Private Groups Stewardship Group key messages 16 September 2024

Membership changes

The Australian Taxation Office (ATO) advised of the appointment of the following members for the remainder of 2024:

• Karen Liew, Chartered Accountants Australia and New Zealand
• Jenny Wong, CPA Australia
• Rob Jackson, Fairfax Group, private group member
• Jeff Jones, Buildcorp Group, private group member.

Action item update

20231121-1 – Members to provide feedback on Top 500 engagements to be incorporated in nationwide internal sessions.

This item is closed.

20240613-1 – ATO to issue communication to raise awareness about how the thin capitalisation amendments may impact private groups.

This item is closed.

20240916-1 – ATO to consider opportunities for communication and guidance about the level of information and detail that ought to be included in a request for remission of GIC.

This item is open.

20240916-2 – Members to provide feedback on the payment strategy and potential avenues for communicating the proposed approach so that taxpayers and their advisers are aware of the ATO's revised positioning in relation to outstanding debts.

This item is open.

20240916-3 – ATO to consider if opportunities for communication and messaging about the distinction between investors and founders, and whether or not it is appropriate at law for founders to access ESIC concessions.

This item is open.

Environmental scan

Corporate plan 2024–25

The ATO corporate plan 2024–25 highlights 6 key activities that encompass the ATO's core priorities and enable the achievement of its purpose and vision. The corporate plan also outlines 6 key focus areas of strategic importance which reflect the ATO's current operating environment and contribute to its key activities.

Frontline Operations changes

Service Delivery within the ATO has recently restructured and been renamed Frontline Operations. The changes aim to more strategically manage and prioritise work across the group in a holistic and integrated way.

The ATO assured members resources will not be reallocated from other areas as part of prioritising tax collection moving into a modern post-pandemic environment.

Recent public advice and guidance

Members discussed recent public advice and guidance impacting the private wealth market, including:

• updates to Law Administration Practice Statement PS LA 2011/4 Collection and recovery of disputed debts
• updates to Law Administration Practice Statement PS LA 2021/1 Application of the promoter penalty laws
• debt deduction creation rules and Division 7A web content
• draft Taxation Determination TD 2024/D2 Income tax: factors taken into account in applying the exceptions to section 99B of the Income Tax Assessment Act 1936 contained in paragraphs 99B(2)(a) and 99B(2)(b)
• draft Practical Compliance Guideline PCG 2024/D1 Section 99B of the Income Tax Assessment Act 1936 – ATO compliance approach
• draft Goods and Services Tax Determination GSTD 2024/D2 Goods and services tax: supplies of sunscreen

Recent litigation

Members discussed recent litigation impacting the private wealth market, including:

• Ierna v Commissioner of Taxation [2024] FCA 592
• Kilgour v Commissioner of Taxation [2024] FCA 687
• Wang v Commissioner of Taxation [2024] FCA 585
• Moloney v Commissioner of Taxation [2024] AATA 1488

Members commented there may be less appetite to litigate in the private market due to high legal costs.

Other matters

Members discussed the current payment culture relating to remission requests for general interest charge (GIC). They shared their experiences with lodging GIC remission requests using Online services for agents and noted the only avenue to review a denied GIC remission decision is to appeal to the Federal Court under Administrative Decisions (Judicial Review) Act 1977.

Members suggested process changes and additional guidance and education for tax professionals to ensure the ATO has all the necessary information to make GIC remission decisions, alleviating the need to appeal to the Federal Court. The ATO acknowledged members' concerns and potential options and will consider potential improvements.

Payment strategy pilot

Members discussed the ATO’s payment strategy.

Next 5,000 program

The ATO provided an update on the Next 5,000 program, noting there are no major changes. The 2024 findings report will issue in November 2024.

Members asked about the current population parameters, highlighting there are significantly more groups falling into the Next 5,000 population. The ATO confirmed there are no plans to change the population parameters and the differentiated approach of streamline assurance and risk reviews will be maintained.

Members commented that the risk reviews still have a tax governance element. The ATO noted the tax governance focus is on record keeping, as many common errors are a result of record keeping issues.

