Private Groups Stewardship Group special briefing 24 July 2020

Cash flow boost (CFB)

• An update to the CFB information on ato.gov.au was published earlier this week. The update covered further details on tax implications of CFB and additional examples and illustration of how the CFB appears in the activity statement account.
• Moving to the next phase with eligible businesses now receiving the second instalment of their additional CFB together with any remaining initial CFB amounts they are entitled to when they lodge their June activity statement. The ATO has also released a cash flow boost estimator tool on ato.gov.au
• The ATO will shortly issue letters to a small group of CFB recipients as part of its compliance activities. The letters are being issued where there is an unusual or unexpected change in the amount of salary and wages and/or withholding amounts that have been reported in recent activity statements. Clients who receive these letters are being asked to check the amounts reported and if it is incorrect to revise their activity statements. Where the client revises the activity statement no penalties will be imposed and interest will be remitted.

JobKeeper

• The ATO is working through its compliance strategy with a focus on decline in turnover in the Public Groups and Internationals and Private Wealth markets.
• Matters the ATO is dealing with:  
  • small business potential eligibility issues to be considered with June quarter BAS lodgements that are (due shortly)
  • intermediaries who may have manipulated client’s turnover
  • ensuring employees are receiving the full payment (that is, wage condition)
  • multiple claims by entities for the same employee or eligible business participant
  • employees being claimed by multiple entities within the same controlled group, particularly some aggressive behaviour where the employees being claimed for by employers appear to not be satisfying the wage condition
  • employers who do not have a pay as you go (PAYG) withholding role
  • some identified fraudulent behaviour which has been referred to criminal prosecution or the serious financial crime taskforce.
   
• Overpayment approach has been broadly finalised and web guidance is to be published shortly. The ATO will be flexible for fortnights 1 to 4 where employers have made an honest mistake and where employers have reasonably relied on statements made by employees in their notices.

JobKeeper changes

• Recent announcements regarding the changes for JobKeeper – the ATO is awaiting legislative change to communicate on this further.

Members’ comments

• Members are keen for consultation with Treasury on various elements to commence.

Top 500 program

• The ATO will shortly commence a check-in program with Top 500 clients with the aim to provide additional assistance, if required, to support access to government payments or accessing other stimulus measures (for example, instant asset write-off) and expand our understanding of the impact of COVID 19 on their business and industry.
• The ATO is also seeking to discuss, where the engagement was placed on hold, if the economic impacts have materialised and if or when the client would be able to re-engage.
• Private companies have been recently notified they are required to lodge a reportable tax position schedule. We can also assist with any questions that may arise from those notifications as part of the check-in.
• Engagements have not yet commenced with new groups in the Top 500 program. This is expected to occur from October using an industry-based approach, starting with those industries understood to be least impacted by COVID-19.
• The ATO expects that some business restructure, asset changes or other significant business transactions may occur as a result of COVID-19. The ATO reminded members that commercial deals program and private ruling programs are available to provide certainty for these transactions.

Members’ comments

• Can the ATO confirm how far through the increased program for the Top 500 they have reached? The ATO advised that there are currently 385 client engagements with approximately an additional 115 clients to be commenced in the future.

Next 5,000 program

• During 2019–20 the ATO conducted a small number of Next 5,000 streamlined assurance reviews to obtain insights on the approach and refine the program strategy. We expect to commence finalising these cases in the first quarter of 2021.
• New reviews have not commenced due to the COVID-19 environment and the ATO is still considering when we will be recommencing with new engagements. Several large firms have reached out for an update on this program and meetings with the Big 4 are commencing next week.
• The current approach has a notification period of 3 months. There is a standard request for information which clients can use to prepare for the engagement. Post the 3 month notification period, the standard letter is tailored for the client prior to issue.
• A transition option for commencement of these engagements was contained in the paper provided for this item. A transition option is being considered which reduces the original notification period but would provide a longer period for clients to respond to the request for information While the client has time to prepare under both the normal and transition approach, the advantage for the client under the transition approach is that they will be preparing their response based on a tailored request for information shortly after notification.
• The standard request for information was provided at an earlier Private Groups Stewardship Group meeting but has since been refined based on feedback and will be published on ato.gov.au soon.

