Top 1,000 income tax assurance

Population coverage

From 2016 to 30 June 2026, we completed 1,943 income tax assurance reviews covering 1,341 taxpayers. In the 2025–26 financial year, 197 assurance reviews were completed, of which 70 covered taxpayers assured for the first time.

For taxpayers currently in the Top 1,000 population we have completed 1,306 assurance reviews, covering 819 unique taxpayers. Graph 1 below shows the review status of taxpayers in the Top 1,000 population as of 30 June 2026.

As graph 1 shows, we have completed assurance reviews for 83% of the current population, with 17% yet to have a review completed.

Graph 1: Population review status for current Top 1,000 taxpayers, as of 30 June 2026

In respect of the different pools of taxpayers, 12% of the significant pool are not yet assured as compared to 19% of the general pool. This difference is due to the more stable presence of significant taxpayers in the Top 1,000 population.

A taxpayer in either pool may have not yet been assured for a variety of reasons, including:

• Their first review is in progress and not yet complete as of 30 June 2026 (4%).
• They did not meet the metrics for inclusion in the Top 1,000 assurance program prior to the 2025–26 financial year and will be considered for selection in upcoming years (6%).
• They did not previously meet the metrics for inclusion in the Top 1,000 assurance program prior to the 2025–26 financial year but are part of an economic group with an ongoing population presence. These will be considered for selection in upcoming years (1%).
• They have not yet been selected for an assurance review because they have been subject to other ATO compliance activity and will be considered for future reviews (6%).

Health of the system

The table below shows the 2023–24 income tax figures for the population according to the taxpayer's latest assurance rating.

Taxpayers that have been assured comprise 83% of the population and cover an equivalent or larger share of total business income, tax paid, tax losses carried forward and tax losses deducted.

Table 1: Top 1,000 income tax assurance population, by assurance status and latest rating – 2023–24

Population status	Population (no. and % share)	Total business income ($b and % share)	Tax paid ($b and % share)	Tax losses carried forward ($b and % share)	Tax losses deducted ($b and % share)
High assurance	247 (30%)	$393.8b (32%)	$10.3b (28%)	$46.4b (46%)	$2.8b (27%)
Medium assurance	482 (59%)	$713.8b (58%)	$22.2b (60%)	$40.7b (41%)	$6.4b (62%)
Low assurance	90 (11%)	$127.6b (10%)	$4.5b (12%)	$13.4b (13%)	$1.1b (11%)
Total assured	819 (83%)	$1,235.2b (89%)	$37.0b (96%)	$100.5b (82%)	$10.3b (86%)
Not assured	164 (17%)	$156.2b (11%)	$1.4b (4%)	$21.9b (18%)	$1.7b (14%)
Total population	983 (100%)	$1,391.4b (100%)	$38.4b (100%)	$122.4b (100%)	$12.0b (100%)

Ratings

The overall level of assurance is based on an assessment, based on objective evidence, as to whether the taxpayer is considered to have paid the right amount of tax.

We apply consistent rating categories when considering the overall level of assurance.

Table 2: Ratings categories for overall levels of assurance on income tax

Colour indicator	Rating	Category description
	High	We obtained assurance that the taxpayer paid the right amount of Australian income tax for the income years 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.
	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(s) reviewed.

Obtaining overall high assurance rating for income tax

In the Top 1,000 program, we apply a principled approach to reaching overall high assurance (justified trust). This is based on 2 elements:

1. A quantitative threshold of more than 90% tax assured and economic activity correctly reported.
2. An objective assessment of 7 qualifying factors.

The 7 qualifying factors

1. Tax risk management and governance

When rated, tax risk management and governance is at least at stage 2.

2. Tax risks flagged to market and significant transactions

Any material or significant tax risks flagged to market (Practical compliance guidelines (PCGs), tax alerts, or public rulings, including those set out in the Reportable Tax Position (RTP) Category C disclosures) have received at least a medium level of assurance and are not identified as requiring further action based on the information provided.

3. International related party dealings and controlled foreign companies (CFCs)

Any material or significant international related party dealings, profit attribution to permanent establishments and CFCs have received at least a medium level of assurance and are not identified as requiring further action based on the information provided.

4. Losses

Losses, if applicable, have received at least a medium level of assurance. This includes that the commerciality of losses has been appropriately verified.

5. Effective Tax Borne (ETB) / Book to Tax

The ETB calculation and any underlying assumptions or proxies have been verified with the taxpayer. Completion of an ETB calculation will be viewed favourably by us. Where the ETB calculation has not been prepared by the taxpayer, a high assurance rating for alignment between accounting and tax results will be required.

6. RTP schedule

There are no inconsistencies identified in RTP schedule disclosures between lodgment of the tax return and finalisation of the review.

7. Cooperative and collaborative behaviour

The review has been a cooperative and collaborative process, and we have not observed any non-cooperative behaviour while working with the taxpayer.

Provisional high assurance rating

An overall provisional high assurance rating may be possible in limited circumstances. Such circumstances 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.

Where there is ongoing compliance activity, provided the quantitative threshold is met (including the unassured issue), the provisional rating will depend on the nature and stage of the compliance activity.

Overall levels of assurance

The latest assurance rating for current Top 1,000 taxpayers reviewed by the program is shown in graph 2 below.

Graph 2: Overall income tax assurance ratings at latest review for current Top 1,000 taxpayers – 30 June 2026

At their latest review, 30% of taxpayers achieved high assurance. This means we have assurance that these taxpayers have paid the right amount of Australian income tax for the income years reviewed. The majority of taxpayers (59%) achieved medium assurance, which gives us confidence regarding the tax paid.

The below table shows each taxpayer's latest overall assurance rating by population pool.

Table 3: Latest assurance rating by population pool for all current Top 1,000 taxpayers – 30 June 2026

Assurance rating	Significant pool	General pool	Total Top 1,000 taxpayers
High assurance	36%	27%	30%
Medium assurance	53%	62%	59%
Low assurance	11%	11%	11%

The table shows that significant pool taxpayers achieve higher levels of assurance than general pool taxpayers. We attribute this to several factors, including:

• Significant pool taxpayers have generally been reviewed previously by the program, allowing them to action our previous recommendations and gather further evidence or information to support positions they have adopted.
• A greater number of general pool taxpayers are being reviewed for the first time and first-time reviews are known to have lower rates of assurance, as detailed in the findings below.
• Significant pool taxpayers generally achieve higher ratings for their tax governance frameworks to manage tax risks and issues.

Of the 197 taxpayers reviewed within the 2025–26 financial year, 41% obtained an overall high assurance rating, with 50% obtaining a medium assurance rating and 9% obtaining a low assurance rating. This represents a continued trend in recent reviews where more taxpayers are obtaining high assurance and fewer taxpayers are obtaining low assurance.