Top 500 program

The ATO provided an update on the Top 500 program and discussed the review of the program currently underway.

Members noted many taxpayers see value in achieving justified trust within the Top 500 program and entering a 3-year monitoring and maintenance period. Some clients in this period experience a higher-than-expected level of engagement. The group discussed the desire to engage in real time focusing on the last income tax return lodged and how to get engagements to this stage.

The group discussed options to improve rewards for achieving and maintaining justified trust. Members suggested the ATO provides a prompt response when taxpayers seek assistance and ensures the involvement of the right people to assist. A one size fits all approach may not be appropriate for the groups in this market as they vary dramatically in size and wealth. Members suggested further tailored approaches be considered.

Objections and private binding rulings workflows

The ATO led discussion on delays experienced by privately owned and wealthy groups (POWG) taxpayers and their advisers on objections and private binding rulings.

Objections

Complex objections in the POWG segment are completed by Objection and Review’s middle market objection (MMO) area. Disputes can cover a broad range of technical issues, several tax periods, and a range of taxpayer behaviours. POWG objections of lower complexity that deal with more routine issues are completed by Objection and Review's scale market objection area.

In the 2024 financial year MMO received 761 objections and finalised 709 objections. Both the receipts and finalisations were significantly higher than the previous year and historical averages, with the latter increasing through improved efficiency rather than additional resourcing.

MMO will continue to increase finalisations and improve case management by:

• increasing resourcing through recruitment and an overall increase in MMO case officers
• further developing a differentiated approach to objections, with a focus on appropriate prioritisation and resource application to each individual case
• undertaking a review of the current stock on hand and work processes to identify options for further efficiency gains
• regularly monitoring quality assurance and case data to ensure cases are being allocated as quickly as possible and that taxpayers are being regularly updated on case progress.

Private binding rulings

Private ruling requests received in Private Wealth Advice and Guidance (PW AG) vary in terms of technical difficulty and risk due to the numerous arrangements and structures that private wealth taxpayers enter.

In the 2023–24 financial year, PW AG finalised more than 600 private rulings.

PW AG has been actively managing a backlog of unallocated private advice cases since July 2022 and triage all new private ruling applications to ascertain complexity and risk, to prioritise case allocation.

PW AG continue to explore options for managing the backlog, with a current focus on:

• streamlining the allocation of cases that have been triaged as low risk or non-complex
• identifying experienced technical leaders to be allocated at the commencement of cases that involve more complex arrangements and issues
• monitoring application dates and undertaking priority allocations for cases near or exceeding service standards to help manage the client experience.

Members raised concerns about delays experienced when complex subject matter such as Part IVA and section 45B are being considered. The ATO acknowledged the concerns and explained these matters often involve complex facts and arrangements and can require engagement with Tax Counsel Network. This can impact the time it takes to resolve a case.

Members also expressed concerns about the ATO potentially declining to rule where assumptions are necessary. The ATO addressed its role in providing helpful and accurate advice to support the self-assessment regime and explained the importance of being able to accurately define the scheme being ruled on to ensure the correctness of a private ruling product. The ATO carefully considers whether assumptions are required and appropriate on a case-by-case basis, particularly when ruling on future events and Part IVA.

Members queried if there are set timeframes for completing objections. The ATO explained that there are no specific timeframes as each objection is unique. However, it is expected that each objection is managed efficiently to ensure a timely resolution.

Technical issues

Division 855

Members discussed the recent Treasury paper on proposed changes to Division 855 of the Income Tax Assessment Act 1997 (ITAA 1997) announced in the 2024 Budget. Members are particularly interested in what changes meant for existing cases concerning the meaning of real property for the purposes of Division 855.

Division 7A distributable surplus

Members observed there is limited ATO guidance about the operation of the distributable surplus formula and its various components as set out in section 109Y of the Income Tax Assessment Act 1936. It was suggested the ATO might consider providing additional general guidance on this topic, particularly regarding the fact that the section 109Y distributable formula does not allow for a negative net asset position in the calculation.

