Top 500 program
The Top 500 program is one of several programs administered as part of the Tax Avoidance Taskforce. The objective of the Taskforce is to provide the Australian Government and the community with confidence that Australia’s largest public and private groups are paying the correct amount of tax.
The Top 500 program model of engagement is designed as an invitation for Top 500 groups to be proactive in demonstrating that they are meeting and want to continue to meet, their tax and superannuation obligations.
The Top 500 population consists of Australia’s largest family, or closely controlled, private groups. The criteria for inclusion requires the private group to have one of the following attributes:
- over $250 million turnover, regardless of net asset value
- over $500 million net assets, regardless of turnover
- over $100 million turnover and over $250 million net assets
- be a market leader or group of specific interest.
The composition of the Top 500 population changes over time as groups enter and leave the population based on the eligibility criteria. Groups may also leave the population due to changes to the group controller or restructure of the group, for example where private groups are divided or split after a family succession plan is implemented or move market segments to public groups.
As at 30 June 2023, 438 private groups formed part of the Top 500 population. This is a net decrease of 21 groups since 30 June 2022. This reduction is largely due to some Top 500 groups having fragmented, others experiencing a decline in business income and our need to manage the coverage within our available resources.
Our approach
We engage with the Top 500 population on an ongoing basis with a view to understanding and testing the tax consequences that arise from each group’s income-producing activities.
To achieve the objective of the program, we seek to have open and transparent, one-to-one engagements. We have shifted our traditional review and audit-based approach of identifying and addressing typical tax risks, to a holistic approach where we assure a Top 500 group has correctly treated all of their tax issues and reported and paid the correct amount of tax.
We support Top 500 groups to continue to pay the correct amount of tax going forward. Our aim is to ensure future compliance by encouraging Top 500 groups to improve the effectiveness of their internal tax governance frameworks, processes and procedures.
Our ability to provide the community with confidence that a Top 500 group has and will continue to pay the correct amount of tax is dependent upon the group achieving high levels of assurance for each of the 4 key areas underpinning the justified trust methodology.
Our engagement approach is tailored to the:
- level of complexity of the Top 500 group’s business and tax affairs
- degree to which the Top 500 group is open and transparent with us.
The Top 500 program provides us with the information e need to answer the question: Are Australia’s 500 largest private groups paying the right amount of tax?
We recognise that some members of the Top 500 population don't wish to collaborate with us in demonstrating that they are paying the correct amount of tax. In those circumstances we proceed to answer the question through our traditional, but more intrusive, review and audit processes.
Some Top 500 clients are also included in the Top 500 GST assurance program which we provide a level of assurance as to whether these groups are correctly reporting the right amount of GST.
All privately owned groups selected for inclusion in the Top 500 GST assurance program are the subject of fully integrated assurance engagements. Following a GST assurance engagement, we will issue a combined GST and income tax assurance letter providing details of assurance outcomes for entities within the group for the relevant years and next actions (if applicable).
Program developments
Over the life of the Top 500 program, our understanding of the Top 500 population and tax issues present has allowed us to differentiate our approach for a better client experience. During the year, we began to provide differentiated experiences for the following types of clients:
- passive investors
- high-volume trading businesses with minimal value add
- Top 500 groups with financial statements audited by an external auditor
Passive investors
Our insights identified that Top 500 groups that predominantly generate income of a passive nature, generally treat the tax issues they have correctly. Accordingly, we have taken a differentiated approach to engaging with this group to allow a more simplified approach to achieving justified trust.
There are currently 61 Top 500 groups who have been identified as deriving income that is predominantly from passive investment activity.
High-volume trading businesses with minimal value add
To date, we have identified 66 Top 500 groups that buy and sell trading stock without adding value to the good for example, grocery and vehicle retailers. These businesses are highly systemised and generally have fewer tax issues of potential concern.
Accordingly, we have taken a differentiated approach to engaging with this group that involves a streamlined approach to assurance and assessing tax governance.
Top 500 groups with financial statements audited by an external auditor
For legal, personal and commercial reasons, many Top 500 groups have the financial statements of group entities audited by qualified external auditors.
We've simplified our approach to undertaking assurance for entities within Top 500 groups who use audited financial statements in the preparation of their tax returns to recognise these efficiencies and to avoid duplication.
Getting the basics right with effective tax governance
Feedback from the Top 500 population indicates that effective tax governance helps them meet their tax and super obligations. Moreover, clients have asked us for greater clarity and more examples for what constitutes effective tax governance.
In response to this feedback, we've published guidance that explains:
- the importance of effective tax governance and our approach
- required items for effective tax governance
- additional items for effective tax governance
- further guidance and practical examples.
During the 2022–23 financial year, Top 500 groups provided 29 voluntary disclosures that led to an increase of $31.3 million in tax liabilities. 76% of the voluntary disclosures relate to non-complex errors that could easily have been avoided through the implementation of basic tax governance processes and procedures. These non-complex matters included:
- omitted income (for example dividend and trust income)
- over-claiming prior year carry forward balances such as losses
- failure to remit withholding tax
- use of base rate instead of the corporate tax rate
- failing to maintain vehicle logbooks
- errors in the tax fixed asset register, including incorrect formulas being used.
We've also received voluntary disclosures in relation to errors identified after new software and management systems were installed. When implementing new software, it's recommended that clients conduct sample testing of the new software to ensure that it operates as intended.
While these errors were identified as part of the Top 500 program’s assurance activities, these risks are common across all sectors of the privately owned and wealthy group population.
Our recommendation to privately owned and wealthy group clients is to implement some form of governance for managing the income tax and GST issues that arise from their activities to ensure they are paying the correct amount of tax.