Health of the system
Graph 1 – Tax paid and total business income (TBI) for the 2024 year by overall assurance ratings for the last income tax reviews completed
Graph 2 – No tax payable for the 2024 year by overall assurance ratings for the last income tax reviews completed
|
Population status |
Latest rating (%) |
Total business income (%) |
Tax paid (%) |
Tax losses carried forward (%) |
Tax losses deducted (%) |
|---|---|---|---|---|---|
|
Totals |
100% |
$1,274.7b |
$55.7b |
$21.8b |
$11.6b |
|
High |
62% |
$1,018.3b (80%) |
$44.6b (80%) |
$8.9b (41%) |
$5.7b (49%) |
|
Medium |
20% |
$166.1b (13%) |
$8.3b (15%) |
$4.8b (22%) |
$1.6b (13%) |
|
Low |
15% |
$79.4b (6%) |
$2.8b (5%) |
$7.2b (33%) |
$4.2b (37%) |
|
Unrated |
3% |
$10.9b (1%) |
$0.1b (>1%) |
$0.9b (4%) |
$0.1 (>1%) |
Note: Based on 2024 income tax returns, top 100 economic groups paid about $61.5 billion income tax. About $55.7 billion of this was paid by top 100 entities subject to a justified trust review.
As shown by Graph 1, based on 2024 income tax returns, high assurance taxpayers accounted for 80% of total business income reported and 80% of tax paid by top 100 taxpayers who had an assurance review as at 30 June 2026.
Of the $61.5 billion of income tax paid by top 100 economic groups in 2024, $52.9 billion was reported by taxpayers that achieved a high or medium assurance rating in their latest review.
Of the top 100 taxpayers who had an assurance review as at 30 June 2026, 25% paid no tax in the 2024 year. There are legitimate and genuine commercial reasons why a business may not pay tax. For example, they may not have made a profit due to economic factors or the life cycle of their investment may not yet have generated income or may still be recouping prior year losses. We assure that these losses are available and able to be carried forward and deducted against future profit.
As shown by Graph 2, 86% (19 of 22) of taxpayers that did not pay tax achieved overall high or medium assurance, providing high levels of confidence over the tax outcomes for this group.
Taxpayers who achieved low assurance are subject to further review. Typically, systemic issues concern us in relation to the business model of these taxpayers.
Obtaining high assurance for income tax
In the Top 100 program, we apply a principled approach to reaching overall high assurance (justified trust). This is based on the following 2 elements:
- A quantitative threshold of more than 90% tax assured and economic activity correctly reported.
- An objective assessment of 7 qualifying factors.
The quantitative threshold of element 1 must be met before the qualifying factors in element 2 can be applied.
Qualifying factors
The 7 qualifying factors are outlined as follows.
- Governance
Governance has been rated at least a Stage 2 in the last tax assurance report (TAR).
- Tax risks flagged to market
Any tax risks flagged to market (published in practical compliance guidelines, taxpayer alerts, public rulings, including those set out in the Reportable tax position (RTP) schedule Category C disclosures) have been rated at least a medium level of assurance in the TAR, and are not of immediate concern or identified as necessitating further action based on the information provided.
- International related party dealings and CFCs
International related party dealings, profit attribution to permanent establishments and controlled foreign companies (CFCs) have received at least a medium level of assurance in the TAR and are not identified as necessitating further action based on the information provided.
- Losses
Losses, if applicable, have received at least a medium level of assurance in the TAR. This includes the commerciality of tax losses that have been verified and we understand when a taxpayer expects to utilise carried forward balances and move into a tax payable position.
- Effective tax borne (ETB)
The effective tax borne (ETB) calculation in the TAR and any underlying assumptions or proxies have been verified with the taxpayer. The ETB calculation hasn't highlighted any new areas of concern that pose a potential tax risk, for example, holding overseas interests in jurisdictions where there is not a substantiated commercial purpose.
- Reportable tax position (RTP) schedule
There are no inconsistencies in RTP schedule disclosures which are identified between lodgment of the tax return and finalisation of the review.
- Cooperative and collaborative behaviour
It has been a cooperative and collaborative process, and when working with a taxpayer we have not observed any non-cooperative behaviour.
An overall provisional high assurance rating may be possible in limited circumstances. This may include where the taxpayer has provided an undertaking and is actively working on addressing a specific design gap in their tax governance framework or there is ongoing compliance activity. Provided the quantitative threshold is met (inclusive of the unassured issue), the availability of a provisional rating will depend on the nature and stage of the compliance activity.
Ratings
We apply the following consistent rating categories (high, medium, low) when considering our overall level of assurance.
|
Colour indicator |
Rating |
Category description |
|---|---|---|
|
|
High |
We obtained assurance that the taxpayer paid the right amount of Australian income tax or reported the right Australian income tax outcomes for the income year reviewed. |
|
|
Medium |
We obtained assurance in relation to some but not all areas reviewed. For those areas not yet assured, further evidence or analysis will be required before we obtain assurance that the taxpayer paid the right amount of Australian income tax for the income year reviewed. |
|
|
Low |
We have specific concerns around the taxpayer's compliance with the Australian income tax laws and the amount of Australian income tax paid for the income year reviewed. |
Overall levels of assurance
As at 30 June 2026, 62% of top 100 taxpayers have attained overall high assurance (that is, justified trust). This means that we have obtained assurance that these taxpayers have paid the right amount of Australian income tax for the year reviewed.
The overall level of assurance is based on an objective view (having regard to objective evidence) of whether the taxpayer is considered to have paid the right amount of tax.
Top 100 reviews completed to the end of June 2026 resulted in the following ratings.
Graph 3 – Overall assurance ratings for the last income tax reviews completed as at 30 June 2026
Note: All outcomes data used in this report for income tax is based on the last review completed, which can include:
- a standard justified trust review
- monitoring and maintenance review
- annual compliance arrangement (ACA) review
- refresh year review.
Not rated is applied to taxpayers where a recent full justified trust review across all 4 focus areas has not been undertaken.
