Private Groups Stewardship Group key messages 8 March 2023

Action item update

20221123-2 – ATO to include the introduction of Comprehensive Risk Reviews into the Next 5,000 Program on the Private Groups Stewardship Group (PGSG) forward work program in 2023, to discuss observations on how the new process is being received.

This item is in progress and will be discussed at a future PGSG meeting.

ATO approach to consultation

Deputy Commissioner Louise Clarke led a discussion on ATO consultation, covering the ATO’s consultation framework, integrity declarations, confidential consultation, and conflicts of interest.

The objective of the PGSG is to have public, open and transparent discussion between the ATO and external members. Given the nature of the quarterly meetings, the content would not usually be considered as confidential consultation.

The ATO is proposing to introduce an integrity declaration for stewardship group members as a part of our governance processes and risk management controls. The ATO has received some feedback and is redrafting the current integrity declaration. Once finalised the document will be discussed further with members.

Members' comments

Some members expressed concern about the conflicts of interest and the confidentiality of papers provided in the agenda pack.

The ATO need to provide clarity and guidance on when and to whom PGSG meeting papers can be shared more widely, especially in instances where colleagues are better placed to provide technical expertise on the matters being discussed.

There was a view that documents provided in the agenda pack do facilitate discussion in the meetings and are a good way to keep members informed, therefore should continue to be provided. The preference is that meeting documents are not confidential.

Members would like to attend the meetings without feeling conflicted and with clarity on the classification of papers.

Members are looking for more guidance from the ATO on confidential consultations. For matters where the ATO might be seeking to consult with PGSG members on a confidential basis, there should be an opt in option so members can choose to participate or not.

Regarding the integrity declarations, members acknowledged we are updating the declarations forms to address concerns that have been raised by the tax profession.

ATO comments

In future meetings, attachments in the agenda pack will be purposefully classified to provide clarity on when and who the documents can be disseminated to, and the intended discussion outcomes. There is a general principle that documents will not contain confidential information.

Key messages are the preferred way for members to communicate with colleagues regarding matters discussed. We welcome members input into the draft key messages after each quarterly meeting. The PGSG meeting key messages are published on ato.gov.au

Environmental scan

The group discussed observations and insights on current issues relevant to the privately owned wealthy group sector, including:

• An update on the Tax Avoidance Taskforce expansion, which includes a focus and change in approach towards Top 500 groups who have not engaged with the ATO under an assurance product.
• There will be an increased investment into dealing with private groups who are displaying evasion behaviours which have not been adequately addressed by the Private Wealth and Integrated Compliance programs. More details on the link between the Integrated Compliance and Private Wealth business lines will be revisited at the next meeting for members understanding and discussion.
• The recently announced proposed change to taxation of superannuation funds and the decision to impose a higher tax rate on earnings for larger account balances was discussed. Treasury will be undertaking detailed consultation in relation to the details of the proposed measure. Members advised that affected taxpayers are already contacting advisers for further information and decision making.
• The Superannuation and Employer Obligations business line has increased pay as you go withholding compliance cases, and this will continue to be an important focus area for 2023.
• The group discussed the impacts of a possible economic downturn in Australia and the ATO's approach to businesses who may be struggling. Members advised that insolvency practitioners often need to engage effectively with diverse parts of the ATO, which can be complex and time consuming. It was noted the Small Business Stewardship Group will have a deep dive into debt collection and this would be a good forum to discuss the issue further. The ATO will support practitioners to have these conversations earlier with clients experiencing hardship.
• Members raised concerns that the ATO’s approach and understanding of their clients’ situation may have dropped off recently, with some taxpayers experiencing large information requests and engagements that move quickly into more intensive compliance activity. The ATO noted this was a broad statement and we are committed to providing a consistent private group experience. Recently there has been an increase in commencement of single-issue review cases but these cases can sometimes expand if other issues are identified. Members will collate some of their clients’ experiences from the Top 500 program and Next 5,000 risk-based engagements and bring them back to the PGSG for discussion.
• The ATO noted Assistant Commissioner Scott Parkinson will soon circulate a letter to PGSG members in response to feedback provided on the Top 500 program.
• The group noted that large private companies may want further advice and guidance in relation to the tax impacts of capital raising events and off-market share buy backs, especially in relation to the franking tax offset.
• Assistant Commissioner Jenny Lin advised that the ATO is aware of market activity where some employers are seeking to claim input tax credits on allowances. Our view is that an allowance is not included in the definition of a reimbursement and there is no entitlement to input tax credits under Division 111. It is set out on our website at GST and employee reimbursements and when reviewing GST correct reporting risks across our assurance and risk reviews, we may seek confirmation that positions adopted are in line with our view. Members recommended the ATO raise this issue in the tax professional’s newsletter for greater visibility.