Early stage innovation companies

Members queried the ability of founders to access early-stage innovation companies concessions and asked the ATO to consider if it is possible and/or appropriate under the law for founders to access the concessions.

Family trusts

Members asked the ATO to follow up on a question raised at an earlier meeting about the application of the 45–day holding rule in relation to trust distributions in scenarios where a family trust election has been made.

CGT event K6 and TR 2004/18

The ATO led a discussion on capital gains tax (CGT) event K6 and the proposal to amend Taxation Ruling TR 2004/18 Income tax: capital gains: application of CGT event K6 (about pre-CGT shares and pre-CGT trust interests) in section 104-230 of the Income Tax Assessment Act 1997.

Taxation Ruling TR 2004/18 sets out the ATO's view on the application of CGT event K6, regarding pre-CGT shares in a private company and pre-CGT interests in a private trust estate, in section 104-230 of the of the ITAA 1997.

The ATO now considers aspects of the ruling to be incorrect and intends to amend the ruling to reflect its revised view. Specifically, the ATO now considers that:

• if CGT event K6 happens, only one capital gain arises (contrary to the view in TR 2004/18 that two capital gains may arise in some instances, with the lesser gain being disregarded to avoid double taxation)
• the calculation of any K6 capital gain is then based upon an assessment of the relevant items of post-CGT property that the capital proceeds are reasonably attributable to in accordance with subsection 104-230(6), regardless of whether the relevant post-CGT items are directly or indirectly owned, but in a way that avoids double counting.

Members discussed their views on the proposed revised interpretation, transitional issues, and other matters considered relevant to the development of the proposed addendum.

Members highlighted the importance of transitional arrangements and having practical compliance guidance to outline the safe harbours and what sits in the green zone.

Income tax and public advice and guidance

The ATO discussed Taxation Ruling TR 2018/6 Income tax: trust vesting – consequences of a trust vesting in light of the McGowan and Valentini Trusts [2021] VSC 154 decision. The group considered whether it creates ambiguity and a need for the ATO distinguish its position from the decision.

Members commented there is no resounding need to change the ruling. The group discussed remedial trusts, such as constructive trusts established by a court decision, and the process involved when there are ill-gotten gains, and the beneficiary has paid the tax.

Other business

The ATO raised awareness of the Private Groups Stewardship Group's 2025 membership refresh process which commenced on 12 September 2024 and will close on 2 October 2024. New and continuing membership will be announced by the end of the year with new members to commence in February 2025.

Attendees

Attendees list

Organisation	Member
ATO	Kasey MacFarlane (Co-chair), Private Wealth
ATO	Jenny Lin, Private Wealth
ATO	Laura Bagnato
BDO	Michael Anderson
Chartered Accountants Australia and New Zealand (CAANZ)	Karen Liew
Deloitte Private	Priyanka Subramanyam
Findex	Carlo Di Loreto
Fox Private Group	Garry Voigt
Tax Bar Association	James Strong
The Tax Institute	Jonathan Ortner (Co-Chair)
William Buck	Tim Lyford

Guest attendees

Guest attendees list

Organisation	Attendee
ATO	Adam O'Grady, Frontline Risk and Strategy
ATO	Andrew Orme, Objections and Review
ATO	Daniel Smith, Private Wealth
ATO	David Esposito, Private Wealth
ATO	Deanna Sari, Private Wealth
ATO	Glenn Cooper, Private Wealth
ATO	Jeneata Segaram, Objections and Review
ATO	Nathan Lymberopoulos, Frontline Risk and Strategy
ATO	Scott Walker, Private Wealth

Apologies

Apologies list

Organisation	Member
ATO	Andrew Watson, Individuals and Intermediaries
ATO	Louise Clarke, Private Wealth
Buildcorp Group	Jeff Jones
CPA Australia	Jenny Wong
John Fairfax Group	Rob Jackson
KPMG Australia	Belinda Cheesewright
Law Council of Australia	Tuan Van Le
Oatley Family Group	Sharon Clark
Pitcher Partners	Alexis Kokkinos