The main blockers to taxpayers achieving overall high assurance are:

• not demonstrating their governance framework is effectively designed
• non-assured matters relating to tax risks flagged to market (that is, key corporate tax risks)
• significant transactions that require further information to be provided to us in order to assure the tax outcome
• a combination of the above.

Low assurance taxpayers typically have a combination of low and red flag assurance ratings across the 4 justified trust focus areas that prevent them from attaining a higher level of overall assurance.

Comparison of latest to previous overall ratings

As the program matures, a greater number of taxpayers in the population have been reviewed more than once. As of 30 June 2026, there have been 466 taxpayers in the population reviewed more than once. Graph 3 shows the ratings for these taxpayers, comparing their latest rating to their previous rating.

Graph 3: Comparison of previous and latest overall income tax assurance ratings for current Top 1,000 taxpayers – 30 June 2026

As Graph 3 demonstrates, we observe that:

• There are increasing levels of assurance over time. At a population level, there has been improvement in the overall assurance outcomes for entities reviewed more than once. That is, the proportion of the population obtaining overall high assurance has increased by 10%, while the proportion obtaining overall low assurance decreased by 3%. This generally reflects taxpayers improving tax governance and issues identified in the previous review being addressed.
• Taxpayers generally improve or maintain their assurance rating, but some fall backwards. About three-quarters of the population that were rated as high or medium assurance maintained or improved that rating in their latest review. However, we also observed a small portion of taxpayers (about 5%) that moved from high or medium assurance to overall low assurance when reviewed in their latest review.
• Low assurance taxpayers typically improve upon re-review. Over 85% of taxpayers previously rated overall low assurance improved due to recommendations made in the previous review being addressed by taxpayers or being resolved through further ATO compliance activity.

These results reflect that assurance is not a set-and-forget and the overall benefit of continuing to work with the population to improve outcomes and identifying new risks as they arise.

Graphs 4 and 5 look at the significant pool and general pool respectively and the comparison between the latest and previous overall assurance ratings. There is improvement across all ratings in both pools, with strong improvement in the significant pool population (graph 4) and solid improvement in the general pool population (graph 5).

Graph 4: Comparison of previous and latest overall income tax assurance ratings for current Top 1,000 taxpayers in the significant pool – 30 June 2026

Graph 5: Comparison of previous and latest overall income tax assurance ratings for current Top 1,000 taxpayers in the general pool – 30 June 2026

Overall assurance rating for reviews completed by industry

Graph 6 shows overall assurance ratings by industry for current Top 1,000 taxpayers who have been reviewed more than once and compares the latest rating and previous rating. There is some deviation between assurance outcomes across industries. Overall ratings have improved across all industries in subsequent reviews.

The groupings are:

• banking, finance and investment, superfunds and insurance (FS)
• manufacturing, construction and agriculture (MCA)
• mining, energy and water (MEW)
• wholesale, retail and services (WRS).

Graph 6: Comparison of previous and latest overall income tax assurance ratings for current Top 1,000 taxpayers, by industry – 30 June 2026

You can also view the overall assurance ratings for reviews completed by industry in Tables 27 and 28.

Tax risk management and governance

Governance, systems and controls support tax compliance and is a focus area under the PMB three-tier model. Tax risk management and governance is a critical component of the justified trust methodology.

Documented tax control frameworks that are designed effectively provide a key foundation for our ability to assure that the right amount of tax has been paid. A stage 2 rating for income tax risk management and governance:

• gives us confidence that the tax control framework is designed effectively
• is required to obtain overall high assurance.

We look to see whether a fit-for-purpose tax risk management and governance framework is:

• in place
• applied in practice
• tested regularly to ensure it is operating as intended.

We use the following guidance material to consider the existence, design and operation of a tax control framework for income tax, focusing on the 7 key justified trust controls:

• Tax risk management and governance review guide
• Income tax risk management and governance guidance for top 1,000 taxpayers (the supplementary guide).

The 7 key justified trust controls for income tax are:

3. Board-level control 1 (BLC1) – Formalised tax control framework
4. Board-level control 3 (BLC3) – Board is appropriately informed
5. Board-level control 4 (BLC4) – Periodic internal control testing
6. Managerial-level control 1 (MLC1) – Roles and responsibilities are clearly understood
7. Managerial-level control 3 (MLC3)– Significant transactions are identified
8. Managerial-level control 6 (MLC6)– Documented control frameworks
9. Managerial-level control 7 (MLC7)– Procedures to explain significant differences.

Ratings

We apply a consistent rating system when reviewing and assessing tax risk management and governance. For more information about how we review tax risk management and governance, refer to Reviewing tax governance for large public and multinational businesses.

Table 4: Stages

Colour indicator	Stage	Category description
	Stage 3	The taxpayer provided evidence to demonstrate that a tax control framework exists, has been designed effectively and is operating effectively in practice.
	Stage 2	The taxpayer provided evidence to demonstrate that a tax control framework exists and has been designed effectively.
	Stage 1	The taxpayer provided evidence to demonstrate a tax control framework exists.
	Not evidenced or concerns	The taxpayer has not provided sufficient evidence to demonstrate a tax control framework exists or we have significant concerns with the taxpayer's tax risk management and governance.

Income tax ratings for tax risk management and governance

Graph 7 shows the tax risk management and governance rating for income tax for the current Top 1,000 taxpayers at their most recent review.

Graph 7: Tax risk management and governance ratings for income tax at latest review for current Top 1,000 taxpayers – 30 June 2026

We continue to see improvement in governance ratings. In the reviews completed in the 2025–26 financial year, 73% of taxpayers achieved a stage 2 or 3 rating, as compared to 59% for all reviews shown in the graph above.

The table below shows the breakdown of latest governance rating by population pool. Significant pool taxpayers are more likely to have achieved a Stage 2 or 3 governance rating (66%) at their most recent review, compared to 55% of general pool taxpayers.

Table 5: Latest governance rating by Top 1,000 pool

Governance ratings	Significant pool	General pool	All Top 1,000 taxpayers
Stage 3	13%	3%	7%
Stage 2	53%	52%	52%
Stage 1	32%	43%	39%
Red Flag	1%	1%	1%
Not rated	1%	1%	1%

We have also observed an increase in the proportion of taxpayers shifting into the higher ratings in their latest review, as shown in graph 8.

Graph 8: Comparison of previous and latest tax risk management and governance ratings for income tax for current Top 1,000 taxpayers – 30 June 2026

As graph 8 demonstrates, we are seeing increases in stage 2 and 3 and a substantial decrease in stage 1 ratings. The increase in taxpayers achieving a stage 2 rating is a trend that has been observed since the introduction of the Supplementary guide, with many taxpayers now having a Board endorsed commitment to conduct periodic internal controls testing.

