Top 500 private groups tax performance program

About the Top 500 private groups performance program

The Top 500 private groups tax performance program seeks to give the community confidence that Australia’s largest privately owned groups are paying the right amount of tax. It is one of the programs under the Tax Avoidance Taskforce.

The program uses a one-to-one approach to collaborative engagements whose aim is to increase willing participation through a focus on prevention rather than correction.

By working together, we're able to better understand the activities carried on by a Top 500 group and tailor their experience when they need to engage with us. This increased transparency means we can identify and resolve issues early and provide services efficiently.

Our objective is to provide a level of assurance based on the principles of justified trust and give the Top 500 group certainty around whether it is complying with its tax obligations.

If a Top 500 private group doesn't engage with us and demonstrate they want to comply with their tax obligations, we will seek to assure the correct amount of tax has been paid through traditional review and audit action.

Who is covered by this program

The Top 500 private groups program includes private groups:

• with over $250 million turnover, regardless of net asset value
• with over $500 million net assets, regardless of turnover
• with over $100 million turnover and over $250 million in net assets
• that are market leaders or groups of specific interest.

We use sophisticated data matching and analytic models to identify wealthy privately owned groups and link them to associated entities. We then look at the group of entities as a whole. This private group approach helps us to understand the business, which allows us to focus on the issues that are relevant and provide a more tailored experience.

For more information see Tax performance programs for privately owned and wealthy groups.

How we tailor our approach

Our engagement approach is tailored and matched to:

• the level of complexity of the Top 500 group’s business and tax affairs
• whether the Top 500 group's representatives are open and transparent with us
• the Top 500 group's commitment to demonstrating a willingness to participate in the tax and superannuation systems over the long term
• the quality of tax governance that the group has in place to ensure that the correct amount of tax will be paid in the future.

By engaging directly, we build a better understanding of the group's business, the issues that drive its success and its approach to risk. Ongoing engagement means we can track compliance from year to year and work together to prevent issues from recurring. The forward-looking aspects of our engagement approach helps the group to maintain good compliance into the future.

Our one-to-one engagements will focus on:

• assuring that the correct amount of tax has been paid in the year or years under review and will continue to be paid into the future (that is, the justified trust approach)
• identifying opportunities where we can work together to help the Top 500 group engage with the tax system
• resolving, in real time, any issues that may arise prior to lodgment.

Based on our interactions, groups will be placed in one of the following engagement experiences.

Partnering

We partner with the Top 500 group to help it maintain good compliance.

Top 500 private groups that have attained justified trust will be in the partnering category. To reach a partnering position a group must satisfy the key areas of justified trust, which includes the need to have highly effective tax governance in place. See How we assess tax governance for Top 500 privately owned groups.

If a Top 500 group achieves justified trust, we will partner with its representatives to deliver timely and efficient services that help the group meet its tax obligations. We will also reduce the intensity of our engagement interactions with the group and reduce the group's compliance costs as we enter into a monitoring and maintenance period.

Encouraging

We encourage the Top 500 group to address areas for improvement.

This category includes Top 500 groups that can demonstrate that they have been complying with their obligations, but whose level of tax governance is insufficient to give us confidence that they will continue to comply. It also includes groups who are selectively transparent in their dealings with us.

Top 500 groups in this category are encouraged and supported to improve their tax governance; and to work openly with us so we can deliver tailored services and approaches that provide mutual certainty.

Influencing

We take firmer action in order to influence the Top 500 group toward improving their compliance.

This category includes groups that choose not to voluntarily engage in the Top 500 program and who also lack transparency in their dealings with us. It also includes groups who take aggressive approaches to the management of their tax affairs.

Where Top 500 groups are generally not transparent and take high risk positions, we'll adopt a more intensive approach to ensure risks are addressed using review or audit. Where necessary, we will also use our formal information gathering powers.

