PRIVATELY OWNED AND WEALTHY GROUPS CONTINUE TO ATTRACT SCRUTINY FROM THE ATO

On 4 December 2024, the ATO released their Next 5,000 2024 findings report.

It re-emphasises the ATO’s use of data-matching and assurance protocols to identify and scrutinise common tax issues arising within the wealthy private structures controlling net wealth over $50 million. As an aside, Smailes Krawitz observes that many taxpayers can find themselves captured in the Next 5000 program even if their ‘net wealth’ is arguably considerably below the $50 million mark (or their wealth is not solely controlled by the target individual).

The ATO continue to target rapidly growing businesses and newly wealthy individuals, as well as groups engaging in expansive offshore operations and succession planning strategies domestically.

The 2024 Report notes that whilst many private groups have governance processes and procedures, they are often poorly documented.

Common tax issues the ATO are identifying include:

poorly substantiated expenditure/deductions,
intra-group transactions without adequate paper trails and ostensible non-compliance with Division 7A; and
errors in the reporting of sale of assets, including omitting CGT events altogether, incorrect application of carry forward capital losses, miscalculations of cost bases and mischaracterising a revenue asset as a capital asset.

Furthermore, it comes as no surprise that the ATO continue their scrutiny on family trusts (including the dreaded no time limit self-executing family trust distribution tax).

One surprising finding is that the ATO form the view “that there are Next 5,000 groups that lack a basic understanding of GST”. A competent understanding of GST and strong compliance atmosphere in dealing with GST-related issues (and other indirect taxes such as FBT and Luxury Car Tax ) is essential for private group advisors, given that wealthy private groups typically engage in transactions:

giving rise to complicated tax outcomes (such as property development and sales of family farms),
offer generous incentives to their employees; and,
routinely, acquire valuable luxury lifestyle assets for personal and private use.

𝐒𝐦𝐚𝐢𝐥𝐞𝐬 𝐊𝐫𝐚𝐰𝐢𝐭𝐳 assists taxpayers, their related entities and their advisors navigate Next 5000 reviews.

ATO ARTICLE

The team at SMAILES KRAWITZ has experience in dealing with these matters, including tax compliance, reviews, audits, voluntary disclosures, reviews/appeals, debt disputes, director penalty matters and criminal prosecutions.

The material in this article is provided only for general information. It does not constitute legal or other advice.

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Lyn Hawkins6 December 2024Smailes Krawitz