We are also observing taxpayers now undertaking periodic internal controls testing, which has resulted in an increase in stage 3 ratings. We anticipate that the number of taxpayers achieving stage 3 ratings will increase as taxpayers meet their commitment to undertake periodic internal control testing. Where we observe that taxpayers have not met that commitment, we will consider whether this is appropriate in their circumstances (for example, where there has been a change within the business that requires the governance framework to be updated prior to testing). Alternatively, we may need to consider whether, in the absence of testing being undertaken as per the commitment, Board level control 4 has in fact been effectively designed or whether a stage 1 rating is more appropriate.

Graphs 9 and 10 demonstrate the same comparison shown in graph 8, but for the significant pool and general pools respectively. The graphs show strong improvements in tax risk management and governance for both pools.

Graph 9: Comparison of previous and latest tax risk management and governance ratings for income tax for current Top 1,000 taxpayers in the significant pool – 30 June 2026

Graph 10: Comparison of previous and latest tax risk management and governance ratings for income tax for current Top 1,000 taxpayers in the general pool – 30 June 2026

Industry comparison

Graph 11 shows the latest and previous ratings for tax risk management and governance by industry category, for those income tax taxpayers reviewed more than once in the current Top 1,000 population. This shows an improvement in governance ratings across all industries.

Graph 11: Comparison of previous and latest tax risk management and governance ratings for income tax for current Top 1,000 taxpayers, by industry – 30 June 2026

You can also view the overall assurance ratings for reviews completed by industry in Tables 29 and 30.

Areas of focus

The following key issues are arising in our recent reviews and are the subject of our discussions with taxpayers in their ongoing focus on tax risk management and governance. These areas of focus build on the comments in prior years about specific board and management level controls. Taxpayers should consider these in conjunction with our Supplementary guide, and ensure controls are 'fit for purpose'.

BLC4: Periodic internal control testing

While we continue to focus on whether taxpayers have effectively designed tax risk management and governance frameworks, now that more taxpayers are achieving a stage 2 rating, we expect an increasing focus on periodic internal control testing in line with the commitment undertaken.

Periodic internal control testing must be undertaken by a suitably qualified reviewer who is independent of the tax control owner. This can include the internal audit function where that function sits outside of the tax function and has with separate reporting lines.

Alternatively, the testing may be undertaken by a third party. Determining whether a third party is independent for the purposes of undertaking internal control testing will be a question of fact and degree. It is relevant to consider whether the third party has undertaken any of the responsibilities of the control owners, including where the third party has undertaken the design of any of the tax controls, or the third party has undertaken the income tax preparation work. If they are not considered independent, the taxpayer will not have met the requirements for a stage 3 rating.

In assessing whether a taxpayer has effectively designed and operating tax controls (i.e. has attained a stage 3 rating), we will look to understand the scope and the outcomes of the testing. The scope should be set out in a document put together by the appropriately qualified independent reviewer which has been signed off by the control owners.

To evidence the outcomes of the testing, we need to be provided with:

• the testing methodology and sample size selected
• the types of source documents relied upon by the tester
• the final testing results
• an outline of the steps taken to address any issues identified in the testing
• board (or board delegate) acknowledgement of the test results and actions taken to address issues identified.

To achieve a stage 3 rating a taxpayer must have completed the testing and have addressed any issues identified.

Governance over third-party data

Governance over third-party data continues to be a key focus area for investment industry entities. Documented third-party data tax control frameworks that are designed effectively provide a key foundation for our ability to assure that the right amount of:

• tax has been paid
• tax attributes have been reported to members or beneficiaries of managed funds.

The Governance over third-party data supplementary guide was published in 2022. For reviews commenced after 1 July 2024, we have provided a rating for governance over third-party data to relevant investment industry entities.

Since that time, we have completed 56 reviews that have assessed governance over third-party data. Excluding some where the entities have been, or will be, wound-up and therefore not rated, approximately 59% of those assessed have achieved a stage 2 rating.

We expect the governance over third-party data population to continue maturing, with more taxpayers moving towards stage 3 ratings over time. We have been rating third-party data governance for 2 years, and we have observed that taxpayers are investing in this requirement.

Going forward we will consider how the third-party data governance impacts on the overall assurance rating. We will consider this on a case-by-case basis, having regard to factors such as:

• the industry of the taxpayer
• whether the third-party data governance framework is fit for purpose
• the relative impact of the third-party data to the overall level of economic activity assured.

In some circumstances this may mean that a taxpayer with a significant level of economic activity related to third-party data may be prevented from achieving an overall high assurance rating. This can happen if they do not have the objective evidence to demonstrate an effectively designed third-party data governance framework.

In-house administrators and custodians

We recognise that some entities within the investment management industry undertake investment management, fund administration and related operational functions internally and, as such, do not have a traditional outsourced service provider arrangement. However, our expectations regarding governance and assurance over third-party data tax controls apply equally to these entities.

BLC 3: The Board is appropriately informed

We expect regular reporting to the Board on the performance of outsourced service providers, including whether there have been any material breaches of the service level agreements. We have observed that some reporting templates include limited or no information about the breaches. The Board should be briefed on how a breach was rectified and what controls have been put in place to prevent such a breach from occurring again.

BLC 4: Periodic internal control testing and Principle 4 – Independent assurance of the control environment of outsourced service provider

We observed most entities have either:

• commenced or are about to commence their periodic internal control testing
• have included third-party data tax controls in the scope of their internal control testing plans.

Providing a copy of the GS007/ASAE 3402 report that does not contain sufficient tax control objectives in scope of the independent assurance report will not meet design effectiveness criteria. Under Principle 4, seeking assurance from independent parties in relation to the accuracy of the data received and processed by outsourced service providers requires the entity to not only obtain a high-quality independent assurance report, but also demonstrate through objective evidence that it reviews and understands the findings. Further, meeting Principle 4 requires evidence of findings and exceptions being reported to the Board, with a remediation strategy if exceptions are identified.

MLC 1: Roles and responsibilities are clearly understood

For some entities we observed a lack of oversight of changes to the IT systems or process improvement activities of outsourced service providers. We expect the entity's tax function or its external tax adviser to consider the impact of any changes to the IT systems or process improvements that provide data for tax reporting or tax calculations.

MLC 3: Significant transactions are identified

We have observed that most entities have definitions of 'significant' or 'complex' investments, including both qualitative or quantitative factors. However, criteria as to how the complexity of each investment will be assessed, as well as the escalation and sign off processes, need to be clearly defined.

While most entities have a robust on-boarding tax due diligence process for new investments, the processes for exit or dissolution of complex or significant investments may often be overlooked. We recommend a post-closure review is conducted to ensure the appropriate tax treatment.

We expect documented controls and processes for the planning, testing and migration of data. We also expect a post-implementation check in relation to significant transactions or events where data migration occurs, for example, due to:

• a change in outsourced service provider
• outsourcing of in-house functions
• migration of investment platform by outsourced service provider
• successor fund transfer.