Engagement process

A printable version is also available – Top 500 Program Client Experience Roadmap (PDF 505KB)This link will download a file.

The engagement process generally includes the following steps.

	ATO issues notification letter
	ATO calls client or their representative to arrange a meeting
	Meeting (face-to-face, video conference, or phone)
	ATO issues a letter explaining our approach to engagements with the Top 500 and states the agreed principles that will guide the engagement
	One-to-one engagement interactions commence
	ATO initiates the assurance process with a request for information (RFI) which is tailored in collaboration with the Top 500 client
	Client sends RFI response to ATO
	Analysis of the four key areas of justified trust: tax governance tax risks flagged to the market verify treatments of ongoing and atypical transactions alignment between accounting and tax
	Ongoing discussion or further RFI (if required)
	ATO issues an assurance letter providing details of assurance outcomes for entities within the group for the relevant years and next actions are detailed (where applicable)
	Subsequent yearly engagement will be tailored based on level of assurance

How justified trust applies to your engagement

We use an assurance-based approach to determine whether a Top 500 group is paying the correct amount of tax by applying the justified trust methodology. The process of assurance requires that we have a thorough understanding of a Top 500 group’s income producing and wealth extraction activities.

When engaging with a Top 500 client, we review the 4 key areas that underpin the justified trust methodology.

Effective tax governance

Tax governance means having clear processes and procedures in place within a corporate governance framework to support decision-making, and to ensure that the group is meeting its taxation and superannuation obligations.

Tax governance is effective when the Top 500 group can demonstrate that the framework, processes and procedures that they have in place will result in ongoing compliance with their lodgment, reporting and payment obligations. The Top 500 tax governance area is particularly important because effective tax governance provides the foundations upon which a private group can demonstrate that they are achieving the other three key areas of justified trust.

Tax risks flagged to market

We flag compliance risks to the market through communications such as:

• public rulings
• taxpayer alerts
• practical compliance guidelines.

We need to:

• be satisfied that these risks are not present within the group
• ensure that the likelihood of their arising in the future is appropriately mitigated through a group's tax governance framework.

Ongoing and atypical transactions

We must have a high degree of confidence that the tax treatment of ongoing income producing activities of a Top 500 group is correct.

Similarly, we must have high degree of confidence that the tax treatment of any atypical transactions entered into by the group are also correct (for example, CGT consequences of asset disposals, restructures, acquisitions).

Differences in accounting and tax results

We must understand the adjustments that are included in the Top 500 group's tax reconciliations. We need to be satisfied that the material book-to-tax adjustments are complete and correct in the context of the activities that are being carried on.

Assurance over book-to-tax requires transparency so we can verify that the adjustments to the group’s accounting treatments appropriately reflect the correct tax principles.

The process includes:

• obtaining an understanding of the accounting treatments used by each relevant entity
• conducting an in-depth reconciliation of the
  • working papers supporting the tax return
  • group’s accounting records (financial statements, trial balance, general ledger).

Attaining tax assurance and justified trust

A Top 500 group can obtain holistic tax assurance and achieve justified trust where it satisfies all 4 of the key areas at a group level. Achieving justified trust will generate a tangible change in a Top 500 private group’s experience, as we move into a monitoring and maintenance period.

A Top 500 group can also receive partial tax assurance through the application of the justified trust methodology. Partial tax assurance can be provided where it has been determined that specific (or all) entities in the group are reporting correctly and (if relevant) have paid the correct amount of tax in an income year. This may be the case even though the Top 500 group as a whole has not achieved justified trust (for example, because the group does not have adequate tax governance in place to give us confidence that they will continue to report correctly).

A Top 500 group that predominantly generates income from passive investment is subject to a differentiated engagement which allows a more simplified approach to justified trust. Our Passive investor guide for Top 500 groups outlines the differentiated approach and provides information to effectively manage the tax issues that arise from passive investment activity.

