Top 500 and Next 5,000 Report
ATO reviews largest private groups
One of the main ways the ATO engages and reviews the largest private groups is through its Top 500 or Next 5,000 program. In that context, the ATO has released its reports outlining their key insights and findings from these two programs.
Tax governance remains a key focus area for the ATO. One of the ATO’s observations through its Top 500 program is that that there has been an increase in the number of Top 500 private groups that are developing or have developed a written tax governance policy and procedures over the last 12 months.
However, key areas for improvement remain, especially in ensuring there are adequate processes and procedures in place to identify and manage tax risks, as well as ensuring arrangements are in place for escalating tax issues and seeking tax advice.
In the context of the Next 5,000 program, the ATO is finding that a high proportion of the Next 5,000 private groups have governance processes and procedures. The problem is that most of these are not documented. The ATO considers that a lack of documented governance processes, together with poor record keeping, is causing common errors in the Next 5,000 private groups that could have otherwise been prevented.
Some of the common errors found by the ATO include:
Tax return disclosure errors, late lodgement and lack of accompanying tax return schedules;
Related party transactions where the reported income derived by a related party is less than the deductions claimed by the other related party payer;
Inadequate record keeping for related party transactions;
Division 7A issues, including where there are no written complying loan agreements or minimum yearly repayments;
Errors when undertaking property disposals; and
Issues relating to trust distributions, including where the beneficiaries are omitting distributions and section 100A risk.
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