Graph 4 – Overall assurance ratings for the last income tax reviews completed by industry as at 30 June 2023, 30 June 2024, 30 June 2025 and 30 June 2026
You can view overall assurance ratings for the last income tax reviews completed by industry data in table format.
Note:
- These groupings align with the industry segments we use as part of our corporate tax transparency reporting except where we have amalgamated the Banking, finance and investment (BFI), Insurance (ISR) and Superannuation (SUP) segments into a Financial services (FS) segment. The groupings are
- Banking, finance and investment, superannuation funds and insurance (FS)
- Manufacturing, construction and agriculture (MCA)
- Mining, energy and water (MEW)
- Wholesale, retail and services (WRS).
- The population depicted in Graph 4 comprises taxpayers in the current top 100 population during each of the 2023, 2024, 2025 and 2026 income years.
Observations
Of the top 100 taxpayers reviewed up to 30 June 2026, 82% attained either an overall high assurance rating or an overall medium assurance rating.
For top 100 taxpayers who've had more than one TAR issued, over 63% increased their overall assurance rating between the first and last TAR issued.
We've seen a marked increase in the number of taxpayers attaining overall high assurance with a shift from 6% in 2019 to 64% in 2025. There was a net increase in the number of top 100 taxpayers achieving high assurance from 55 to 57 in 2026. However, this year with more taxpayers receiving their first rating, the percentage of top 100 taxpayers attaining overall high assurance has decreased slightly to 62% (from 64% in 2025).
The overall increase in the number of high assurance taxpayers since the program commenced shows the efforts taxpayers have made to resolve key disputes with us and continue to proactively engage with us during the year to progress and finalise assurance reviews. Taxpayers have also continued to embed justified trust principles (particularly relating to governance) as well as make efforts to provide objective evidence that supports higher ratings.
This year, most top 100 taxpayers maintained or improved their overall assurance rating. However, we observed a small number of cases where taxpayers had their assurance rating downgraded. This reflects that assurance is not set-and-forget. Taxpayers must continue to provide contemporaneous evidence to meet the standards for high or medium assurance, including for new significant business changes and transactions. Additionally, taxpayers must meet the commitments made to improve their governance framework, where these are not kept, governance ratings may not be maintained.
The number of taxpayers at overall low assurance slightly increased in 2026 to 15% due to some taxpayers receiving a rating for the first time, and a very limited number having their rating downgraded from medium to low.
High assurance taxpayers
We saw a net increase in the number of high assurance taxpayers in 2026. However, with an increase in the number of taxpayers receiving an assurance rating this year, there has been a small decrease in the percentage of top 100 taxpayers achieving overall high assurance, with a shift from 64% in 2025 to 62% in 2026.
We expect that incrementally more taxpayers will attain overall high assurance over time. However, we don't expect the entire population to achieve high assurance due to ongoing concerns about systemic tax risk or behaviour of a small number of entities in the group. In a small number of cases, we have seen a downgrade in ratings from high to medium. Where we have seen a downgrade, governance and significant or new transactions entered have been contributing factors.
Continued improvement in the number of high assurance taxpayers will come from the cooperation between us and taxpayers in achieving timely completion of the planned assurance reviews for the year. It also relies on taxpayers actively addressing areas of concern we have identified, including resolution of key disputes and taxpayers continuing to maintain their overall high assurance ratings in the refresh reviews.
In limited circumstances, we may give an overall provisional high assurance rating. Such circumstances may include where the taxpayer has provided a written undertaking and is actively working on addressing a specific design gap in their tax governance framework, or there is ongoing compliance activity.
There were 7 taxpayers in the current top 100 population with a provisional high assurance rating as at 30 June 2026. The main reasons for a provisional rating were because the taxpayer had some areas that required further assurance or they had other ongoing compliance activity. Another reason is because some taxpayers had committed to but not yet developed a periodic tax control testing plan for their governance framework at the time of the rating. This is typically because the testing plan is developed closer to the time of the testing which may occur after the issuance of the TAR, depending on the organisation’s internal review cycle.
There were 4 taxpayers with provisional high assurance who were able to complete the required work and improve their assurance rating to unqualified high assurance.
During 2026 we completed 39 monitoring and maintenance reviews for taxpayers in the current population. We also completed 2 annual compliance arrangement (ACA) reviews for taxpayers with an ACA that had attained overall high assurance. These ACA taxpayers have now transitioned to the justified trust program. All these reviews resulted in the taxpayers maintaining their justified trust ratings.
Many taxpayers have completed or are currently into their second or third round of the monitoring and maintenance approach with their overall high assurance rating being reaffirmed.
We've further observed the following in relation to our monitoring and maintenance reviews:
- Taxpayers are proactively engaging with us and making disclosures of significant or new transactions or where there are material changes.
- Our focus on governance is typically limited to reviewing the implementation of our recommendations, addressing any specific design gap that is the subject of a provisional Stage 2 rating, and reviewing the outcomes from an independent operational effectiveness testing to assess whether a Stage 3 rating has been achieved. During 2026 a small number of taxpayers improved their governance rating from Stage 2 to Stage 3, and a small number improved their provisional Stage 2 rating to unqualified Stage 2.
- Further verification work was required in the 2026 year for most reviews for significant new transactions or tax risks flagged to market, or both.
We also completed 14 refresh reviews for taxpayers in the current population during 2026. These reviews enabled us to refresh our understanding and evidence base and reaffirmed our confidence that these taxpayers continue to pay the right amount of tax.
The refresh reviews completed to date have resulted in most taxpayers maintaining their justified trust ratings.
For 2026 we further observed the following in relation to the refresh reviews:
- Over half of the taxpayers who had a refresh review concluded during this year are already at Stage 3, with 3 more having increased their governance rating in the refresh review from Stage 2 to Stage 3. In a small number of instances the governance rating was reduced from Stage 2 to Stage 1 due to agreed actions not being completed.
- Governance was a factor where taxpayers had their provisional high assurance ratings downgraded to medium assurance, in addition to concerns with significant or new transactions.
- Almost all had new transactions where a tax risk flagged to market applied. The majority of these new risks were rated as high or medium assurance.