Monitoring and maintenance approach

Reaching justified trust will generate a tangible change in a Top 500 private group’s experience and a consequential scale-down in engagement interactions, as we move into a 3 year monitoring and maintenance period.

During this 3 year period, we will rely on the tax governance framework operating effectively to mitigate tax risk. We will provide contemporary services and will only seek to verify the treatment of new tax issues or other material changes to the group.

We will check in with you at least annually, but we also expect that representatives of the group will tell us in real time if the group:

• has made material changes to the design of its tax governance framework or changes to the management of the tax function (for example, a new CFO, tax manager, tax agent or tax partner)
• identifies tax risks that have been newly flagged to market subsist within the group
• has experienced material changes to the nature of their ongoing transactions
• enters into new or atypical transactions of a type not previously assured
• has made material changes in their approach to book-to-tax treatments
• has taken new tax positions or changed tax positions that have previously been assured
• identifies disclosure issues or errors that should be corrected.

After 3 years of monitoring and maintenance

At the expiration of the 3 years of monitoring and maintenance, we will refresh our understanding and evidence base to reaffirm our confidence that the Top 500 group continues to pay the right amount of tax. This will be done by conducting a refreshed justified trust review.

The assurance activities for the refresh year will resume a whole-of-business approach, covering all of the Top 500 group’s tax outcomes in applying the 4 key areas of justified trust. However, our assurance activities in the refresh year will build on the detailed understanding that we already have of the group's activities. Therefore, in ordinary circumstances we expect that the process of refreshing our understanding will mean we leverage off

• existing information
• the evidence we hold
• our knowledge of the group.

This will mean less resource investment by taxpayers and us.

The refresh year review will focus on the current income year and will generally not involve enquiries into the years covered by monitoring and maintenance unless key or material issues remain unassured for those years.

We will work with taxpayers on the scope and timing of the workplan for the refresh year.

In certain circumstances, we may conduct a refreshed justified trust review earlier than the fourth year, such as when:

• there has been a fundamental change in business (a takeover, for example) such that there is a new business operation we need to obtain assurance over
• we have reason to consider that our justified trust should no longer be maintained.

What you can expect during an engagement

If you're the controller or representative of a Top 500 private group, you can expect our engagements with you to cover your group's tax and superannuation obligations.

We undertake an initial engagement to confirm our understanding of your business and industry and to understand your approach to managing your group's tax obligations.

Our aim is to:

• provide a level of assurance around whether your group has been getting things right
• to work with you in order to obtain high levels of assurance that you will report correctly in the future.

In some cases this may involve correcting tax treatments that have been applied in prior years.

The engagement will typically involve:

• building an understanding of your ordinary business activities and any atypical transactions that have occurred during the year
• identifying that tax issues that arise from your income-generating activities and any atypical transactions that you have undertaken
• conducting an assessment of your tax governance arrangements
• reviewing evidence to establish whether each of the 4 areas of justified trust have been achieved.

At the end of engagement for a year, we'll:

• outline the activities and transactions where we agree with the tax treatments that have been applied
• give specific feedback based on what we have observed during the engagement – this feedback may highlight areas for improvement and provide guidance on what your group can do to mitigate risks in the future
• outline the risks that we have identified and explain the next steps that we intend to take, where relevant.

Findings report – Top 500 tax performance program

We have published our second Findings report for the Top 500 program. This is based on our findings, current at June 2022. The report:

• provides an update to the community about the work undertaken in the Top 500 program since the June 2021 report
• communicates our observations and insights from our engagements with the Top 500 population and provide our findings in the context of the 4 areas of justified trust
• highlights impediments that are preventing a significant number of Top 500 groups from achieving justified trust
• provides insights into some of the most common tax issues and risks that are present in the Top 500 population
• outline improvements and changes we are making to the program in response to
  • feedback from Top 500 groups
  • our own observations and insights to date
  • what we have learned as the program has evolved.

View the report at Findings report Top 500 tax performance program.