Global Daily Tax News, Australia Sets Out Private Wealth Compliance Focus Areas, (Feb 3, 2025)

The Australian Taxation Office has set out specific areas of focus regarding oversight of privately owned and wealthy groups in 2024-25.

The agency said on January 30, 2025, "Our key areas of focus are based on the risks and issues identified through our intelligence collection, risk detection and analysis, and case work. While we are focused on improving tax performance across all tax and superannuation compliance obligations for the privately owned wealthy groups population, these are the foundational, emerging, and evolving risks and targeted focus areas where we are investing more resources."

Generally, the ATO has said it will seek to identify taxpayers who have failed to register, or who have registered under the incorrect basis; have failed to file the correct returns, including fringe benefits tax (FBT) returns or activity statements when required; and those who have not settled their tax liabilities or engaged with the agency on time.

In relation to reporting, the agency said the following issues will receive the agency's focus:

• incomplete reporting of returns, activity statements and schedules (including information labels such as shareholder loans, assets, and liabilities);

• omitted income and sales (income tax and GST);

• incorrectly claimed GST credits;

• ineligible research and development (R&D) expenditure being claimed;

• ineligible R&D activities being claimed; and

• incorrectly claiming base rate entity status.

In relation to Division 7A, which applies to certain payments, loans, and debt forgiveness made by trustees to a shareholder or an associate of a shareholder of a private company, the agency intends to focus oversight on:

• unreported shareholder loans;

• non-complying loan agreements;

• failure to make minimum yearly repayments or not applying the correct benchmark interest rate;

• inadequate record keeping;

• Section 109R loan repayment arrangements including loans repaid just before the private company's lodgment day with the intent to reborrow similar or larger amounts from the same company; and

• requests for section 109RB discretions.

Meanwhile, the agency listed the following capital gains tax risks and issues:

• eligibility criteria when claiming small business CGT concessions;

• inappropriate calculations of the CGT discount;

• using the small business restructure rollover (Subdivision 328-G) incorrectly, including for reasons other than a genuine restructure of an ongoing business;

• capital losses from related-party transactions (market value substitution rule); and

• incorrect application of Division 855 (non-resident access to concessions).

In relation to international transactions, the agency said the following items will draw increased scrutiny:

• intangible migration arrangements;

• mischaracterization of service transactions which results in mispricing and the creation of risk from a corporate residency and controlled foreign companies' perspective;

• withholding tax compliance;

• significant global entity compliance; and

• related-party financing (including concerns with the use of non-commercial terms to push up financing costs in the property and construction industry).

The agency has also set out areas of especial focus specific to the property and construction industries and retail, and also with regards the affairs of retirement villages.

It said other emerging or evolving risks and issues are:

• inappropriate use of private ancillary funds to hide wealth, offset CGT events, or extract other tax benefits by moving taxable income or assets through not-for-profit vehicles;

• trust loss trafficking (inappropriate generation and use of losses);

• share buyback arrangements;

• thin capitalization rules;

• cryptocurrency-based business models; and

• the AUD3m cap on super.