Action item	20230308–1 Link between Integrated Compliance and Private Wealth
Due date	June 2023 meeting
Responsibility	ATO
Action item details	ATO to present information on the link between the Integrated Compliance and Private Wealth business lines within the ATO, including how respective private group tax avoidance, tax evasion or criminal behaviours are dealt with.

 

Action item	20230308–2 Inconsistent private group engagement experiences
Due date	June 2023 meeting
Responsibility	External Members
Action item details	Members will collate some experiences of their clients within the Top 500 assurance program and/or Next 5,000 risk-based engagements and bring them to the PGSG as examples to help improve the private group experience and refine ATO process.

Succession planning project

Jenny Lin led a discussion on what the ATO is currently seeing in relation to succession planning and wealth transfer in privately owned and wealthy groups, which has resulted in a renewed focus on understanding the tax risks relating to succession planning.

The observations included:

• group heads of many privately owned and wealthy groups are approaching or entering retirement
• an increase in advice requests from private groups relating to tax issues in relation to succession planning
• we are seeing some cases where taxpayers are seeking to potentially exploit loopholes and tax concessions while planning and restructuring the structure and ownership of their large private groups.

This has resulted in a renewed focus on understanding the tax risks and drivers relating to succession planning in the private wealth market.

Member shared insights regarding issues, key trends, and topics they are seeing in the external environment.

Members' comments

Succession planning strategies are varied and each client has different planning consideration and life events. There are a wide range of typologies and tax considerations that arise in all types of situations.

Tax considerations are generally not the main driving factor for succession planning decisions. There are more pertinent drivers such as protecting family wealth and legacy along with changing family dynamics and circumstances.

Some of the challenges faced in succession planning include having multiple advisors involved within one family group and that often family members can be geographically dispersed globally.

Succession planning often involves capital gains tax (CGT) considerations, including pre-CGT and CGT event K6 implications. Asset valuation and tax consolidation issues also arise. There are some gaps in the law that have not been addressed, there may be some considerations from the ATO on how to navigate these shortfalls.

Due to the multitude of issues involved with succession planning, advisors prefer to engage with ATO early to obtain certainty.

Web content guidance could be provided in relation to potential succession planning tax risks and issues on ato.gov.au. It was recognised by the ATO that one of the key outcomes from the work on succession planning will be clear and accessible messaging for the market.

STP data expansion to address SG non-compliance

Assistant Commissioner Michelle Allen provided an update to members on the ATO’s approach to expanding the use of Single Touch Payroll (STP) data in managing superannuation guarantee (SG) non-compliance. A summary of the presentation was provided to members.

The key focus for employers and agents is to:

• make sure records are up to date and accurate
• ensure reporting and payment is timely and accurate
• use the STP corrections framework to correct mistakes as soon as you notice them
• check payroll governance processes are appropriate for your business and reviewed regularly.

Members' comments

There were queries regarding how this process will work for self-managed superannuation funds (SMSFs). The ATO advised the SMSF annual statement will continue to be used to match back to employee and STP data set. We recognise there will be limitations to matching data for employees whose SG is paid into an SMSF and will look to develop some messaging for employees in this situation.

It was requested that the team bring back the broader strategy when it has been developed as there will be some impact to private groups.

Proposed changes to TD 2012/22

Assistant Commissioners Karen Rooke and Chris Ryan led a discussion on proposed changes to Taxation Determination TD 2012/22 Income tax: for the purposes of paragraph 97(1)(a) of the Income Tax Assessment Act 1936 (ITAA 1936) is a beneficiary's share of the net income of a trust estate worked out by reference to the proportion of the income of the trust estate to which the beneficiary is presently entitled? following the Full Federal Court decision in Lewski v Commissioner of Taxation FCAFC 145; 2017 ATC 20-630 (Lewski).

Following the decision of the Full Court of the Federal Court in Lewski, the Commissioner of Taxation issued a Decision Impact Statement referring to possible changes to TD 2012/22, in particular, examples 6 and 7, in light of the conclusion reached in that case regarding a 'variation of income' clause. As a result of the decision in Lewski, it has become clear that the validity and effect of variation of income clauses depend on complex questions of fact and law, and consequently make the entitlements of beneficiaries highly uncertain.

The ATO provided members with a draft amendment to TD 2012/22 for feedback. The amendment proposes to withdraw examples 6 and 7 and insert a new example, along with a proposed compliance approach.