Entities need to:

• understand any differences in tax policies and the impact to tax data
• document any changes to the tax return procedures, tax controls and checklists.

MLC 6: Documented control frameworks

Entities, particularly more complex entities, need better processes and controls to ensure the tax policy of the administrator is:

• prepared in accordance with the tax law
• reflected in the tax reporting relied upon by the entity.

We have observed an increase in international investments. Appropriate third-party data is required to ensure Australian taxpayers receiving income from international investments can meet their Australian tax obligations.

Some entities have implemented additional tax controls for complex foreign investments. However, where a custodian provides tax reporting on these foreign investments, the entity needs to understand the custodian's tax controls (including any gaps) to review the information provided by offshore investment managers.

Tax risks flagged to market, significant or new transactions and specific tax risks

We seek to understand and review the income tax treatment of a taxpayer’s business activities, particularly atypical, new or significant transactions. We also review specific tax risks and determine whether concerns we have communicated to the market are present.

Ratings

We apply a consistent rating system when reviewing and assessing the income tax treatment of business activities, including significant or new transactions and specific tax risks flagged to the market.

Table 6: Ratings categories for significant or new transactions and specific tax risks

Colour indicator	Rating	Category description
	High	We obtained a high level of assurance that the right Australian income tax outcomes were reported in the taxpayer's tax returns.
	Medium	More evidence or analysis is required to establish a reasonable basis to obtain a high level of assurance.
	Low	More evidence or analysis is required to determine whether a tax risk is present.
	Red flag	Likely non-compliance with the income tax law.
–	Out of scope	We have not evaluated this item or have not expressed a rating.

Observations

Outcomes from the review of significant or new transactions and specific tax risks drive correct reporting and tend to have a significant impact on overall assurance ratings of Top 1,000 taxpayers and are generally the areas that need the most time and effort in our reviews. The number of areas assured will vary between taxpayers, and the quality of objective evidence provided can have a significant impact on the overall assurance rating.

Obtaining a low assurance rating for a particular risk does not mean that the taxpayer will automatically achieve overall low assurance. The overall rating will be influenced by several factors, including all the individual ratings, the nature of the issue and materiality. However, as outlined in our criteria for obtaining high assurance, a low assurance rating for some assurance areas will prevent a taxpayer from being able to achieve an overall high assurance rating.

As part of our review of significant or new transactions or specific tax risk, we consider whether there are any relevant public rulings or guidance, including practical compliance guidelines or taxpayer alerts, and how these may impact the intensity of our review.

Our reports outline:

• our view on the tax treatment adopted for each significant or new transaction and specific tax risk
• any recommendations we have on steps the taxpayers should take to address concerns identified. In some cases, we have escalated our concerns for further investigation by way of an ATO next action.

The latest Findings report Reportable tax position schedule Category C disclosures provides the aggregated disclosures made by companies for the 2024–25 income year. The report provides insights into the types of arrangements large companies are entering, including arrangements in addition to the following information. We will check a taxpayer's disclosures made in the Reportable Tax Position (RTP) Schedule when assuring the relevant tax risks in our review.

Three-tier model behaviours, events and focus areas

The 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 under this pillar consider a broader range of behaviours and focus areas identified within the driving 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.

Table 7: International related party dealings (Tier 1)

Events (Tier 2)	Focus areas (Tier 3)
Transfer pricing and arm’s length conditions	Offshore hubs and commodity pricing Inbound supply chain distribution arrangements Transfer pricing mischaracterisation Financing arrangements
Intangibles arrangements	Intangibles migration arrangements (including mischaracterisation of Australian activities connected with intangibles) Characterisation of royalty payments

Table 8: Cross-border investment structures (Tier 1)

Events (Tier 2)	Focus areas (Tier 3)
Debt and capital structures	Pricing and quantum of debt Debt creation, loading and dumping Interest withholding tax Characterisation of debt and equity Third-party debt test Restructuring in response to thin capitalisation rules
Structuring through vehicles or arrangements	Accessing managed investment trust (MIT) concessions Inversion or top-hatting arrangements or imposition of partnerships or other entities
Income recognition from business operations	Attribution of profits through controlled foreign companies (CFCs) Attribution of permanent establishment profits
Hybrid arrangements	Importation of offshore hybrid mismatches Offshore hybrid mismatches

Table 9: Domestic tax positions and structures (Tier 1)

Events (Tier 2)	Focus areas (Tier 3)
Characterisation of business activities	Treatment of capital and revenue Business fragmentation
Claiming other tax concessions or rates	Entitlement to research and development (R&D) tax offsets Entitlement to section 128F withholding tax exemption Eligibility for MIT status
Creation and use of carried forward losses	Application of the business continuity test Use of revenue losses Use of capital losses
Disposal of wholly domestic business structures	Capital Gains Tax (CGT) rollovers Allocable cost amount (ACA) calculations

The following sections outline specific behaviours that drive tax performance and focus areas that attract our attention. We do not see these in all cases and this is not an exhaustive list. Assurance areas have been grouped according to the related 3TM behaviour, event or focus area(s).

3TM Tier 1: International related party dealings

3TM Tier 2: Transfer pricing and arm's length conditions

Of the combined assurance reviews completed to 30 June 2026, transfer pricing and arm's length conditions were assured in 66% of reviews. This is the most common area of assurance.

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 related party arrangements or transactions are mischaracterised or mispriced, resulting in profits being shifted from Australia to other, often lower, tax jurisdictions.

Failure to maintain adequate information and documentation to support transfer pricing positions is one of the most common reasons for a taxpayer obtaining a low or medium assurance rating for transfer pricing. Taxpayers need to maintain contemporaneous support for the positions adopted. The documentation should clearly outline the source and evidence relied on to identify the actual circumstances of the international related party dealings, including the functions performed, assets used, and risks borne by the entities involved in the transaction.

Our concerns are raised for international related party dealings where:

• the taxpayer's functional characterisation or the transfer pricing methodologies they have applied are not appropriate based on the substance of their arrangement resulting in inappropriate profit and tax outcomes.
• there is artificial structuring, fragmentation, risk allocation or bifurcation of business activities and related party arrangements in Australia that are mischaracterised and misaligned with the commercial substance, resulting in the application of inappropriate transfer pricing methods and incorrect profit and tax outcomes. The taxpayer's comparable data is not reflective of arm's-length outcomes in the facts and circumstances of their arrangement.
• there have been changes to the taxpayer's transfer pricing policy or methodologies without an underlying change to the taxpayer's functional characterisation or related party arrangements, with no supporting explanation provided for the basis of those changes.

3TM Tier 2: Transfer pricing and arm's length conditions; Tier 3: Financing arrangements

Of the combined assurance reviews completed to 30 June 2026, international related party financing was assured in 37% of reviews with the following ratings.

Table 10: Tier 3: Financing arrangements

Assurance rating	Top 1,000 review outcomes
High	15%
Medium	55%
Low or red flag	30% (<1% red flag)

We continue to observe higher risk arrangements where pricing and conditions are not consistent with third-party transactions.

