Private Groups Stewardship Group key messages 19 November 2024

PGSG membership refresh

The biennial Private Groups Stewardship Group membership refresh is complete. The refreshed membership comprises new and reappointed members across professional associations, advisers and private groups, and will commence for a 2-year period over 2025 and 2026. An updated membership list will be published in the new year.

Action item update

Action item 20240916-1 - The 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 closed.

Action item 20240916-2 - Members to provide feedback on the payment strategy and potential avenues for communication the proposed

This item is closed.

Action item 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.

Action item 20241119-1 - ATO to identify the key issues surrounding Family Trust Distributions Tax and to work collaboratively with members to consider areas of concern and opportunities to address issues via an out-of-session discussion in early 2025.

This item is open.

Action item 20241119-2 - ATO to consider the application of the valuation guidelines in ESS 2015/1 (and whether amendments are required) to companies issuing shares that qualify for the start-up concession where the relevant company issuing shares is the head company of a group of entities.

This item is open.

Environmental scan

Corporate tax transparency report

The Australian Taxation Office (ATO) has published the Corporate tax transparency report 2022–23. This is the first year the report captures Australian private corporate entities with total income between $100 million and $200 million following the threshold change.

R&D tax incentive transparency report

The ATO has published the first annual Research and Development (R&D) tax incentive transparency report. The report covers R&D entities who claimed the R&D tax incentive for the 2021–22 financial year.

Updates to web content

The ATO has updated web content on What attracts our attention. Key updates include:

• areas of focus for 2024–25
• an update on international transactions emphasising the ATO's focus on cross border activities and transactions involving privately owned and wealthy groups
• information on the private wealth adviser program, explaining the ATO's collaborative approach with professional firms and advisers within privately owned and wealthy groups.

Web content on Commercial deals has been updated to include an explanation of how pre-lodgment certainty can be provided and pre-deal compliance action anticipated where foreign residents potentially misapply capital gains tax exemptions.

The ATO has also updated the characteristics of medium and emerging groups information on the Medium and emerging private groups tax performance program page.

Collecting unpaid tax and super

The ATO outlined changes to its approach to collecting unpaid tax and super, highlighting:

• a greater focus on businesses refusing to engage with the ATO and continually ignoring SMS and letter reminders
• a deliberate and targeted approach which considers compliance history
• quicker and firmer action such as Director Penalty Notices (DPNs) and garnishees for businesses who don't engage or set up a payment plan for unpaid GST, PAYG withholding or employee super
• a more holistic view of debt where directors of multiple companies who have unpaid GST, PAYG withholding and employee super amounts do not engage; these directors can expect DPNs capturing the total value of the amounts across all related entities
• an expectation that a private group will extend necessary financial support to pay any outstanding debts of entities in the group.

Public advice and guidance

Members discussed recent public advice and guidance impacting the private wealth market, including draft Practical Compliance Guideline PCG 2024/D3 Restructures and the new thin capitalisation and debt deduction creation rules- ATO compliance approach.

Recent litigation

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

• Michael John Hayes Trading Pty Ltd as trustee of the MJH Trading Trust & Ors v Commissioner of Taxation [2024] HCASL 268
• BSKF and HGYT v Federal Commissioner of Taxation [2024] AATA 3377

Other matters

Members welcomed the updates to the What attracts our attention web content. They suggested the ATO communicate more about specific risks and provide greater detail on what is concerning the ATO to help mitigate risks.

Members raised issues around confidentiality labels for specific agenda items and supporting papers and how these impact advisory members' obligations under section 25 of the Tax Agent Services (Code of Professional Conduct) Determination 2024. The ATO will further define the classification of agenda items and papers to provide greater clarity to members and help them determine whether they can participate in confidential consultation.

Medium and emerging program

The ATO provided members with visibility of the medium and emerging (M&E) private groups tax performance program, with a particular focus on:

• the thresholds, diversity and characteristics of the M&E population
• M&E private groups strategy
• the program of work for the 2025 financial year, including risk focus areas and initiatives
• the ATO's approach to engaging with M&E taxpayers.

Members discussed the considerations and challenges around determining when a taxpayer meets the threshold characteristics of the M&E population. Members highlighted the important role that advisers play in this market and the importance for M&E private groups to seek specialist advice for complex issues.

The ATO discussed the planned approach for communicating with new entrants to the M&E population who have experienced growth in their business and have indicators of tax risks. Members suggested incorporating a feedback loop for advisers to communicate back to the ATO if they are of the view their client hasn't made a mistake.

Members suggested practical guides and examples of the governance and record keeping required for the M&E population, which could assist new entrants and smaller tier advisers. Using existing material in conjunction with a checklist to support business processes could provide useful education.

The ATO's engagement with the M&E population could be improved by providing details of key risks, with practical examples on where things can go wrong and actions to avoid this. Members suggested a roadshow on key risks and governance requirements, including when to escalate matters for specialist advice.

Many M&E private businesses are critical to the supply chain of larger businesses, therefore non-lodgment or non-payment of debt may impact those within the supply chain. The only visibility of these issues is through the disclosure of business tax debts. The ATO noted work on how large businesses can assist to ensure the compliance of businesses in supply chains is underway, especially in relation to the property and construction industry.

ATO payment strategy pilot

The group discussed the ATO’s planned communication approach relating to payment strategy.

Top 500 program

The ATO provided an update on the Top 500 program review and some of the key features of the soon to be published Top 500 2024 findings report. The program review is ongoing and due diligence is underway to analyse the potential impacts on relevant tax gaps. An update on the review will be provided in the new year.

