Private Groups Stewardship Group key messages 4 September 2019

High Wealth Private Groups tax gap

Anthony Siouclis - Assistant Commissioner, ATO Client Engagement Group

Kasey Macfarlane - Assistant Commissioner, ATO Private Wealth

Monika Sikora - Director, ATO Private Wealth

Darren Wheeler - Director, ATO Client Engagement Group

Members received the following updates on the status of the High Wealth Private Groups tax gap:

• measuring the tax performance across all of our client segments helps the ATO measure the effectiveness of the tax system and identify where we can make improvements
• the tax gap is an estimate of the difference between tax collected and what we would have collected if every taxpayer were fully compliant with the law. No tax system can eliminate tax gaps completely. Our goal is to sustainably reduce the gap over time.
• High Wealth Private Groups represent some of Australia’s most successful and well known businesses. They are important in supporting community confidence in the tax system, employ around a million Australians and make a significant contribution to the Australian economy.
• we will continue to engage and consult with industry groups and advisers leading up to the release of the tax gap.

There was a general discussion on:

• the process to estimate and review the calculation of the tax gap
• a need for benchmarks to measure against
• the activities in the lead up to release of the tax gap
• the expert panel will review and endorse the gap estimate methodology and findings.

High Wealth Private Groups program proposed ‘Request for Information’ template

Kasey Macfarlane - Assistant Commissioner, ATO Private Wealth

Glenn Cooper - Senior Director, ATO Private Wealth

Members were provided with information on the proposed modular 'Request for Information’ template the ATO is developing as part of the High Wealth Private Groups program.

• This is a new program of work focussed on the approximately 5,000 high wealth private groups that control net assets greater than $50 million. It is directed towards obtaining assurance that the correct taxes have been paid and identifying and dealing with tax issues by engaging with taxpayers through a streamlined assurance review.
• Selected groups will be notified prior to commencing a streamlined assurance review. We will engage with taxpayers to tailor the modular request for information template to obtain the information we need. This will also include a focus on the groups’ tax governance.

Members discussed the new modular request for information template being developed for the High Wealth Private Groups program of work. It was agreed that:

• the ATO will notify clients that we intend to engage with them through a streamlined assurance review in the coming months giving clients an opportunity to prepare before the review commences
• for the initial cases, the ATO would trial an option for the client to meet with the ATO at the start the streamlined assurance review process before any tailored request for information letter issues. This is expected to assist the ATO understand the client’s business and better tailor the request for information letter.
• the ATO will work with clients and advisers to negotiate timeframes where all requested information will be provided.

Reportable Tax Position (RTP) Schedule consultation update

Kasey Macfarlane - Assistant Commissioner, ATO Private Wealth

Michael Drogaris - Senior Director, ATO Private Wealth

Members were updated on the feedback received in response to the ATO’s consultation paper on the RTP schedule extension to large private companies and corporate groups.

Kasey explained the high level learnings from the submissions.

The proposed next steps for implementation of the RTP Schedule for large private companies and corporate groups include:

• defer implementation date until 1 July 2020
• ATO to convene a Private Group Stewardship Group sub-working group to co-design the schedule for implementation in the 2020–21 financial year taking into consideration the feedback received in submissions.

Members had the opportunity for further discussion with the following issues discussed:

• timeframes for the sub-working group consultation to be built into the implementation timeline
• early balancers will be taken into account
• there will be Category C schedule questions, but there will be bespoke questions to the private groups market. The ATO will consider a modular approach to the full RTP schedule.
• the private groups bespoke questions will take into account taxpayer alerts and Practical Compliance Guidelines (PCGs) that will be released by 30 June 2020.

Research and Development (R&D) tax incentive

Scott Treatt - Assistant Commissioner, ATO Private Wealth

Members discussed key R&D issues.

The R&D tax incentive program is jointly administered by:

1. AusIndustry - registration of eligible R&D activities
2. ATO - substantiation of R&D claims.

The R&D tax incentive involves a self-assessment program with businesses responsible for assessing whether the R&D they undertake meets the eligibility requirements. Incentives are claimed through the tax system.

If AusIndustry determines that the activities do not meet the eligibility requirements to be R&D activities, the ATO is bound by law to give effect to that finding.

Key insights discussed included:

• clearer messages are required on the co-administration of R&D
• the ATO is sensitive to the impact adverse findings has on the ongoing viability of businesses
• where there are adverse findings, taxpayers are encouraged to contact the ATO to discuss their situation. Letters and processes are being reviewed to better reflect available options for taxpayers.
• education is important to better inform businesses and advisers. ATO pilot education programs will focus on new entrants to the R&D program, and will be developed in partnership with AusIndustry.

Members raised key points of interest:

• the potential to provide further education through R&D technical positions on appropriate expenditure, incidentals, feedstock provisions and building rulings needs to be considered
• apportionment of indirect costs could be clarified, for example, the portion of the office space rent and electricity bills that went into R&D activities
• the earlier proposed rate change from the government (from 8.5% to 4%) has not been re-introduced
• despite these issues, the majority of claims are processed unadjusted.