- Most of the reviews identified one or more new significant transactions that required review.
Medium assurance taxpayers
In 2026, 20% of top 100 taxpayers attained an overall medium level of assurance. This meant that we obtained assurance in most areas reviewed or to a level where we had confidence in the amount of tax paid. This reflects, to some degree, the complexity of large businesses.
In practice, the main blockers to taxpayers achieving overall high assurance continue to be:
- demonstrating design effectiveness of their governance framework
- non-assured matters relating to tax risks flagged to market (that is, key corporate tax risks)
- significant transactions or specific tax issues that require further information in order to assure the tax outcome.
Low assurance taxpayers
In 2026 we saw a small net increase in the percentage of top 100 taxpayers at overall low assurance at 15%, from 13% in 2025. This increase is attributed to taxpayers receiving their first overall assurance rating and a limited number of downgrades from medium to low. Also, a small number of taxpayers improved their low assurance rating.
We consider most low assurance taxpayers to have a higher risk profile and to be typically involved in complex transactions and tax disputes. We generally have significant concerns around their compliance with Australian income tax laws and are more likely to use audits to progress the resolution of issues.
Overall, low assurance taxpayers typically have a combination of low and red flag assurance ratings across the key justified trust focus areas that prevent them from attaining a higher level of overall assurance. Resolving the higher risk tax issues (such as those at the heart of their business model), as well as making improvements to the design effectiveness of their tax risk management and governance frameworks, will likely see these taxpayers increase their overall assurance ratings.
Tax governance framework
Governance, systems and controls support tax compliance and are focus areas under the PMB three-tier model.
Tax governance is a key focus area under the justified trust methodology for large public and multinational businesses.
We consider the existence, design and operation of a tax control framework for income tax and GST, focusing on the following 8 controls:
- Board-level control 1: Formalised tax control framework.
- Board-level control 3: The board is appropriately informed.
- Board-level control 4: Periodic internal control testing.
- Managerial-level control 1: Roles and responsibilities are clearly understood.
- Managerial-level control 3: Significant transactions are identified.
- Managerial-level control 4: Controls in place for data (GST only).
- Managerial-level control 6: Documented control frameworks.
- Managerial-level control 7: Procedures to explain significant differences.
We set out the evidence required to demonstrate design and operational effectiveness of a tax control framework in our guides:
- Tax risk management and governance review guide
- GST Governance, Data testing and Transaction Testing Guide.
Ratings
We apply the staged rating system in Table 3 when reviewing and assessing tax governance.
|
Colour indicator |
Rating |
System description |
|---|---|---|
|
|
Stage 3 |
Evidence was provided to demonstrate that a tax control framework exists, has been designed effectively and is operating effectively in practice. |
|
|
Stage 2 |
Evidence was provided to demonstrate that a tax control framework exists and has been designed effectively. |
|
|
Stage 1 |
Evidence was provided to demonstrate a tax control framework exists. |
|
|
Red flag |
We have not been provided with sufficient evidence to demonstrate a tax control framework exists or we have significant concerns. |
For practical guidance about how we rate tax governance, refer to:
- Reviewing tax governance for large public and multinational businesses
- GST Governance, Data testing and Transaction Testing Guide.
Reviews by industry
The reviews completed to the end of June 2026 resulted in the following ratings which have been grouped by industry.
Graph 5 – Overall governance ratings for the last income tax reviews completed as at 30 June 2026
Graph 6 – Overall governance ratings for the last income tax reviews completed by industry as at 30 June 2023, 30 June 2024, 30 June 2025 and 30 June 2026
You can view overall governance ratings for the last income tax reviews completed by industry data in table format.
Observations
During 2026 we observed continued improvements in tax governance reflecting the efforts of many taxpayers to enhance the design of their income tax control frameworks and undertake operational effectiveness testing.
The proportion of taxpayers attaining the highest rating for tax governance (Stage 3) increased to 49% (up from 41% in 2025) as more taxpayers completed independent testing of their income tax control frameworks and shared the findings with us.
As a result, 76% of the top 100 population now have at least a well-designed tax governance framework because they have obtained a Stage 2 or Stage 3 rating.
A tax governance framework that is designed and operating effectively can provide significant benefits to taxpayers, including:
- greater confidence that tax risks are being appropriately identified, managed and reported
- valuable insights from ongoing testing and monitoring, helping to identify control gaps before they result in compliance issues
- clear accountability for tax risk across management and the board, enabling more informed oversight and decision-making
- higher assurance outcomes, resulting in more streamlined engagement with us.
Stage 3
To obtain the highest rating (Stage 3), we look for evidence that the documented income tax control framework is both designed and operating effectively in practice.
The proportion of taxpayers attaining an overall Stage 3 rating increased to 49% for the year ended 30 June 2026, up from 41% in 2025.
This stage requires evidence that a taxpayer has independently tested the operation of its framework and it is found to be operating effectively. Evidence will typically be provided through a report of findings, supplemented by additional information or documentation where required. Taxpayers should also provide evidence that the findings were reported to the Board or a delegated committee. Where the findings recommend improvements or enhancements, we seek to understand whether these have been or will be implemented before assigning a Stage 3 rating.
Once a Stage 3 rating is attained, we apply a monitoring approach. Taxpayers are expected to continue undertaking operating effectiveness testing in line with their periodic testing program and provide the results to us to maintain their Stage 3 rating. Our expectation is that all controls are tested at least once every 3-to-5-years. The monitoring approach may not continue if significant changes are made to the design of the system, or concerns are identified that indicate that the income tax controls are no longer designed or operating effectively.
Stage 2
A Stage 2 rating reflects that a taxpayer has provided objective evidence to demonstrate an income tax control framework has been designed effectively. A minimum Stage 2 rating is required to achieve an overall high assurance rating for income tax under justified trust.
For income tax, 27% of taxpayers attained a Stage 2 rating for the year ended 30 June 2026, a decrease from 40% in 2025. This reflects a combination of taxpayers progressing to a Stage 3 rating following independent testing of their tax control frameworks, an increase in the number of taxpayers receiving a governance rating for the first time and a small number of taxpayers downgraded from a Stage 2 to Stage 1 rating.