The common related party financing arrangements that attracted low or red flag ratings related to interest bearing related party loans, and to a lesser extent cash pooling, guarantee fees and outbound interest free loans.

We also observe taxpayers that have had more than one assurance review with higher assurance ratings for financing arrangements, than taxpayers reviewed only once.

We continue to:

• apply the risk assessment framework published in Practical Compliance Guideline PCG 2017/4 ATO compliance approach to taxation issues associated with cross-border related party financing arrangements and related transactions
• consider the analysis prepared in transfer pricing documentations to review the arm’s length nature of financing arrangements.

Following amendments to the transfer pricing rules, which formed part of Australia’s thin capitalisation reforms, we are also seeking to ensure the amount of debt held by taxpayers is also arm's length. We expect taxpayers to provide contemporaneous evidence to support the commercial nature of their arrangements.

Financing arrangements that give rise to transfer pricing concerns may also present other risks. For example concerns:

• that the arrangement is structured to avoid interest withholding tax or fail to satisfy the eligibility criteria for interest withholding tax exemptions claimed
• in relation to the use of hybrid financing instruments that do not align with the underlying economic substance of arrangements designed to achieve certain debt and equity classification and tax outcomes.

Financing arrangements constitute a key area resulting in ATO next action reviews and audits.

3TM Tier 2: Transfer pricing and arm's length conditions (excluding Tier 3: Financing arrangements)

Of the combined assurance reviews completed to 30 June 2026, transfer pricing (excluding related party financing) was assured in 59% of reviews with the following ratings.

Table 11: Transfer pricing and arm's length conditions (excluding Tier 3: Financing arrangements)

Assurance rating	Top 1,000 review outcomes
High	18%
Medium	56%
Low or red flag	26% (<1% red flag)

The above ratings relate to a variety of international related party dealings, ranging in varying complexity, and covers areas such as:

• inbound and outbound sale and purchase of tangible goods (largest category reviewed)
• management and administration services
• intellectual property and royalties
• licence fees
• sales marketing procurement and shipping arrangements
• provision and receipt of technical services
• research and development services.

In our reviews we consider the functions performed, assets used, and risks assumed by the relevant entities in connection with the activities that develop, enhance, maintain, protect, and exploit the licenced assets, including any mischaracterisation of such activities. We will request any analysis undertaken by the taxpayers in their transfer pricing documentation with respect to the Australian operations to determine the level of assurance over these arrangements.

We observe that where the same transfer pricing arrangement is considered across 2 or more reviews, taxpayers generally achieve improved assurance outcomes in subsequent reviews as they consider and address the concerns raised in the earlier review.

We continue to identify concerns with arrangements regarding the inbound and outbound supply of goods and services. We consider these arrangements, including taxpayers' self-assessment of the transfer pricing risk of their arrangements, with regard to Practical Compliance Guideline PCG 2019/1 Transfer pricing issues related to inbound distribution arrangements, including taxpayers' self-assessment of the transfer pricing risk of their arrangements. We also consider whether arrangements are appropriately characterised as inbound distribution arrangements within the updated definition provided in PCG 2019/1 and where relevant, consider transfer pricing mischaracterisation risks.

A significant portion of ATO next action audits, escalated either directly from a Top 1,000 review or from an ATO next actions review, include transfer mispricing issues (other than financing).

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 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 or
• within the scope of Tax 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 the 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 arrangements designed to reduce or avoid Australian income tax, including 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 Practical Compliance Guideline PCG 2024/1 Intangibles Migration Arrangements
• arrangements of the kind described in Taxpayer Alert TA 2018/2 Mischaracterisation of activities or payments in connection with intangible assets or within the scope of Tax Ruling TR 2026/2 Income tax: royalties – character of payments in respect of software and intellectual property rights.

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 that we consider 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

Of the combined assurance reviews completed to 30 June 2026, thin capitalisation was assured in 46% of reviews with the following ratings.

Table 12: Thin capitalisation

Assurance rating	Top 1,000 review outcomes
High	77%
Medium	14%
Low or red flag	9% (<1% red flag)

The assurance ratings above reflect both assurance outcomes before and after the changes to the thin capitalisation rules, depending on the income year assured. 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 rules will be supported by changes to the application of the transfer pricing rules that may affect a taxpayer's quantum of debt.

This area had a higher proportion of high assurance than other review areas, with most taxpayers relying on the safe harbour debt test or fixed ratio test. As the new thin capitalisation and debt deduction creation rules continue to have a significant impact on Top 1,000 taxpayers, this will continue to be a key focus area in combined assurance reviews.

We expect taxpayers to implement strong processes to deal with the new thin capitalisation provisions, including appropriate consideration of the matters set out in the following guidance products:

• Practical Compliance Guideline PCG 2025/2 Restructures and the thin capitalisation and the 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

The full scope of the hybrid mismatch rules is now applicable for most income years being assured.

Of the combined assurance reviews completed, hybrid arrangements were assured in 47% of reviews with the following ratings.

Table 13: Hybrid arrangements

Assurance rating	Top 1,000 review outcomes
High	47%
Medium	33%
Low or red flag	20% (<1% red flag)

For the reviews completed in the 2025-26 financial year, there is an upward trend in assurance ratings attributable to the preparation, application and retention of appropriate processes and procedures.

When undertaking our assurance reviews, we:

• refer to Practical Compliance Guideline PCG 2021/5 Imported hybrid mismatch rule – ATO’s compliance approach
• request evidence to support the processes and procedures taxpayers are taking to ensure compliance with the imported hybrid mismatch rule in Subdivision 832-H of Income Tax Assessment Act 1997.
  • It's important that this evidence is retained and provided to us when we assure this area. Inability to provide this evidence is the most common reason for taxpayers achieving a medium or low assurance rating for the hybrid mismatch rules.

3TM Tier 1: Domestic Tax Positions and Structures

Domestic tax positions and structures give rise to a range of common areas that we review including the tax implications on the disposal of wholly domestic business structures, treatment of capital and revenue, ACA calculations and losses.

3TM Tier 2: Disposal of wholly domestic business structures, including Tier 3: CGT rollovers

Of the combined assurance reviews completed to 30 June 2026, CGT (excluding disposals by foreign residents) was assured in approximately 39% of reviews with the following ratings.

Table 14: CGT

Assurance rating	Top 1,000 review outcomes
High	69%
Medium	21%
Low or red flag	10% (<1% red flag)

Of those that achieved a low assurance, the key issues included:

• concerns with the rollover exemptions or reductions
• active foreign business asset exemption – Subdivision 768-G of Income Tax Assessment Act 1997
• market valuations supporting the cost base of assets (such as goodwill and intangible assets)
• the calculation (or evidence) of proceeds and insufficient evidence to support the CGT calculation.