Open items for members

There was an open opportunity for members to share insights, observations or raise issues they feel the ATO needs to pay attention to.

The following topics were raised and discussed for consideration:

• could the ATO create an official accreditation (similar to the “heart” tick of approval) to show consumers that a business is compliant with its tax and superannuation obligations
  • similar to statement of record (STR) for businesses and their first tier subcontractors tendering for Commonwealth Government contracts over $4 million (including GST) must obtain a STR showing satisfactory engagement with the tax system
  • there was a discussion on the merits of such an initiative, however due to privacy issues the ATO could not publish a business’s information
  • an option was discussed of a business being provided with an accreditation that they could share with consumers if they so choose.
• section 100A, members were seeking an update. It was noted that it is normally associated with obtaining information by the use of powers under s353-10.
• Division 7A Unitisations. Members were seeking an update. ATO will look at guidance available, but at this stage there is no established timeframes.
• FBT for taxis vs Uber - needs legislative change. ATO confirmed Treasury are aware of the interest for clarity on this.
• some software companies do not support Tax Payable Reporting System or STP. The ATO noted it regularly engages software providers on functionality and would continue to make them aware of the issues.
• tax scams continue to appear very official. Is there a way to identify a legitimate ATO call? ATO confirmed there are a number of forums discussing scams, prevention and what can be expected from the ATO. Members were advised that legitimate calls from the ATO should always give an official channel ie ATO Switchboard for the taxpayer to call back on and they will be put through to the initiating ATO officer.

Key international issues in the private wealth market

Kasey Macfarlane - Assistant Commissioner, ATO Private Wealth

Sarah Taylor - Assistant Commissioner, ATO Private Wealth

Timothy McCarthy – Director, ATO Public Groups & International

Members participated in a roundtable discussion on key international issues, in particular concerns and issues with the International Dealings schedule (IDS).

Members provided key insights and suggestions on:

• streamlining the IDS
• simplifying very complex questions
• ATO to provide a prompt to advisers where it’s known that their clients hold off-shore assets
• data should always be used prospectively to help clients comply
• members were invited to provide the ATO with details of specific irritants or concerns for further investigation. An update will be bought back to the group.

Corporate tax transparency

Kasey Macfarlane - Assistant Commissioner, ATO Private Wealth

Glenn Cooper - Senior Director, ATO Private Wealth

Members were updated on the next Report of Entity Tax Transparency.

Key points included:

• the ATO is legislatively obligated to publish certain information about corporate tax entities
• the focus of the report is
  • Australian public and foreign owned entities with a total income of $100 million or more
  • Australian resident private companies with a total income of $200 million or more
  • entities reporting petroleum resource rent tax (PRRT) payable.
• members are invited to provide the ATO with any observations, questions on the process.

Superannuation and employer obligations

James O’Halloran - Deputy Commissioner, ATO Superannuation and Employer Obligations

The following key points were highlighted.

Single Touch Payroll (STP)

At tax time:

• for employers - some 10.4 million (96%) of all income statements were prefilled by STP reporters with finalised STP data by the due date of 31 July 2019 and displayed in myGov as ’tax ready’
• for employees - around 9.8 million individuals or their agents can now see their income statements and employer reported superannuation information online. Income statement information has been used to prefill for individuals and agents
• STP is having a positive effect on the uptake for MyGovID.

Royal Commission

The road map to implementation of the Government’s response to the Royal Commission recommendation is yet to be released. It will have a broad impact across all agencies who co-regulate the superannuation system (ASIC, APRA and the ATO). The legislative agenda will be busy and implementation timelines will flow from this.

Protecting Your Super

A law requiring superannuation accounts with a balance of less than $6,000 to be consolidated and reunited with members. The aim is to reduce costs for the member, but has an impact on multiple insurance policies, which are yet to flow on.

Superannuation Guarantee

The ATO is monitoring the tax gap and notes community are expecting more from employers in relation to unpaid superannuation. STP matches real time data from what employers say they have paid to funds, which can now be matched to fund data about what was actually paid and this is having a progressive positive impact and also allows “nudge” approaches to employers.

The floor was opened for questions with the following updates provided:

• the possibility of using STP data to identify employers as being both “good tax payers” and “good superannuation payers”, and so be employers of choice was discussed as a possible future. Tax payer information privacy will always be an integral part of any decisions.
• STP reports Superannuation Guarantee compliance was over 95%, which shows high system integrity
• clearing houses will come out for consultation soon
• diversification and personal guarantees are risks for SMSFs and are being considered for education pieces
• Division 293
  • was managed via paper letters. It’s expected that IT functionality would replace this
  • the process cannot be included into the tax return as it is calculated based on information assessed from the tax return itself
  • it would be idea to move to greater alignment but at this stage it is not doable
  • if design opportunities in the future we would of course engage with this group.

Wrap up and close

Co-chairs Tim Dyce and Michael Gastevich thanked the members for their input.

Attendees

Apologies