An increasing number of top 100 taxpayers at Stage 2 are working with us to demonstrate that their income tax control framework is not only designed effectively but also operating effectively, to proceed to the next rating (Stage 3).
Stage 1
A Stage 1 rating recognises that an income tax control framework exists but reflects that further work is needed to demonstrate that the framework is designed effectively.
For income tax, 23% of taxpayers attained a Stage 1 rating for the year ended 30 June 2026 compared to 17% for the year ended 30 June 2025. The increase in the number of taxpayers at Stage 1 reflects some taxpayers having received a governance rating for the first time that identified design gaps in their tax governance frameworks. It also reflects a small number of taxpayers being downgraded from a Stage 2 to Stage 1 rating due to non-contemporaneous governance documentation or an ineffectively designed tax governance framework.
We continue to work with top 100 taxpayers with a Stage 1 rating to progress to a Stage 2 rating. The areas most commonly identified as lacking sufficient documentation in 2026 were:
- reporting tax risks to the board, including who reports, the matters reported, how they are reported and the frequency of reporting
- procedures explaining significant differences between accounting and tax outcomes
- periodic internal controls testing programs.
With respect to the periodic testing of controls, the factors preventing a Stage 2 rating were where:
- a sufficiently detailed testing plan that covered all controls within the scope of our justified trust reviews and specified an appropriate methodology was not provided
- the frequency of ongoing testing was not documented
- there was no evidence that the testing program had been endorsed by the Board or a delegated committee.
We encourage taxpayers to engage with us on their proposed testing plan before testing is undertaken. This allows us to provide feedback and helps ensure the testing approach aligns with our Stage 3 rating criteria.
Red flag
A red flag rating is only applied after careful consideration, if either:
- we found no evidence demonstrating that an income tax control framework exists
- we have significant concerns with a taxpayer’s income tax control framework, including where significant errors are not detected.
There remains a small percentage (1% in 2026) of top 100 taxpayers that have been assigned a red flag rating for income tax governance.
Governance over third-party data
Governance over third-party data is a focus area for investment industry entities in the Top 100 program. We are working with a small number of top 100 taxpayers to ensure they have effectively designed controls in place.
Tax risks flagged to market, significant or new transactions and specific tax risks
We seek to understand, and review, the income tax treatment of the taxpayer’s business activities, particularly significant and new transactions. We also look for, and review, risks or concerns communicated to the market and determine if they are present.
Ratings
We apply a consistent rating system when reviewing and assessing the income tax treatment of a taxpayer’s business activities, including significant and new transactions and tax risks communicated to the market.
|
Colour indicator |
Rating |
System description |
|---|---|---|
|
|
High |
With respect to this issue, we obtained a high level of assurance that the right Australian income tax outcomes were reported in the taxpayer's income tax return. |
|
|
Medium |
More evidence and or analysis is required to establish a reasonable basis to obtain a high level of assurance. |
|
|
Low |
More evidence and or analysis is required to determine whether a tax risk is present. |
|
|
Red flag |
Likely non-compliance with the income tax law. |
|
– |
Not rated |
We have not evaluated this item and not expressed a rating. |
For some issues or transactions, we require more evidence or analysis (or both) to obtain high assurance. We work closely with top 100 taxpayers to identify the areas that require further evidence or analysis. In some cases, medium assurance ratings on specific transactions may be satisfactory and, depending on the area and the significance of the transaction, it may still be possible to achieve overall high assurance.
High quality information, relevant supporting documentation, and an open and transparent relationship are required for taxpayers to be able to achieve high assurance.
Large companies are required to disclose information in the RTP schedule on uncertain tax positions and arrangements that are considered to pose a systemic risk to the corporate tax base. These arrangements often involve tax avoidance or profit shifting (or both).
The latest Findings report RTP schedule Category C disclosures provides the aggregated disclosures made by companies for the 2024–25 income year. The report provides insights to the types of arrangements large companies are entering, including arrangements in addition to those outlined below.
Observations
Our assurance activities under this pillar consider a broad range of behaviours and focus areas identified within the public and multinational business three-tier model (PMB 3TM) as driving tax performance.
The assurance areas covered in the analysis for tax risks flagged to market, and significant and new transactions, often drive correct reporting and have material tax consequences if they've been incorrectly treated or calculated for tax. This also has a significant impact on the overall assurance ratings.
Many top 100 taxpayers have arrangements that are covered by a public advice and guidance product (such as a practical compliance guideline, taxpayer alert or public ruling). Where a public advice and guidance product may be applicable, our approach is to seek to understand the arrangement to determine the presence of risk. Where risk is present, we work with the taxpayer to mitigate or address this.
As part of our Top 100 assurance reviews, we check on an annual basis the compliance with reporting obligations including the accuracy and completeness of disclosures made by top 100 taxpayers in tax returns, accompanying schedules (including the RTP schedules), country-by-country (CBC) reporting statements and financial statements. We also follow up disclosures in the RTP schedules relating to unamended mistakes or omissions in tax returns.
Over time many taxpayers previously engaged in high-risk arrangements now:
- have no new tax risks flagged to market
- typically
- fall in the low risk or white zone of the practical compliance guidance, or
- have been given high assurance.
This is consistent with our observations about taxpayers committing to long term behavioural change.
Three-tier model behaviours, events and focus areas
The three-tier model for public and multinational businesses (PMB 3TM) is a comprehensive model that leverages the OECD's 4 pillars of tax compliance (registration, lodgment, correct reporting, and payment), as well as the 'fifth pillar' of third-party reporting and payments that we focus on, to consider all areas of tax performance and the tax and super laws.
The model is made up of 3 tiers that drill down to the behaviours we observe for public and multinational business, including:
- Tier 1: These are the major drivers of tax performance and non-performance for these taxpayers. These behaviours are what drives improvement or deterioration in the tax gap.
- Tier 2: These are the visible events for Tier 1 behaviours. They can impact on us achieving improvements in tax performance or preventing deterioration in the system.