Members asked about the tax issues that are arising in the population, and the ATO provided a brief summary including related party transactions with self-managed super funds, deductibility matters such as deductions claimed for private pursuits, and trusts issues including family trust distribution tax.

Next 5,000 program

The ATO provided an update on the Next 5,000 program and some of the key features of the soon to be published Next 5,000 2024 findings report, including:

• insights in relation to the program showing that Next 5,000 groups are making errors due to lack of procedures and poor record keeping
• recommendations to be published on the ATO website to assist Next 5,000 groups with their ongoing compliance obligations
• next actions following recommendations from finalisation of streamline assurance reviews, to understand the extent of these recommendations being actioned.

Members raised concerns about the timeframes and the extensive range of information sought at the request for information (RFI) stage and highlighted challenges with the collation of information and the timeframes for response. Businesses should engage with the ATO if they need more time to provide information and negotiate a suitable timeframe. Members suggested responses to RFI's be provided in tranches so businesses can better manage timeframes and the flow of information requested.

Members suggested greater transparency and clarity surrounding each RFI question to assist advisers to manage responses and the detail required. Members also discussed the need for greater access to information, noting the findings report is useful to discuss with clients and prepare articles, and highlighted effective ways to engage with this population.

Family trust distributions tax

The group discussed family trust distributions tax (FTDT), including:

• what members are seeing as the current risk areas the ATO have identified, and which are causing members the most concern.
• possible administrative approaches
• possible legislative amendments based on issues members are seeing with the provisions in practice.

Members shared their experience and issues with FTDT legislation and raised concerns about lack of legislative discretion, impact of general interest charge (GIC) and no limitation on the period of review. Members raised various examples highlighting the difficulties that may arise after a family trust election (FTE), with an emphasis on substantiation of an FTE. There is a lack of awareness about the effect of FTE and interposed entity election (IEE) and there has been a general practice to make these elections. The ATO will present a webinar on FTE and IEE to increase awareness.

Members discussed potential administrative options for taxpayers who want to resolve historical FTE issues. The ATO acknowledged the opportunity to explore options and administrative considerations collaboratively but highlighted the need to consider options in a broader context; for example, the potential longer-term impacts of options in 5–10 years. The ATO will consider the breadth of FTDT circumstances arising and will continue to engage with members on this topic.

Income tax and public advice and guidance

The ATO provided an update on draft public advice and guidance due to be released for public consultation in early December including:

• the finalisation of 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)
• the finalisation of draft Practical Compliance Guideline PCG 2024/D1 Section 99B of the Income Tax Assessment Act 1936 - ATO compliance approach
• a draft addendum to 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.

Members asked for any updates on draft Practical Compliance Guideline PCG 2024/D3 Restructures and the thin capitalisation and debt deduction creation rules - ATO compliance approach. Members who made submissions on the draft PCG highlighted their concern that there are limited options for middle market taxpayers to limit their exposure to the new rules. The ATO noted the comments period for the draft PCG closed on 8 November 2024. The PCG will be finalised in the new year following consideration of the comments received.

Noting increasing market activity and the ATO's planned focus on private equity, members suggested additional guidance on this topic, including further details and examples, would be helpful. The ATO noted is developing further website guidance and information about private equity.

Technical issues

The group discussed net tangible assets in the context of valuing employee share schemes in companies qualifying for the start-up concession. The ATO will consider the appropriate valuation methodology where the start-up is part of a broader private group.

End of year wrap up

Members praised the high quality and broad range of open, productive discussions throughout the year. Members agreed conversations were candid, insightful and provide confidence that the ATO is listening. Real improvements are being made.

Members suggested greater visibility on the progress of action items would be beneficial.

Proposed focus areas for 2025 include:

• improving access to timely and clear guidance available on key and emerging risks, for example:
  • succession planning
  • restructures (inclusive of Part IVA, rollovers, etc.)
  • private equity
• the M&E program
• family trusts distributions tax
• property and construction
• the private wealth adviser program
• the impact of the appeal of the Bendel and the Commissioner of Taxation [2023] AATA 3074 decision which is before the Federal Court.

Other business

The ATO thanked members for their contributions this year and farewelled departing members.

Attendees

Attendees list

Organisation	Member
ATO	Louise Clarke (Co-chair), Private Wealth
ATO	Andrew Watson, Individuals and Intermediaries
ATO	Jenny Lin, Private Wealth
ATO	Kasey Macfarlane, Private Wealth
Buildcorp Group	Jeff Jones
Chartered Accountants Australia & New Zealand (CAANZ)	Karen Liew
CPA Australia	Jenny Wong
Deloitte Private	Priyanka Subramanyam
Findex	Carlo Di Loreto
KPMG Australia	Belinda Cheesewright
Law Council of Australia	Tuan Van Le
Pitcher Partners	Alexis Kokkinos
Tax Bar Association	James Strong
The Tax Institute	Jonathan Ortner
William Buck	Tim Lyford
Workpac	Judd Adams
Workpac	Rachel Tyler

Guest attendees

Guest attendees list

Organisation	Attendee
ATO	Amy James-Velagic, Private Wealth
ATO	Anita Challen, Frontline Risk and Strategy
ATO	Brock Spicer, Private Wealth
ATO	Daniel Smith, Private Wealth
ATO	David Hall, Private Wealth
ATO	Laura Bagnato, Private Wealth
ATO	Rosie Cicchitti, Private Wealth
ATO	Vesna Circosta, Private Wealth

Apologies list

Apologies list

Organisation	Member
BDO	Michael Anderson
Fox Private Group	Garry Voigt
John Fairfax Group	Rob Jackson
Oatley Family Group	Sharon Clark