3TM Tier 2: Characterisation of business activities; Tier 3: Treatment of capital and revenue

This focus area includes the topics of capital allowances and repairs and maintenance.

Of the combined assurance reviews completed to 30 June 2026, uniform capital allowance (UCA) claims and/or repairs and maintenance were assured in 55% of reviews with the following ratings.

Table 15: UCA and repairs & maintenance

Assurance rating	Top 1,000 review outcomes
High	53%
Medium	36%
Low or red flag	11% (<1% red flag)

When assuring capital allowance claims, we consider the systems and governance processes adopted, as well as the supporting evidence provided. For taxpayers that have been reviewed more than once, we have observed an improvement in their assurance ratings. Most of the reviews that obtained low or red flag assurance included recommendations for next actions by the taxpayer. The common issues identified include:

• inadequate documentation to support self-assessed effective lives of Division 40 assets and disclosure errors in tax returns
• incorrect asset classification and deductions claimed in relation to Division 40 and Division 43
• capital improvements versus repairs and maintenance
• incorrect low-value pool deductions.

3TM Tier 2: Disposal of wholly domestic business structures; including Tier 3: ACA calculations

Of the combined assurance reviews completed to 30 June 2026, consolidation was assured in 34% of reviews with the following ratings.

Table 16: Consolidation

Assurance ratings	Top 1000 review outcomes
High	68%
Medium	25%
Low or red flag	7% (No red flag ratings)

Consolidation review areas include the allocable cost amount process as well as asset recognition and valuations. The majority of reviews relating to consolidation matters continue to be rated high assurance.

Some of the issues that we have seen in relation to tax consolidation include changes in membership of Australian tax groups through internal transactions or decisions designed to:

• increase or accelerate deductible losses or depreciation
• generate Australian tax deductions for anticipated asset write-offs
• avoid tax on anticipated terminations or disposals
• generate foreign tax credits.

Key issues for acquisitions in relation to the entry allocable cost amount (ACA) calculations and the tax cost setting amount, include:

• inadequate documentation to support the ACA calculations
• acquisition costs incorrectly excluded from the Step 1 amount and treated as blackhole expenditure
• asset characterisation for the purposes of allocating the entry ACA, including other intangible assets that would more appropriately be classified as goodwill but were instead classified as separate assets for tax consolidation purposes.

3TM Tier 2: Creation and use of carried forward losses; Tier 3: Application of the Business Continuity Test, Utilisation of revenue losses, Utilisation of capital losses

Of the combined assurance reviews completed to 30 June 2026, revenue and capital losses were assured in 38% of reviews with the following ratings.

Table 17: Losses

Assurance rating	Top 1,000 review outcomes
High	67%
Medium	24%
Low	9% (No red flag ratings)

When reviewing losses, we seek to understand the origin of the losses and focus on utilisation of losses (continuity of ownership and business continuity tests), transfer of losses and available fraction calculations.

The results indicate a strong level of assurance across the utilisation of losses in the Top 1,000 population, with 91% rated as either high or medium assurance. High or medium assurance ratings are observed where sufficient evidence supports the utilisation of losses (in particular, satisfaction of the business continuity test) and the available fraction calculations (including market valuations of entities that joined the tax consolidated group or MEC group).

Other observations: Structured arrangements designed to reduce Australian tax

In some cases, we see domestic or cross border investment structures that appear to reduce or avoid Australian tax. Such arrangements are typically escalated to specific investigation, including audits.

In addition to some of the matters highlighted above, the other types of domestic or cross border investment structures that attract our attention are set out below, grouped by the most relevant Tier 2 visible events and/or Tier 3 focus areas. These arrangements may also be observed under other Tier 1 behaviours, Tier 2 visible events or Tier 3 focus areas in the 3TM.

3TM Tier 1: Cross border investment structures; Tier 2: Debt and capital structures:

Contrived related party financing arrangements, including the use of financing transactions with special terms designed to either:  

• 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 including using arrangements designed to circumvent specific thin capitalisation debt and equity classification and hybrid mismatch rules
• exemption from withholding tax where the eligibility criteria is not met.

3TM Tier 1: Cross border investment structures; 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 Multiple entry consolidated groups avoiding CGT – these arrangements broadly involve the transfer of assets to an eligible tier-1 (ET-1) and an ET-1 company exiting, or anticipating exit from, the 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; Tier 2: Structuring through vehicles or arrangements; Tier 3: Inversion or top-hatting arrangements or imposition of partnerships of other entities

Inversion 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: Structuring through vehicles or arrangements

Arrangements of the kind described in TA 2020/5 – Structured arrangements that provide imputation benefits on shares acquired where economic exposure is offset through use of derivative instruments.

Collective Investment Vehicle (CIV)

3TM Tier 1: Domestic tax positions and structures; Tier 2: Claiming of other tax concessions or rates; Tier 3: Eligibility for Managed Investment Trust status

3TM Tier 1: Cross-border investment structures; Tier 2: Structuring through vehicles or arrangements; Tier 3: Accessing MIT concessions

Managed investment trusts (MITs) / Attribution managed investment trusts (AMITs) governance

We have continued to identify specific issues with fit-for-purpose tax risk management and governance frameworks specific for MITs and AMITs. These include:

• MIT and AMIT annual eligibility testing as part of the annual tax return preparation
• lodgment and self-assessment process
• documented controls for the management of unders and overs for AMITs.

Entities need documented processes, procedures and controls within their tax control frameworks to ensure these critical CIV specific risks are managed and mitigated consistently year on year.

AMIT overs and unders

AMITs continue to utilise the unders and overs rules to recognise understatements or overstatements of attributable amounts from past income years in the current income year (the discovery year). We expect taxpayers to be able to provide a detailed explanation of the factors driving these adjustments, including the:

• underlying causes
• governance processes applied to identify, quantify and mitigate the variance
• basis for concluding that the adjustment has been appropriately treated under the AMIT regime.

While we have paid particular attention to material unders and overs adjustments (i.e. those exceeding 5% of the determined trust components), robust documentation should be maintained to support the calculation and treatment of all unders and overs amounts.

3TM Tier 1: Administrative compliance obligations; Tier 2: Reporting Obligations; Tier 3: Investment body data (Annual Investment Income Reports and AMIT Member Annual Statements)

Distribution reporting

We have maintained a strong focus on beneficiary reporting, to increase our level of assurance that these flow-through vehicles are reporting the right amount of tax attributes to members, so that they are able to report the right amount of income tax. A key focus here was the identification of errors in AMIT Annual Statement (AMMA) or Standard distribution statements (SDS) and Annual Investment Income Report (AIIR) data, and the subsequent rectification of the errors.

Australian Investment Income Report (AIIR) lodgment compliance

We closely review AIIR lodgment compliance to better understand the extent and nature of reporting errors across fund structures. Our observations have identified instances of non-lodgment and late lodgment, as well as incomplete or mismatched information reported through funds.