- Tier 3: These are the specific focus areas for each Tier 2 event. This is where we intervene to address the behaviour
For public and multinational businesses, we have identified 5 behaviours driving tax performance:
- International related party dealings.
- Cross-border investments structures.
- Domestic tax positions and structures.
- Administrative compliance obligations.
- Actions that support tax compliance.
Our assurance activities target a broad range of behaviours, events and focus areas identified within the public and multinational business three-tier model as these drive tax performance, specifically correct reporting.
The following tables show the key behaviours, events and areas of focus in our assurance reviews underpinning correct reporting. Note this is not an exhaustive list. Also, owing to wide ranging differences in business activities, models and structures, not all focus areas will apply for every taxpayer.
|
Events (Tier 2) |
Focus areas (Tier 3) |
|---|---|
|
Transfer pricing and arm’s length conditions |
|
|
Intangibles arrangements |
|
|
Events (Tier 2) |
Focus areas (Tier 3) |
|---|---|
|
Debt and capital structures |
|
|
Disposal of assets or businesses by foreign residents |
|
|
Structuring through vehicles or arrangements |
|
|
Income recognition from business operations |
|
|
Hybrid arrangements |
|
|
Events (Tier 2) |
Focus areas (Tier 3) |
|---|---|
|
Characterisation of business activities |
|
|
Treatment of distributions |
|
|
Claiming other tax concessions or rates |
|
|
Creation and use of carried forward losses |
|
|
Disposal of wholly domestic business structures |
|
The following sections outline specific areas of concern and items that attract our attention. We do not see these in all cases and this is not an exhaustive list.
These matters have been grouped according to the 3TM behaviour, event or focus area(s) that they relate to.
3TM Tier 1: International related party dealings
Transfer pricing is a natural feature of the international tax system, requiring entities to deal with related parties on arm's length terms. Our concern is where arrangements or transactions are mischaracterised or mispriced (or both), resulting in the tax base and profits being shifted from Australia to other, often lower-tax, jurisdictions. This is a particular risk in a country like Australia, being a net importer of capital with a high tax rate.
As such, the appropriateness of transfer pricing is a common assurance area with approximately 90% of top 100 taxpayers reporting related party dealings in the 2025–26 income year. This area encompasses a substantially large number of dealings, the nature of which can range from simple to very complex.
We continue to work with impacted taxpayers to improve the level of assurance on arrangements that attract a low assurance or red flag rating. Given the prevalence and significant tax outcomes involved, we actively investigate these arrangements and undertake assurance activities on top 100 taxpayers.
Where transactions are covered by an advance pricing arrangement (APA), we will review the covered transactions and the annual compliance report that is required to be submitted to ensure that taxpayers are continuing to adhere to the terms of the agreement.
Where related party transactions are subject to settlement agreements or private rulings, we also review these to confirm that taxpayers are adhering to the terms of the settlement agreement or implementing the relevant transactions in accordance with the ruling.
We continue to observe a shift in the nature of transfer pricing matters. This is in part due to the evolution of business models and value chains, particularly in the digital economy. Common issues on transfer pricing matters where we are yet to obtain assurance include the following:
- The inadequacy of information available to support transfer pricing positions.
- The size and complexity of the global value chain in the top 100 population. Top 100 taxpayers often have very complex businesses and Australia can be a significant part of the value chain. We find it can take a significant amount of time to obtain relevant information to support the transfer pricing analysis particularly when the information is held offshore.
- Artificial structuring, fragmentation, risk allocation or bifurcation of business activities and related party arrangements in Australia that appears to be mischaracterised or misaligned with the commercial substance (or both), resulting in the application of inappropriate transfer pricing methods and incorrect profit and tax outcomes.
Key transfer pricing areas
The following breaks down key transfer pricing areas we reviewed across a range of dealings.
3TM Tier 2: Transfer pricing and arm's length conditions. Tier 3: Financing arrangements
International related party financing transactions includes interest bearing loans, related party derivatives, interest free loans (outbound and inbound), cash pooling arrangements and guarantee fees.
|
Assurance ratings as at 30 June 2026 |
Percentage of Top 100 review outcomes |
|---|---|
|
High |
44% |
|
Medium |
40% |
|
Low and red flag |
14% (11% and 3%) |
|
Not rated |
3% |
Related party financing arrangements continue to be one of the largest assurance areas for the Top 100 program. In particular, a key focus of our reviews is PCG 2017/4 ATO compliance approach to taxation issues associated with cross-border related party financing arrangements and related transactions. This includes taxpayers’ self-assessment of the risk indicators and risk zone rating, and evidence required to support any relevant disclosures. Following amendments to the transfer pricing and thin capitalisation rules, which apply for income years commencing on or after 1 July 2023, we are also seeking to assure that the amount of debt held by taxpayers, and not just its pricing, is arm’s length.
The proportion of taxpayers at either high or medium assurance has remained steady this year and exceeds 80%.
We were successful in the Full Federal Court in the SingTel related party financing case. This favourable decision provides further support to our existing compliance approach to related party financing and will help to reinforce the positive assurance trend.
3TM Tier 2: Transfer pricing and arm's length conditions. Tier 3: Offshore hubs (marketing or procurement) and commodity pricing
|
Assurance ratings as at 30 June 2026 |
Percentage of Top 100 review outcomes |
|---|---|
|
High |
48% |
|
Medium |
28% |
|
Low and red flag |
24% (20% and 4%) |
|
Not rated |
0% |
We are primarily concerned with taxpayers deriving inappropriate tax benefits via offshore hub arrangements. This relates to the mispricing of services or functions on the sales and marketing or trading (or both) of Australian sourced commodities provided by international related parties.
The commodities sector has long been, and continues to be, a key focus industry for us. The Transfer Pricing risk associated with offshore hubs risk has been an area of focus over the last decade. We set out our compliance approach to transfer pricing issues related to the location and relocation of certain business activities and operating risks into a centralised operating model in PCG 2017/1 ATO compliance approach to transfer pricing issues related to centralised operating models involving procurement, marketing, sales and distribution functions.