Members’ comments

• Is there a broader ATO communication strategy for re-commencement post COVID-19 on reviews, etc. ATO response – Current approach that is being taken is dependent on the various market segments.
• Are clients required to use the transitional approach for assurance reviews or can they choose? What is the ATO’s preference? ATO response – It is an option dependent on the client’s circumstances. The ATO are seeking to progress the transitional option where appropriate.
• Can members review the proposed standard request for information? ATO response – Members have previously had this opportunity but the ATO is happy to take any further feedback.
• There appears to be an increased focus on GST – are there particular concerns regarding GST. ATO – No specific concerns. We are generally progressing tailored integrated approaches, where appropriate, going forward.

Action item

• ATO to provide members with a link to the request for information material on ato.gov.au once it is published.

GST Integration Top 500 and Next 5,000

• The purpose of this item is to consult with the members about the ATO’s proposed approach to integrate income tax and GST in the Top 500 and Next 5,000. An outline of the proposed tailored approaches was provided per the handout.
• Top 500 – The engagement will occur through one Private Wealth team consisting of both income tax case officers and a GST specialist; with combined requests for information that cover both income tax and GST being made at the same time and combined tax assurance report (where appropriate).
• Next 5,000 – The engagement will occur through one Private Wealth team. Requests for information for both income tax and GST will be made at the same time, where appropriate. GST specialists will support income tax officers to identify and resolve any potential GST consequent issues arising from the income tax issues. At conclusion of the engagement, the client will receive a streamlined tax assurance report that addresses both the income tax and GST aspects of their group, (where appropriate.

Members’ comments

• Chartered Accountants Australia and New Zealand (CAANZ) requested to engage with CAANZ GST specialist members and provide further feedback.
• Members noted that they are keen to deal with income tax and GST matters contemporaneously to improve the experience for clients.
• In the Top 500 the GST experience so far is that the involvement is a lighter touch that would benefit from a tailored approach. Some engagements may require more time due to different touch points across different advisers.

Significant Global Entities – recent developments

• In 2015 the Significant Global entity (SGE) concept was introduced. In May 2020 the Treasury Laws Amendment (2020 Measures No. 1) Act 2020 was passed which expanded the definition of a SGE and Country by Country (CbC) reporting entity.
• The Act extends the definition of SGE to now include groups headed by individuals, trusts, partnerships and private companies (who don’t prepare consolidated financial statements for accounting purposes), where annual global income is A$1 billion or more.
• The new law adopts the concept of notional listed company group to include groups headed by these entities, that would not otherwise by requested to consolidate under the accounting rules.
• The amendments also modify the rules that identify which entities must provide CbC reporting statements under the tax law. This is to ensure these rules align with Australia’s international commitments.
• The amendments apply in relation to income years or periods commencing on or after 1 July 2019. However, penalties that arise from the measure do not apply until 1 July 2020 for entities that were not previously SGEs.
• If the entity was not an SGE in previous income years but is now in scope of the amended SGE definition, for income years commencing from 1 July 2019 they may be subject to the Multinational Anti-Avoidance Law and Diverted Profits Tax.
• The ATO noted:  
  • It is requesting all Private Wealth clients to assess or reassess themselves
  • The website will be updated to provide some specific examples regarding the changes
  • The 2020 tax return has been updated to include a label asking whether an entity is a CbC reporting entity
  • Top 500 case teams will discuss the new rules as part of normal engagement conversation
  • In the Next 5,000 program some questions will be included in the standard request for information.
   
• The ATO will keep this group updated on this work.

Members’ comments

• It was noted that often the issue is an entity not being aware they are an SGE which results in the entity having to apply for remissions of penalties which is generally supported by the ATO.

Other business

• The ATO has issued the majority of notification letters to those private companies who will be required to lodge a Reportable Tax Position schedule. Late / deferred lodgments / SAP clients may still receive notification in the future post lodgment.
• Division 7A minimum yearly repayment relief  
  • Streamlined approach is in place. This is the exercise of a Commissioner's discretion which is made based on the information provided by the client in the form.
  • The approach was developed following representations made by various professional association bodies on the issue. To date we have received a steady number of request forms and anticipate we will continue receiving these during this year.
  • It was noted by members that uncertainty still exists regarding possible changes to Division 7A and unfortunately, they have been ongoing for some time.