ATO’s engagement with private groups – webinar questions answered

The following questions were asked at our webinar, ATO’s engagement with private groups: what this means for you and your clients, held on Tuesday 29 August 2017.

Can you please elaborate on the Top 320 program?

The Top 320 program is an initiative adopted for the largest private groups, involving an on-going early engagement and assurance approach similar to that adopted for large public companies and multi-national enterprises (MNEs). The program seeks to obtain evidence to build justified trust that the largest private groups and the high wealth individuals who control them are paying the right amount of tax.

The program changes the way we interact with these groups by focussing on preventing disputes by encouraging the high wealth individuals who own these businesses, and their advisers, to meet with us for open discussions. The groups are selected based on a combination of group business income or net assets, and are assigned to a team within the Private Groups and High Wealth Individuals business line.

Tailored engagements with each client are designed to improve our understanding of their business, structures, family arrangements and industry to ensure our interactions are as informed and streamlined as possible. Transparency is the first step to preventing disputes and providing clients with greater certainty about future compliance. During our meetings we share our view of the client’s risk profile and discuss the tax risks that we see in the client’s business. We also assess the effectiveness of tax governance arrangements given their importance for future compliance and mitigating tax risks.

Where clients are willing to engage early to reduce potential risk and issues, and where they agree with us on the tax outcomes, we will provide practical sign-off for that period. In most instances we are able to resolve factual and interpretive issues quickly depending on their complexity. However, there will be times when we can’t reach an agreement. In these situations we will consider a more formal approach such as a review or audit and we will continue to take genuine steps to resolve the issues in dispute.

For one of my clients involved in the Top 320 Program, the ATO team requested the same information that I would expect to provide for a risk review. Why?

In some situations our knowledge of the client may be minimal or outdated. In these cases we need more information so we can assure that tax payments are appropriate, and assess whether we can provide sign-off over an income period or major transaction.

Future interactions with your client should then be more streamlined, particularly when supported by effective tax governance and where justified trust has been established. The objective is to keep compliance costs associated with formal reviews, audits and legal disputes down by preventing disputes in the first place. This requires mutual open engagement and dialogue as issues arise rather than addressing them in audits after the fact.

Should the client first approve the early engagement?

This is an issue between the tax adviser and their client; however we always encourage the client to be involved in the early engagement process. The client will have more knowledge of the arrangements and transactions of their business, so it is useful for them to be part of the conversation.

Is there any cost to the taxpayer or adviser for using the early engagement advice service?

No, there’s no cost. We hope to see it reduce the costs of compliance for taxpayers and advisers by opening communication channels early, and helping provide clarity about our view on particular arrangements.

With large corporates the early engagement process can be utilised for these pre-lodgment engagements, but what program or avenue is available for high wealth individuals or private groups?

If a client is seeking early engagement, they can use the call back service for advice. No matter what your circumstances, we’ll then direct you to the right people within the private groups business line.

Whilst not binding, does the use of a service like the early engagement request, assist to minimise the chance of further audit down the track?

Yes. Having the early engagement conversation will enable both parties to understand each other’s position, and help clients become aware of any issues. If an issue is identified, the client can decide if they want to seek a binding form of advice, such as a private ruling.

Am I correct in understanding that the call back service covers both commercial deals and early engagement for advice requests?

Yes. Clients or their advisers can contact us on our call back for advice service regarding commercial deals. They can also request an early engagement discussion if they are considering seeking a private ruling, class ruling or administratively binding advice on the taxation treatment or outcome of a scheme or particular transaction.

We recommend that the client, or their adviser, approach us as soon as an issue has been identified, so that we can assist in resolving it as early as possible.

Does good tax governance reduce penalties?

Having effective tax governance should help reduce your exposure to penalties. If your governance is effective you should be able to determine whether you are in agreement with the ATO view. If you discover you have a potential disagreement with the ATO view, you should seek early engagement or advice through our call back service. By initiating a conversation and trying to get to the correct outcome this could help reduce penalties.

How often should independent valuations be done for total superannuation balance or transfer balance cap purposes?

Our valuation guidelines for self-managed superannuation funds apply to the valuation of self-managed super fund (SMSF) assets for the purpose of the total superannuation balance (TSB) and the transfer balance cap (TBC). In accordance with the guidelines it is not necessary to obtain an external independent valuation every year.

SMSF trustees must consider the value of their fund’s assets each financial year and be satisfied that the value attributed to the assets is fair and reasonable, as supported by objective data. If the trustee is relying on an external independent valuation from an earlier financial year they must be able to show why it remains relevant and provide evidence that the asset’s value hasn’t significantly changed.

What is a structured settlement event?

A structured settlement is a payment for a personal injury you have suffered, that you contribute to your fund. A personal injury may arise from medical negligence, sporting accidents, or motor vehicle accidents.

A debit will arise in your transfer balance account for any structured settlement amount you receive and contribute towards your superannuation interest. This will increase your available TBC space, and is called a structured settlement event for the purposes of the TBC. It is important to note that a personal injury payment must be in the form of a structured settlement.

For SMSF events based reporting, will clients who are in their early 30s with an SMSF who are not going to be retiring in the near future, need to report every year?

Many SMSFs won’t be required to report more than the existing regulatory and income tax reporting requirements for several years if there aren’t any members in retirement phase, and are not planning to retire for some time.

For example, a couple in their early 30s with an SMSF are not planning to retire in the near future, so it will be a number of years before that SMSF needs to report to us using the transfer balance account report (TBAR).