We consider marketing hub arrangements to be well understood by the market. We have resolved a number of disputes, including with the largest commodity exporters in Australia, providing confidence that the right amount of tax is being paid on our largest commodity exports. The majority of the offshore centralised operating models (hubs covering marketing and non-core procurement activities) that have been reviewed are rated high or medium assurance rating.
However, there continues to be a number of arrangements across a small number of taxpayers where we have concerns. We have further compliance underway, such as reviews and audits, for these arrangements. For completeness we note that these taxpayers may have multiple marketing arrangements, some of which may be rated as medium or high assurance.
3TM Tier 2: Transfer pricing and arm's length conditions. Tier 3: Inbound supply chain distribution arrangements
|
Assurance ratings as at 30 June 2026 |
Percentage of Top 100 review outcomes |
|---|---|
|
High |
21% |
|
Medium |
36% |
|
Low and red flag |
36% (29% and 7%) |
|
Not rated |
7% |
PCG 2019/1 Transfer pricing issues related to inbound distribution arrangements concerns the transfer pricing risks associated with distribution of goods purchased from related foreign entities for resale, and distribution of digital products or services where intellectual property in those products or services is owned by related foreign entities. Less than 15 taxpayers have arrangements that fall within this scope.
The proportion of high and medium assurance ratings increased from 38% in 2025 to 57% in 2026. We continue to work with taxpayers to improve our level of assurance for arrangements attracting a low assurance or red flag rating. Where necessary we have escalated these arrangements to specific investigations, including audits.
We continue to focus on related party arrangements where related Australian subsidiaries each significantly contribute to the creation of the digital products or services or the intellectual property in the digital products or services in Australia, including data centres. We consider these are not appropriately characterised as inbound distribution arrangements within the meaning provided by the updated PCG 2019/1. These related party arrangements are being reviewed for transfer pricing mischaracterisation risks, including whether the tax outcomes are appropriate.
Inbound distribution arrangements (especially as they relate to digital products or software) may also raise concerns about the extent to which payments made to offshore associates should be characterised as royalties, subject to withholding tax. This continues to be an enquiry regarding the terms of the agreements and other relevant facts and circumstances.
3TM Tier 2: Intangible arrangements. Tier 3: Characterisation of royalty payments
We continue to carefully review arrangements where we identify a risk that cross-border payments from Australia may be mischaracterised to reduce or avoid Australian withholding tax. This may include payments being described as being for goods or services, rather than for rights to, or use of, intellectual property (IP) which would be subject to withholding tax, including:
- arrangements of the kind described in Taxpayer Alert TA 2018/2 Mischaracterisation of activities or payments in connection with intangible assets
- within the scope of Taxation Ruling TR 2026/2 Income tax: royalties – character of payments in respect of software and intellectual property rights.
This continues to be an enquiry regarding the terms of the agreements and other relevant facts and circumstances.
We released Draft Practical Compliance Guideline PCG 2026/D4 Royalty characterisation of payments relating to intermediation or distribution arrangements – ATO compliance approach for public consultation. This guidance sets out how we will practically administer the view set out in TR 2026/2 and provides certainty about when we will not review software arrangements to determine whether any part of a cross-border payment made to a non-resident is a royalty and subject to withholding tax, and sets out indicia of higher-risk arrangements which are likely to be our focus.
3TM Tier 2: Intangible arrangements. Tier 3: Intangibles migration arrangements (including mischaracterisation of Australian activities connected with intangibles)
We continue to carefully review arrangements involving cross-border intangibles migration including those that reduce or avoid Australian income tax. This includes arrangements where intangible assets that are created in, or are mainly connected to, Australia are migrated offshore, or arrangements involving the mischaracterisation or non-recognition of Australian activities connected with intangible assets. These include intangible migration arrangements falling within the higher risk zones of PCG 2024/1 Intangibles migration arrangements.
3TM Tier 1: Cross-border investment structures
Cross-border investment structures give rise to a range of tax considerations having regard to debt and capital structures, types of entities used and cross-border arrangements entered into. We consider these in our assurance reviews.
3TM Tier 2: Debt and capital structures; including Tier 3: Pricing and quantum of debt, debt creation, loading and dumping, third part debt test, restructuring in response to thin capitalisation rules
The following outcomes amalgamate all thin capitalisation assurance ratings mapped to the above 3TM Tier 2 event and Tier 3 focus areas.
|
Assurance ratings as at 30 June 2026 |
Percentage of Top 100 review outcomes |
|---|---|
|
High |
52% |
|
Medium |
41% |
|
Low and red flag |
2% (2% and 0%) |
|
Not rated |
5% |
A key focus area impacting the majority of top 100 taxpayers is thin capitalisation. Australia's thin capitalisation rules limit how much interest and other debt deductions a business can claim for tax.
We are working with taxpayers to assure the application of the new thin capitalisation rules. The Treasury Law Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Act 2024 applies to income years commencing on or after 1 July 2023 (except for the new debt deduction creation rules which apply to income years commencing on or after 1 July 2024). The new thin capitalisation rules apply to debt deductions remaining after the application of the transfer pricing rules, and expanded to cover taxpayers' amount of debt for income years commencing on or after 1 July 2023.
There was a noted shift from high assurance ratings to medium assurance ratings for thin capitalisation this year as taxpayers adjusted to applying the new rules. A medium assurance rating primarily reflects that we would like to see improved supporting documentation, governance processes and evidence necessary to demonstrate compliance with the new rules. This is particularly so for:
- the expanded definition of debt deduction
- calculation of tax EBITDA
- satisfaction of the third-party debt test requirements.
We encourage taxpayers to continue to assess the application of the new rules in real time as their circumstances change, maintain contemporaneous documentation supporting their positions, and engage with us early where significant financing arrangements, restructures or interpretive issues arise.
We have developed the following guidance products to assist taxpayers to comply with the new rules:
- Practical Compliance Guideline PCG 2025/2 Restructures and the thin capitalisation and debt deduction creation rules – ATO compliance approach.
- Taxation Ruling TR 2025/2 Income tax: aspects of the third party debt test in Subdivision 820-EAB of the Income Tax Assessment Act 1997.
