The ATO has been undergoing a well-publicised “Reinvention” programme over the last two years. As part of that programme, the ATO has recently, and relatively quietly, announced an increase in its focus on large privately owned groups. The ATO want to initiate their focus on the private groups by conducting face-to-face meetings directly with identified groups. The ATO has initially focussed on groups with either turnover of $1bn or net assets of $500m (with a focus on smaller groups to follow). The ATO had planned to conduct 200 of these meetings by 31 December 2015. We understand that the ATO went a long way in achieving this target.
The general approach of the reinvented ATO is to encourage the majority of taxpayers who the ATO believes seek to comply with the tax laws (what the ATO has referred to as “the 95%”), while increasing compliance focus for the others (“the 5%”). This view will apply for private groups. A prevention before correction approach will be applied by the ATO which relies on transparency between the ATO and the taxpayer. Using the meeting as a first step, the ATO wants to develop a greater understanding of a taxpayer’s business and its attitude towards tax risk. It is understood that if large privately owned groups do not willingly conform to the ATO’s new approach they can expect to receive special attention. In other words greater audit activity will follow. It appears to be the case that as the ATO reinvents so too must taxpayers.
Interestingly, the ATO has confirmed that any meetings will not be confined to internal tax managers and external tax advisers. Rather, the ATO is expecting the ‘controlling minds’ of the groups to also attend. This could no doubt be seen as confronting for many of these taxpayers, who have in the past kept a low profile when it comes to dealing with the ATO.
While the ATO’s programme will seek to build relationships with private groups through these meetings, action may follow depending on the outcome of these visits. According to the ATO, if the meetings result in an audit, there is an 80% chance that the taxpayer will be paying more tax, not to mention penalties and interest.
Large privately owned groups will therefore need to quickly determine what the ATO’s new approach means for them. This involves:
- developing a strategy to deal with the increased ATO focus;
- understanding the risks and opportunities associated with the new approach (e.g. increased audit activity vs a more transparent and open relationship with the ATO); and
- understanding how to best manage the ATO’s perception of their risk.
Private groups therefore need to be pre-emptive – it is only a matter of time before the ATO arrives. Choosing not to prepare or to not engage with the ATO could lead to perilous outcomes.
Stefania Maccarrone co-authored this article with Andrew White and Chris Aboud.