There was discussion by members on how the examples can provide more guidance and certainty.

Members' comments

There is no objection to the deletion of examples 6 and 7, however members noted that the new example may not provide enough certainty about whether a trustee resolution involving a variation of income clause would be effective. Members requested that if a new example is added, it should provide more certainty and guidance on what factors would make the entire resolution ineffective.

Members advised they will circulate the proposed changes to certain colleagues or members of their associations for feedback and will provide the ATO with any feedback received for consideration.

Action item	20230308 –3 Proposed changes to TD 2012/22
Due date	29 March 2023
Responsibility	External Members
Action item details	Members to collate feedback on the proposed changes, with a response due to Karen Rooke and Chris Ryan by 29 March 2023.

Springer/Guardian AIT Pty Ltd (FFC) case

Karen Rooke and Chris Ryan provided an update on the activities in progress subsequent to the Commissioner of Taxation v Guardian AIT Pty Ltd ATF Australian Investment Trust [2023] FCAFC 3External Link decision.

The ATO is currently working on a decision impact statement (DIS) with a view to publish in the next few months. The DIS will address the decision and may provide some commentary about future updates to Taxation Ruling TR 2022/4. ATO is considering the impact of the decision on TR 2022/4 and what changes may be necessary to that guidance.

It was noted that the full Federal Court recently heard BBlood Enterprises Pty Ltd v CoT [2022] FCA 1112. The ATO is proposing that any updates to TR 2022/4 be published after the Full Federal Court hands down its decision.

Members' comments

Members had no concerns with waiting until after the BBlood decision is handed down to update the TR 2022/4 but noted the community may be expecting to see some changes to the ruling after the Guardian case and recommended that the ATO communicate that it will be updating TR 2022/4 after the BBlood decision is released (for example, by including a note on the TR 2022/4).

Income tax, public advice and guidance

Assistant Commissioner Kasey Macfarlane presented an overview of topical advice and guidance products relevant to the Private Wealth market.

Public advice and guidance

Publication of Taxpayer Alert TA 2023/1 Interposition of a holding company to access company profits tax-free in February 2023. This TA outlines the ATOs concerns with arrangements where individuals seek to access private company profits without any additional individual tax liability, by arranging for the profits to be passed to them via an interposed company.

It was noted the fact pattern in this TA is largely based upon a small number of cases already being addressed. In the coming months the ATO will be undertaking some specific reviews on potential taxpayers who may have entered similar arrangements. The ATO will consider a wider communications plan in the lead up to this compliance work to provide targeted messaging to the community what we are doing.

Future public advice and guidance

Regarding a forward plan for public advice and guidance’s, Private Wealth will be focusing on the following areas:

• Following discussion at the last meeting, the ATO is planning to develop some practical guidance about the Commissioner’s approach to the exercise of the discretion in subsection 99A(2) regarding testamentary trusts.
• Retirement villages – Consideration is being given to what is required to develop practical web-based guidance that highlights the various taxing points across the lifecycle of a retirement village and where relevant ATO guidance can be found in relation to each one of those taxing points.

Private advice and guidance observations

Kasey Macfarlane noted recent instances where the ATO has been approached to provide comfort letters through our early engagement service. ‘Comfort’ is often sought in very broad terms, for example the ATO is asked to provide broad-based assurance that it will not have any future compliance concerns in relation to a particular proposed arrangement. It was noted that the ATO does not issue comfort letters through its advice and guidance service, but taxpayers can seek and rely upon a private binding ruling that sets out the ATO’s opinion of how specific provisions of the tax laws apply in specific circumstances.

Members' comments

Regarding TA 2023/1 it was noted that the arrangement was one that clearly gave rise to compliance concerns and was like various ‘top-hatting’ arrangements that have come and gone over time.

It may be helpful to consider our communication approach prior to publishing a taxpayer alert, to explain the context for issuing the alert and ensure that the need for the alert resonates with intended audiences.

There is some interest in understanding more about the ATO’s concerns in relation to unitisation arrangements.

Members noted the comments about requests for ‘comfort letters’ and highlighted those taxpayers and advisers are looking for certainty. It was suggested that further engagement with advisers about what they are looking for, and greater clarity given about what can and cannot be addressed as part of an early engagement would be helpful.

Action item	20230308-4 Early engagement
Due date	To be advised
Responsibility	All PGSG members
Action item details	Bring back to the PGSG a discussion on Early Engagement

ATO processing backlogs

Deputy Commissioner Grant Brodie led a discussion on backlogs experienced by the Client Account Services (CAS) area, which manages many phone queues and processing work types.