These issues can affect the accuracy and integrity of information reported to the ATO and may result in downstream reporting discrepancies for investors. Deficiencies in AIIR lodgments can result in reporting discrepancies, increased compliance costs for taxpayers and intermediaries, and reduced confidence in the accuracy of information relied upon by members.

3TM Tier 1: Domestic tax positions and structures; Tier 2: Characterisation of business activities; Tier 3: Treatment of capital and revenue

Redemptions

We have increased our scrutiny of significant redemption transactions to obtain a clearer understanding of the circumstances in which they arose and their tax outcomes. We seek to understand the commercial context and purpose of each redemption event, including:

• how the redemptions were funded
• the calculation documentation supporting the tax treatment
• the member impacts.

Capital gain and loss

We have continued our focus on reviewing significant capital gains and capital losses arising from a range of investment and redemption transactions. We expect entities to maintain contemporaneous documentation that substantiates the reported capital amounts. This should include:

• detailed information regarding the origin and nature of the transactions giving rise to the CGT outcomes
• the methodology and supporting calculations used to determine the relevant cost bases and capital proceeds
• how the resulting gains or losses have been allocated, attributed or distributed.

The absence of sufficient supporting evidence may affect our ability to verify the correctness of the reported CGT outcomes and obtain assurance over the tax treatment adopted.

Superannuation fund specific issues

3TM Tier 1: Domestic tax positions and structures; Tier 2: Characterisation of business activities; Tier 3: Treatment of capital and revenue

Trustee risk reserves

Since amendments to sections 56 and 57 of Superannuation Industry (Supervision) Act 1993 (SIS Act), we have commenced reviewing characterisation of payments made to establish a trustee risk reserve. Of the funds reviewed in the 2025–26 financial year, 60% of funds achieved a high assurance in this area and 40% achieved a low assurance rating.

We observed some superannuation funds did not correctly consider the capital vs revenue treatment of trustee payments in accordance with TD 2024/6 Income tax: trustee risk reserves – deductibility of payments made by a superannuation fund to its trustee, resulting in incorrectly treating some payments as fully deductible under section 8-1.

Further, while some funds have documented policies and procedures with respect to claiming payments made to trustees, many still need to develop and implement appropriate checks to confirm the correct tax treatment of these payments.

Corporate limited partnership distributions

We continue to consider whether there has been an over reliance on third-party data to treat the components of corporate limited partnerships (CLPs) according to distribution statements. We have concerns that the characterisation of the distribution may not match the underlying economic activities, due to potential over representation of return of capital characteristics. We expect superannuation funds to take steps to ensure amounts reported as capital and income reflect the underlying economic activities.

Of funds reviewed in the 2025–26 financial year, 44% included CLPs as an area of assurance, with 13% achieving a high assurance rating and 87% achieving medium assurance. This has been a positive shift since the 2024–25 financial year, with no funds achieving a low assurance rating in this area. We've seen some improvement in policies and procedures in relation to distributions, resulting in a greater number of medium ratings. This will continue to be a focus area for the ATO.

Most funds have established CLP policies covering the acquisition, monitoring and disposal of CLP investments. However, these policies should also document the risk-based criteria used to identify distributions requiring detailed review. The Governance over third-party data supplementary guide outlines better-practice approaches for applying a risk-based assessment to determine which distributions should undergo annual review. We also expect a proportion of distributions not selected through this process to be subject to random sample testing over a rolling review cycle.

While most funds have documented procedures for determining distributions paid during the income year, we are still observing some funds not meeting best practice for identifying and quantifying amounts credited to the fund during the year. To achieve a high assurance rating, we expect funds and their custodians to have robust controls to determine when a CLP has credited an amount and when that amount should be included as assessable income. Where this is unclear from the distribution notice, funds should:

• seek clarification from the general partner
• refer to the relevant provisions of the limited partnership agreement to ensure assessable income is returned in accordance with TR 2024/2 Income tax: when does a corporate limited partnership 'credit' an amount to a partner in that partnership?

Where external tax advisers are engaged to prepare tax data relied upon for income tax return purposes, we expect superannuation funds to maintain a documented review process to ensure the tax data is accurate, complete and appropriately reviewed.

The Governance over third-party data supplementary guide and our assurance activities are intended to mitigate the risk that inaccurate data leads to incorrect tax positions, by demonstrating better practices for obtaining relevant information to appropriately characterise distributions. We will consider further ATO engagement where appropriate and follow up on the steps taken to address our recommendations before, or at the time of, our next review.

3TM Tier 1: Cross-border investment structures; Tier 2: Structuring through vehicles or arrangements

Due to the net inflow of assets into the superannuation fund industry, we have observed funds are increasingly seeking offshore investment opportunities. Some large superannuation funds have focused on growing internal investment capabilities, including overseas local investment teams and offices. We have observed a shift towards more direct investments, including co-investments, joint ventures and consortium investments.

Investment vehicles such as foreign hybrid limited partnerships (FHLPs) and foreign hybrid limited companies (FHLCs) that are covered under the foreign hybrid rules contained in Division 830 are of increasing significance to Australian superannuation funds with respect to foreign investments.

We have observed that some superannuation funds have implemented formal governance frameworks, including classification checklists, to determine the correct tax treatment of foreign investment vehicles. Where relevant, funds should maintain documented tax policies covering these investments. In addition, robust processes and controls should be established between the in-house tax function, investment teams, custodians and administrators, to ensure tax information received from investment entities is appropriately identified, understood, captured and accurately reflected in internal reporting systems. We expect the tax function to maintain documented procedures for collecting, reviewing and analysing relevant tax information, with clearly defined responsibilities, key controls and processes that support the correct Australian tax treatment of foreign investments on an ongoing basis. This is particularly important where the fund is subject to a Substitute Accounting Period (SAP) or TFN application requirement, or a foreign hybrid election with respect to a FHLP or FHLC.

Where external tax advisers are engaged to prepare tax calculations that contribute to the income tax return, we expect funds to have documented review procedures to validate the accuracy and appropriateness of those calculations.

Funds should be aware that changes in ownership interests, including those arising through a Successor Fund Transfer (SFT), may affect the tax classification of an investment. For example, following an SFT, an investment may:

• become subject to the foreign hybrid rules due to combined ownership interests
• meet the requirements for CFC treatment where it previously did not.

We encourage funds to have appropriate policies, processes and controls in place to identify such changes and ensure the correct tax treatment is applied.

To obtain a higher assurance rating, where it is relevant to their circumstance's funds should implement the tax considerations and controls outlined above. We will continue to focus on complex investment structures and foreign investments or vehicles in our future compliance activities.

Alignment of accounting and income tax outcomes

We analyse the differences between the accounting and income tax results and seek to understand and explain any variances.

