATO receives some requests where it is unclear whether it is a genuine mistake or an inadvertent omission and it should not be assumed in those circumstances that the discretion will be exercised.
Income tax, public advice and guidance
Back-to-back CGT rollovers
There has been significant interest in the ATO’s planned guidance about back-to-back capital gains tax (CGT) rollovers following the recent update to the advice under development program. Restructuring activity is a common part of succession planning or preparing for sale in the private wealth market. Back-to-back CGT rollovers are frequent, prompting requests for advice and guidance on a regular basis. There is a need for the ATO to establish a clear position and provide certainty in this area.
The ATO is considering interpretative guidance for the ‘and nothing else’ condition in Division 615 of the Income Tax Assessment Act 1997 (ITAA 1997) and provisions relating to other rollovers such as the 'single arrangement' condition in section 124-M of the ITAA 1997. The ATO is also considering guidance outlining circumstances where the ATO is more likely to apply compliance resources to consider the application of the general anti-avoidance rules in the context of a back-to-back CGT rollover.
The ATO plans to publish draft guidance on back-to-back rollovers in 2024.
Members noted that interpretative guidance about the ‘and nothing else’ condition in Division 615 and other similar provisions may be contingent on the outcome of an appeal in the Ausnet matter.
Division 149 and CGT event K6
The ATO has observed a significant rise in inquiries and requests for advice regarding the application of Division 149 of the ITAA 1997 and CGT event K6 and the pre-CGT status of assets and is considering opportunities to update and enhance guidance on these issues.
Next 5,000 program
The ATO presented its communication strategy following the publication of the Next 5,000 findings report in November 2023.
Letters have been sent to 30 firms identified as having many clients subject to streamline assurance reviews. The letters set out the recommendations published in the Next 5,000 findings report.
Further messaging regarding insufficient record-keeping on related party transactions is scheduled for March and April 2024.
Top 500 program
The ATO presented an update on areas of focus for the Top 500 program.
Tailored tax governance guides have been issued to the 10 professional services firms in the Top 500. Additionally, a guide to tax governance for passive investments has been published on ato.gov.au
Attendees
|
Organisation |
Member |
|---|---|
|
ATO |
Louise Clarke (Co-Chair), Private Wealth |
|
ATO |
Jenny Lin, Private Wealth |
|
ATO |
Kasey Macfarlane, Private Wealth |
|
ATO |
Sahika Jafari, Private Wealth |
|
Andersen Australia |
Meng Lee |
|
Chartered Accountants Australia & New Zealand |
Karen Liew |
|
CPA Australia |
Gavan Ord |
|
Deloitte Private |
Priyanka Subramanyam |
|
EY |
Michael Gastevich |
|
Fox Private Group |
Garry Voigt |
|
KPMG |
Belinda Cheesewright |
|
Law Council of Australia |
Tuan Van Le |
|
Oatley Family Group |
Sharon Clark |
|
Pitcher Partners |
Alexis Kokkinos |
|
The Tax Institute |
Jonathan Ortner (Co-Chair) |
|
William Buck |
Tim Lyford |
|
7 Eleven Group |
Kenny Cheong |
Guests
|
Organisation |
Attendee |
|---|---|
|
ATO |
Amy James-Velagic, Private Wealth |
|
ATO |
Daniel Smith, Private Wealth |
|
ATO |
Giulia Salemme, Private Wealth |
|
ATO |
Harjit Singh, Tax Counsel Network |
|
ATO |
James de Clifford, Private Wealth |
|
ATO |
Jennifer Bond, Private Wealth |
|
ATO |
Kacey Jardine, Private Wealth |
|
ATO |
Karen Price, Private Wealth |
|
ATO |
Karen Rooke, Tax Counsel Network |
|
ATO |
Natasha Kavvadias, Private Wealth |
|
ATO |
Sarah Taylor, Private Wealth |
|
ATO |
Scott Parkinson, Private Wealth |
|
ATO |
Stephen Dodshon, Public Groups |
Apologies
|
Organisation |
Member |
|---|---|
|
BDO |
Michael Anderson |
|
Chartered Accountants Australia & New Zealand |
Michael Croker |
|
CPA Australia |
Bill Leung |
|
Findex |
Carlo Di Loreto |
|
Tax Bar Association |
Daniel McInerney |