3TM Tier 2: Hybrid arrangements; including Tier 3: Importation of offshore hybrid mismatches and offshore hybrid mismatches
The following outcomes amalgamate all hybrid assurance ratings mapped to the above 3TM Tier 2 event and Tier 3 focus areas.
|
Assurance ratings as at 30 June 2026 |
Percentage of Top 100 review outcomes |
|
|---|---|---|
|
High |
53% |
|
|
Medium |
36% |
|
|
Low and red flag |
9% (8% and 1%) |
|
|
Not rated |
2% |
|
We are focused on ensuring that taxpayers comply with the hybrid mismatch rules to deter the use of hybrid arrangements that exploit differences in the tax treatment of entities or financial instruments under the tax laws of 2 or more countries, resulting in double non-taxation outcomes.
The improvement in the proportion of high assurance ratings from 42% in 2025 to 53% in 2026 largely reflects taxpayers whose hybrid arrangements were not previously assured, or where taxpayers have improved from a prior medium level of assurance.
A common reason contributing to medium assurance ratings continues to be a lack of evidence.
A common reason contributing to low assurance ratings is a lack of any substantial effort being made to comply with obligations in respect of the hybrid mismatch rules, in particular the imported hybrid mismatch rule.
As part of our assurance reviews, we refer to PCG 2021/5 Imported hybrid mismatch rule – ATO’s compliance approach and request evidence to support the processes and procedures taxpayers are taking to ensure compliance with the imported hybrid mismatch rule in Subdivision 832-H. It is important that this evidence is retained and provided to us during the assurance review.
3TM Tier 2: Income recognition from business operations. Tier 3: Attribution of profits through CFCs, Application of CFC regime, Attribution of permanent establishment profits
The following outcomes amalgamate all the controlled foreign company (CFC) and permanent establishment (PE) assurance ratings mapped to the above 3TM Tier 2 event and Tier 3 focus areas.
|
Assurance ratings as at 30 June 2026 |
Percentage of Top 100 review outcomes |
|---|---|
|
High |
64% |
|
Medium |
31% |
|
Low and red flag |
4% (3% and 1%) |
|
Not rated |
1% |
CFCs and PEs are areas that commonly arise in our justified trust reviews. About 95% of reviews relating to CFCs and PEs have been rated as high or medium assurance.
We continue to work with the small number of taxpayers where assurance has not been attained. This includes obtaining further objective evidence on issues arising from CFCs and PEs including their entitlement to foreign tax offsets, CFC attribution amounts, and conduit foreign income balances.
3TM Tier 1: Domestic tax positions and structures
Common focus areas include capital allowances, entitlement to R&D tax offset, consolidation and losses.
3TM Tier 2: Characterisation of business activities. Tier 3: Treatment of capital and revenue
The treatment of capital and revenue Tier 3 focus area includes capital allowances, amongst others.
|
Assurance ratings as at 30 June 2026 |
Percentage of Top 100 review outcomes |
|---|---|
|
High |
55% |
|
Medium |
37% |
|
Low and red flag |
5% (5% and 0%) |
|
Not rated |
2% |
In 2026, most (more than 90%) of taxpayers with capital allowances matters have attained either a high or medium rating. When assuring capital allowances claims, we consider the systems and governance processes adopted, as well as the supporting evidence provided (including working papers).
Common areas of focus include the use of project pools, balancing adjustment calculations, self-assessed effective lives, and correct asset classification (particularly for composite assets and leasehold improvements). Other areas of assurance include blackhole expenditure, exploration expenditure and capitalised labour costs.
3TM Tier 2: Claiming other tax concessions or rates. Tier 3: Entitlement to R&D tax offsets
|
Assurance ratings as at 30 June 2026 |
Percentage of Top 100 review outcomes |
|---|---|
|
High |
18% |
|
Medium |
69% |
|
Low and red flag |
9% (9% and 0%) |
|
Not rated |
4% |
The proportion of taxpayers at either high or medium assurance for R&D expenditure has remained relatively steady this year at 87%. We continue to see some taxpayers unable to reach higher assurance ratings due to a lack of contemporaneous documentation to evidence that notional deductions claimed by taxpayers are incurred on R&D activities and expenses (such as overheads and fixed costs) are appropriately apportioned between eligible and non-eligible R&D activities.
We continue to work with taxpayers to address issues leading to lower assurance ratings. In some cases, taxpayers are required to provide further information to substantiate the amounts claimed. Additionally, we expect some taxpayers to make improvements to their governance and record keeping. Where appropriate, we will refer activities for review to the Department of Industry, Science and Resources.
3TM Tier 2: Disposal of wholly domestic business structures, including Tier 3: ACA calculations
The following outcomes amalgamate all tax consolidation assurance ratings mapped to the above 3TM Tier 2 event and Tier 3 focus area.
|
Assurance ratings as at 30 June 2026 |
Percentage of Top 100 review outcomes |
|---|---|
|
High |
64% |
|
Medium |
28% |
|
Low and red flag |
4% (4% and 0%) |
|
Not rated |
4% |
These assurance ratings include the allocable cost amount process as well as asset recognition and valuations but exclude MECs. Most reviews relating to consolidation matters continue to be rated high assurance.
3TM Tier 2: Creation and use of carried forward losses; Tier 3: Application of the business continuity test, use of revenue losses, use of capital losses
|
Assurance ratings as at 30 June 2026 |
Percentage of Top 100 review outcomes |
|---|---|
|
High |
61% |
|
Medium |
32% |
|
Low and red flag |
7% (7% and 0%) |
|
Not rated |
0% |
We holistically focus on generation, carry forward, transfer and utilisation of any losses. Our reviews consider not only the tax analysis, but we also look to understand the origin of the losses and the commercial environment of the business at the time the losses were incurred. We also seek to understand when top 100 taxpayers will use any carry forward losses and move into a tax payable position. Over 90% of reviews relating to losses have been rated as high or medium assurance.