Ratings

We apply a consistent rating system when reviewing and assessing the alignment of accounting and income tax outcomes.

Table 18: Ratings categories for alignment with income tax

Colour indicator	Rating	Category 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/or why the accounting and tax results vary.
	Low	We identified concerns from our analysis of the various streams of economic activity and/or why accounting and tax results vary.
	Red flag	We do not understand and cannot explain the various streams of economic activity and/or why accounting and tax results vary.

Results

Graph 12 shows the overall ratings for the alignment of accounting and income tax for the current Top 1,000 taxpayers at their most recent review.

Graph 12: Income tax alignment of accounting and tax ratings at latest review for current Top 1,000 taxpayers – 30 June 2026

The below table shows the latest alignment rating for taxpayers in the population by pool.

Table 19: Latest alignment rating by Top 1,000 pool

Alignment rating	Significant pool	General pool	All Top 1,000 taxpayers
High	91%	90%	91%
Medium	8%	9%	8%
Low	1%	1%	<1%

Graphs 13 looks at the comparison between the latest and previous ratings for the alignment of accounting and tax for taxpayers reviewed more than once. Graphs 14 and 15 show this comparison for the significant pool and general pool respectively.

Graph 13: Comparison of previous and latest alignment of accounting and tax ratings for income tax for current Top 1,000 taxpayers – 30 June 2026

Graph 14: Comparison of previous and latest alignment of accounting and tax ratings for income tax for current Top 1,000 taxpayers in the significant pool – 30 June 2026

Graph 15: Comparison of previous and latest alignment of accounting and tax ratings for income tax for current Top 1,000 taxpayers in the general pool – 30 June 2026

Observations

As shown in graph 13, we continue to see improvements in outcomes for current Top 1,000 taxpayers that have been reviewed more than once, with high assurance ratings increasing from 86% (previous reviews) to 92% (latest reviews). There is a trend of taxpayers moving to higher levels of assurance in their latest review; however, we do observe a smaller number of taxpayers falling backwards in the ratings.

Graphs 14 and 15 show that the general and significant pool taxpayers have near-identical ratings for alignment between accounting and tax results, which contrasts to the differences we see with the overall assurance and governance ratings between the 2 pools.

We generally obtain high assurance over reported income and expenses as most taxpayers have audited financial statements and we can reconcile the financial statements with the starting profit and loss before tax disclosed in the relevant income tax return. The provision of detailed statements of taxable income has enabled us to obtain assurance over the adjustments from accounting results to calculate the taxable income and tax payable figures.

This is more challenging for Multiple Entry Consolidated (MEC) groups, foreign bank branches and stapled groups, but we find that taxpayers have generally been able to provide sufficient evidence for us to understand the variances between the accounting and tax results.

For those taxpayers that don't achieve high assurance, the concerns continue to be due to the inability to provide detailed workpapers to support the permanent and timing differences.

Income tax next actions program

Where we identify concerns, we will notify taxpayers of our recommendations or any steps the taxpayer needs to undertake.

Client next actions

Where we identify concerns, we will notify taxpayers of our recommendations or any steps the taxpayer needs to undertake ('Client next actions').

We may require the taxpayer to confirm the steps taken to address 'Client next actions' when we next undertake an assurance review, or we may follow up a specific issue earlier. We will outline an expected timeframe for the follow up enquiry and expect taxpayers to provide further information in a timely manner. During the 2025–26 financial year, 24% of income tax assurance reviews resulted in specific follow up actions for the taxpayer.

ATO next actions

If we identify concerns that require further intervention through an ‘ATO next action’, we will indicate the matters that will be escalated for further review. We will notify taxpayers at the end of the combined assurance review if we are going to conduct further investigations through the ATO next actions program. We provide guidance to taxpayers as to how to prepare for the follow up engagement and what to expect. Preparation will assist with the earlier resolution of the matter.

ATO next actions are not assurance reviews. Next actions are a more intensive ATO investigation and can include specific or comprehensive income tax risk reviews and audits.

When the ATO engages with a taxpayer for ATO next actions, we focus on the issues that are of the greatest concern to us, such as issues that received a red flag or low assurance rating in the taxpayer’s assurance report.

ATO next action outcomes

For all combined assurance reviews completed in the 2025–26 financial year, approximately 3% of cases had at least one issue escalated for ATO next actions. This is lower than the proportion escalated:

• since the commencement of the combined assurance review program (9%)
• in the 2024–25 financial year (6%).

Since the beginning of the assurance program, we have completed ATO next actions engagements with over 290 taxpayers. There are 60 engagements on hand as of 30 June 2026.

For these engagements in progress, 20% are risk reviews and 80% are audits. We continue to progress issues to audit. We are also seeing some cases move directly to audit from an assurance review, as we improve our sophistication for detecting and knowing which issues require deep investigation. In the 2025–26 financial year, 33% of cases escalated from an assurance review progressed straight to an audit.

The risks addressed in ATO next actions engagements started in the 2025-26 financial year include international related party dealings mischaracterising with respect of payments for goods and services, structuring to avoid withholding tax, not meeting eligibility criteria to claim exemptions from withholding tax.

During the 2025–26 financial year, we completed 32 ATO next actions engagements. Of these, 50% resulted in financial outcomes and 25% were escalated to audit. The remaining engagements resulted in outcomes such as:

• consideration or escalation to another product (non-audit), education of taxpayers and changes in taxpayer behaviour
• 'No further action', as we re-assessed the risk based on further information and determined that no further compliance resources were required
• the further explanation provided by taxpayers satisfying our enquiries.

How to prepare for an ATO next actions engagement

We encourage taxpayers to prepare for their ATO next actions engagement. This includes preparing evidence to demonstrate they have addressed the actions noted in their assurance report and documenting the steps that they have taken.

Taxpayers that choose not to adopt the recommendations in their assurance reports are encouraged to provide evidence supporting their position.

The better prepared and more open and transparent a taxpayer is, with contemporaneous evidence to support their positions, the more likely the ATO next actions engagement can be resolved within a shorter timeframe. Taxpayers can also reduce their penalty exposure and it is less likely the matter will progress to an audit.

Most taxpayers do work with us to resolve identified concerns. The following are factors that are more likely to expedite resolution:

• provision of the additional evidence requested in the Top 1,000 combined assurance review report
• amending the tax outcomes associated with the arrangement to reflect the ATO view, for example, moving to low-risk zones on areas covered by our practical compliance guides (provided no deeper structural issues exist).

The following are some factors which we are seeing that are more likely to entrench dispute or delay resolution:

• general statements of commercial purpose, particularly where debt is introduced or business operations are fundamentally changed
• vague or contestable evidence supporting classification of payment streams
• offers to reprice arrangements in exchange for not considering anti-avoidance rules. We will not use anti-avoidance rules as a negotiation point. Where anti-avoidance concerns are raised, full and detailed analysis (and supporting evidence) will be needed.