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ATO action to reduce to the gap

How we support our clients to meet their compliance obligations.

Published 30 October 2023

We expect to collect almost 92% of income tax from high wealth individuals voluntarily, without our intervention. Our engagement activities increase this to almost 93%.

The key to an effective tax system is a high-level of willing participation. Taxpayers have more confidence in the tax and super systems and are more willing to participate if they:

  • value the systems
  • feel the systems are fair
  • have trust and confidence in us as administrators.

Our strategies to reduce the gap and encourage willing participation are based on these principles.

In addressing this gap, we seek to improve the overall health of the tax and super systems. The best way to achieve a sustained reduction in the gap is to make it easier for high wealth private groups to get their tax right, and hard to get it wrong.

As part of our Tax Avoidance Taskforce activities, we monitor high wealth individuals and their associated groups and through our engagement seek to obtain assurance that they pay the correct amount of tax and increase their willing participation in the system.

We work with high wealth private groups to:

  • give them certainty about how we view their tax affairs
  • support them to correct mistakes
  • mitigate against future tax issues.

We support people trying to do the right thing and if they make mistakes and where we detect tax avoidance schemes or evasion, we take firm action such as penalties and prosecution when appropriate. This keeps the system fair for everyone.

Our analysis shows that many risks associated with entities failing to pay the right amount of tax are to do with misapplying or misunderstanding tax laws, including:

  • mischaracterisation of receipts and/or income as revenue or capital
  • loans or payments to shareholders and their associates not complying with the requirements of Division 7A of the Income Tax Assessment Act 1936
  • using tax losses and capital losses incorrectly, including reclassifying capital losses as revenue losses
  • lack of record keeping in relation to carry forward tax losses and capital losses from prior years
  • non arms-length arrangements involving family members or related parties that are designed to reduce or avoid tax that would be otherwise payable
  • incorrect reporting and calculation of capital gains events
  • tax treatment of property disposals, for example incorrect characterisation of property sales on capital account when they should be treated as sales arising from a property development business.

We help taxpayers correct their prior-year mistakes and get it right in real time with our pre-lodgment activities, including our:

Our analysis shows that between 2015–16 and 2020–21 high wealth individuals made around 13% of amendments voluntarily.

We continue to improve our risk models and develop our data and analytical tools so we can proactively engage these groups and help them comply.

We support people trying to do the right thing if they make a mistake, but we take firm actions where we see attempts to evade paying tax.

Tools and tips to help get it right

We offer a range of tools and services to help taxpayers understand the tax consequences of significant and complex transactions.

We encourage taxpayers to engage with us or their advisers when planning activity outside their normal business as usual, including expanding activity offshore or transitioning to retirement.

To avoid mistakes, high wealth private groups should:

  • have strong tax governance practices and system controls
  • seek advice from tax professionals when considering making changes to their business or wealth management structures
  • gain greater certainty about the tax consequences of significant transactions or changes in structure before they happen by talking to us.

Find out about tax issues for trusts, including tips and traps for trustees and beneficiaries.