Other observations: structured arrangements designed to reduce Australian tax
In some cases, we see domestic or cross-border investment structures that appear designed to reduce or avoid Australian tax. Such arrangements are typically escalated to specific investigations, including audits where we are unable to obtain assurance.
In addition to some of the matters highlighted above, the other types of domestic and cross-border investment structures that attract our attention are set out below, grouped by the most relevant 3TM Tier 2 event or Tier 3 focus areas. These arrangements may also present under other behaviours, events or focus areas in the 3TM.
3TM Tier 1: Cross-border investment structures. Tier 2: Debt and capital structures
- Contrived debt and capital structures, including the use of financing transactions with special terms designed to
- artificially defer or avoid interest withholding tax while having obtained annual Australian income tax deductions
- avoid or reduce dividend withholding tax upon repayment or redemption of contrived related party financing arrangements
- otherwise obtain deductions or avoid assessable income using arrangements designed to circumvent thin capitalisation, debt or equity classification and the hybrid mismatch rules.
3TM Tier 1: Cross-border investment structures. 3TM Tier 2: Disposal of assets or businesses by foreign residents. Tier 3: MEC groups and CGT consequences
- Arrangements or variation of arrangements of the kind described in Taxpayer Alert TA 2020/4. These arrangements broadly involve the transfer of assets to an Eligible Tier 1 (ET-1) and an ET-1 company leaving, or anticipating leaving, the multiple entry consolidated (MEC) group.
3TM Tier 1: Cross-border investment structures. 3TM Tier 2: Income recognition from business operations. Tier 3: Attribution of permanent establishment profits
- Arrangements designed to avoid income being attributable to an Australian permanent establishment.
3TM Tier 1: Cross-border investment structures. 3TM Tier 2: Structuring through vehicles or arrangements. Tier 3: Inversion or top-hatting arrangements or imposition of partnerships of other entities
- ‘Inversion’ or ‘top-hatting’ arrangements, or the interposition of partnerships or other entities, designed to
- shift recognition of income, or change or mischaracterise the nature of income
- facilitate related party transactions to obtain Australian tax deductions
- reduce or eliminate withholding tax
- avoid the application of targeted or general anti-avoidance measures.
3TM Tier 1: Domestic tax positions and structures. Tier 2: Treatment of distributions. Tier 3: Claiming or accessing franking credits
- Arrangements of the kind described in Taxpayer Alert TA 2020/5 – Structured arrangements that provide imputation benefits on shares acquired where economic exposure is offset through use of derivative instruments ‘.
Alignment of tax and accounting outcomes
We analyse the differences between the accounting and tax results. This includes understanding the effective tax rates and ETB. We seek to understand, and be able to explain, any variances between tax and accounting outcomes. This provides an objective basis to obtain greater assurance.
Ratings
We apply a consistent rating system when reviewing and assessing the alignment of tax and accounting outcomes, which is outlined in the following table.
|
Colour indicator |
Rating |
System description |
|---|---|---|
|
|
High |
We understand and can explain the various streams of economic activity and why the accounting and income tax results vary. |
|
|
Medium |
Further analysis and explanation are required to understand the various streams of economic activity and why the accounting and tax results vary. |
|
|
Low |
We identified concerns from our analysis of the various streams of economic activity and why accounting and tax results vary. |
|
|
Red flag |
We don't understand and cannot explain the various streams of economic activity and why accounting and tax results vary. |
The reviews completed to the end of June 2026 resulted in the following ratings.
Graph 7 – Alignment of tax and accounting ratings for the last income tax reviews completed as at 30 June 2026
Graph 8 – Alignment of tax and accounting ratings for the last income tax reviews completed as at 30 June 2023, 30 June 2024, 30 June 2025 and 30 June 2026
You can also view details of data at Ratings tables for Top 100 findings report.
Observations
Almost all (95%) of the top 100 taxpayers have attained a medium or high assurance rating for the alignment of tax and accounting outcomes. While the number at high assurance increased, the relative percentage fell slightly because of more taxpayers receiving a rating for the first time in 2026. In a small number of cases, we have seen a downgrade in ratings from high to medium. These were primarily due to insufficient information provided to support their tax reconciliation.
We're generally able to attain assurance over a significant proportion of reported income and expenses as most taxpayers have audited financial statements. This is supported by a book-to-tax reconciliation between net profit or loss reported in the financial statements and the total profit or loss disclosed in the relevant tax return. This can be more challenging for taxpayers with MEC groups, foreign branches or stapled groups. However, in many cases, we've been able to overcome these challenges through active collaboration with top 100 taxpayers with these structures. This has deepened our understanding of the various streams of taxpayers' economic activity and why the accounting and income tax results vary.
We're also generally being provided with detailed book-to-tax reconciliations which allow us to obtain assurance over the key adjustments from accounting results to calculate the taxable income (and tax payable) figures. We have a particular focus on permanent differences.
The number of medium ratings (23%) has remained steady for this focus area. In some cases, further analysis is required and underway to understand the various streams of economic activity where the accounting and tax results vary for the top 100 population. 2% of taxpayers have been downgraded from a medium rating to a low rating, due to insufficient information being provided to understand adjustments made.
Another component of this focus area is the ETB calculation, which we use to analyse the tax and economic performance of corporate groups. We've observed that the ETB analysis provides a good cross-check or confirmation for our analysis and assurance over global supply chains.
The ETB offers a useful sense check on any related party dealings and whether they are giving plausible, common-sense outcomes, or conversely if they are having the effect of skewing profits to low tax jurisdictions. This is done by identifying the economic group’s worldwide profit from Australian-linked business activities and the Australian and offshore tax paid on that profit.
Boards and tax representatives of corporate groups should understand their ETB calculation and where they are booking profits around the world. We require taxpayers to provide information around their global value chains and foreign taxes paid on Australian-linked activities and encourage taxpayers to continue to work with us to refine and enhance their ETB analysis.
To further streamline reviews for high assurance taxpayers that are wholly or substantially domestic in operations and ownership with predominantly domestic transactions, we no longer undertake the ETB calculation in our monitoring and maintenance and refresh reviews (unless there's exceptional or changed circumstances).