• There has been a shortage of staff this financial year due to a range of environmental factors including demand for phone lines being higher than usual at tax time and towards the end of 2022 with the implementation of Director ID. This impacted capacity for staff to process work items.
• The ATO is looking to increase resources and review team workloads to prioritises some work types to manage backlogs. There is a current internal project underway that is working towards better managing calls and processing to reduce the backlog issues.
• There is an expectation that the workload pressures will settle before Tax Time 2023.

Acting Assistant Commissioner Michael Buscema provided some observations regarding lodgment deferrals and how they are being managed. Efficiency measures were introduced at the start of this year which has improved deferral cases on hand. Year-to-date delivery remains behind service standards and more resources have been sought to manage this process. There is a new self-service online deferral tool function for agents that will be piloted later in the year, it is expected to create more efficiencies.

Louise Clarke advised that their objections and reviews area are also short staffed. The work requires complex and sophisticated skills, and that knowledge are in demand in the office.

Members' comments

There are a few ATO campaigns and processes from different parts of the ATO that advisors are needing advice or guidance on, this has added to the backlogs of calls to the ATO. There have also been instances where advisors are not able to get through after several attempts. It was recommended that the ATO review some of these processes to avoid clients needing to call the ATO and consider other parts of the ATO to support CAS. It was also suggested that additional resources should be provided to CAS as it would improve the client experience.

It was noted by members that the ATO consider providing communications regarding objections delays to advisors. Objections and reviews will be invited to a future PGSG to discuss objection delays.

Non-pursued debt project update

Assistant Commissioner Anita Challen led a discussion on the non-pursued debt project. The project was developed to offset credits to debts on hold after a period of being paused. Advice from the Australian Government Solicitor confirmed that we are required by law to offset credits against any tax debts owed, including debts on hold, except in very limited circumstances.

Under the project we will be removing the thresholds which were previously put in place, meaning all clients with debts on hold, who have an available credit, will have their credit offset to pay the debt. This will be done progressively by June 2023.

We recognise this approach will impact on both clients and their agents. In 2022, we commenced writing to mainly individual and small business clients who may be impacted, reminding them that we have recommenced offsetting any credits and refunds against their debts on hold. The team is also writing directly to further clients likely to have a credit offset, and their registered agents, between February and May 2023. Further consultation with agents on the proposed agent notification process occurred in mid-February 2023.

While the debts remain on hold, so too will any active recovery, but the updates limit the application of any discretion to release a refund when clients have an existing debt with the ATO.

Currently those on hold debts are not easily visible in ATO online; however, we are actively developing system solutions to create online visibility. Detailed instructions on how to identify these transactions in ATO Online were provided in papers to the group.

The team will develop talking points to be disseminated to members.

Members' comments

This process change will impact taxpayers who have not had visibility on these on hold debts but will have future refunds offset against these debts.

There is a concern for clients and their advisors who do not receive their debt advice letters physically as they may not receive an electronic copy.

The ATO noted there will be a campaign using various channels to communicate via industry and stakeholder groups. The team is also working with the tax agent community on how to utilise client lists. We might also make outbound phone calls to clients and advisors to actively engage and provide advice on the situation.

Members recommend providing tax agents with a list of all their clients that are affected by these on hold debts.

Attendees

Attendees list

Organisation	Members
ATO	Louise Clarke (Co-chair), Private Wealth
ATO	Emma Rosenzweig, Superannuation and Employer Obligations
ATO	Jenny Lin, Private Wealth
ATO	Kasey Macfarlane, Private Wealth
Arnold Bloch Leibler	Paul Sokolowski
BDO	Michael Anderson
Chartered Accountants Australia and New Zealand	Michael Croker
CPA Australia	Elinor Kasapidis (Co-chair)
Deloitte Private	Priyanka Subramanyam
Findex	Carlo Di Loreto
Fox Private Group	Garry Voigt
Independent member	Michael Gastevich
KPMG	Belinda Cheesewright
Law Council of Australia	Tuan Van Le
Oatley Family Group	Sharon Clark
PwC Private Clients	Michael Dean
Tax Bar Association	Daniel McInerney KC
The Tax Institute	Jonathon Ortner
William Buck	Tim Lyford
7- Eleven Group	Kenny Cheong

Apologies

Apologies list

Organisation	Member
Spotlight Group Holdings	Leah Edwards

Key topics discussed at the Private Groups Stewardship Group meeting 8 March 2023