Some key elements of good tax governance which we recommend include the following.
- Documented tax return procedures, including a tax return review process, which could also include a lodgment calendar to ensure income tax returns and accompanying schedules are lodged on time.
- Clear processes and procedures setting out record keeping requirements for related party transactions, including ensuring contracts for sale of property and services are in place, there are valuations where relevant and invoices.
- Data entry manuals and tax return processes and procedures include the reporting of related party transactions.
- All tax agents to have an annual engagement letter in place clearly articulating the scope of work and accountabilities. (Where this isn't the case, we have observed that there is no clear understanding of the roles and responsibilities which are contributing to errors in the income tax return.) By documenting the scope of work it ensures that out-of-scope items can be noted and are not missed where they are required to be reported in the tax return. A clear scope ensures that all tax returns are lodged as it's clear who is engaged for particular entities within the group.
- Procedures to ensure complete and accurate documentation, and information including material transactions is provided to tax agents where they are engaged to prepare the income tax return and accompanying schedules.
- Where Division 7A is applicable, Next 5,000 groups should
- review their group’s Division 7A compliance
- create a Division 7A annual end of year checklist to ensure accurate and consistent reporting of these loans in
- ledger accounts
- financial statements
- tax returns.
- There is a process to check and confirm trust distributions are made in accordance with trust deeds and family trust elections.
- Improve record keeping processes and procedures particularly in relation to loans between related parties and expenditure in relation to private use assets.