In September 2025, the ATO published an update on the key risk areas it is focusing on for privately owned and wealthy groups in the 2025-2026 financial year. In a webinar accompanying the launch of the update, Senior Officers from the ATO indicated such risk areas may affect approximately 284,000 private groups this financial year.

Clients and their advisors need to pay particular attention to the following risks in the coming months as we head into tax agent lodgment season. If any of these areas apply to you, then it is crucial that they’re proactively addressed as soon as possible.

“CLEANING HOUSE” IS THE BARE MINIMUM

Although processes and procedures will differ depending on a client’s size, structure and industry, the ATO expects all private groups to:

• maintain appropriate documentation to support their transactions and tax positions;
• satisfy all registration, lodgment and payment obligations. This includes registering for PAYG withholding and GST, where required, and selecting the correct accounting basis and reporting cycles; and
• recognise when specialist advice is required. This places a higher obligation on a client’s immediate tax advisor, such as their accountant or internal CFO, to identify when help is required.

Over recent years, the ATO has tailored its expectations for tax governance based on a client’s size, structure, and other governance and audit requirements. Nonetheless, this financial year, the ATO is asserting its expectations as to minimum standards in a firmer way. Where standards are not met, the ATO’s data-driven approach is likely to increase the risk of it initiating a review or an audit.

CONCESSIONS, CAPITAL GAINS, DIVISION 7A AND TRUSTS ARE STILL IN THE ATO’S SIGHTS

The ATO continues to focus on the small business capital gains tax concessions (SB Concessions), capital gains tax (CGT) issues more generally, Division 7A, and higher-risk trust arrangements.

SB Concessions and CGT issues more generally

The ATO will focus on private groups that claim the SB Concessions, CGT concessions, exemptions and rollovers where those groups don’t consider and/or meet the eligibility requirements.

Examples of these tax risks and issues include:

• inappropriately applying the CGT discount, including because of a transaction being on revenue account and not capital account;
• failing to satisfy the $2 million turnover test or the $6 million maximum net asset value test for the SB Concessions;
• misusing the small business restructure rollover; and
• trusts inappropriately applying Division 855 of the ITAA97 to disregard capital gains for foreign beneficiaries.

The ATO is also focused on private groups “restructuring to access concessions they otherwise wouldn’t have been eligible for“, alluding to the ATO’s long awaited guidance on its compliance approach to back-to-back rollovers expected to be published in late calendar year 2025.

At present, the ATO’s website states:

“This draft Guideline will explain when we are more likely to apply compliance resources to consider potential tax risks, including the application of Part IVA of the Income Tax Assessment Act 1936 (the general anti-avoidance provisions of the income tax law) to an arrangement that comprises multiple CGT rollovers.”

Where clients and their advisors are contemplating restructuring their groups by applying concessions or consecutive rollovers, it will be prudent to seek specialist advice to ensure that eligibility requirements are met and documented appropriately.

Division 7A

The ATO will focus on private groups not complying with their obligations under Division 7A, in particular, arrangements where private company money or other assets are used for personal or other group purposes, including where transactions are not being reported and characterised correctly for tax and accounting purposes.

The ATO has expanded its focus this financial year to include:

• arrangements where minimum yearly repayments are made from another loan or subsequent reborrowing from the same company (see TD 2025/5); and
• arrangements to circumvent Division 7A through private company guarantees of third-party loans (TA 2024/2 and TD 2024/D3).

The ATO will also continue to scrutinise requests for the exercise of its discretion where the breach wasn’t the result of an honest mistake or inadvertent omission.

Trusts

A topical issue facing trustees and their advisors this financial year is FTDT, which was recently highlighted by the ATO as a new focus area for private groups.

In website guidance published by the ATO on 28 August 2025, a Senior Officer for the ATO stated that:

“We’re seeing an increase in FTDT issues due to inadequate record keeping and succession planning, intergenerational expansion of businesses, and the evolution of private groups.

…

We’ve extensively reviewed the administrative approaches that are available under the current legislation.

We have no powers to ignore the application of FTDT. There’s no discretion to determine that FTDT not be applied where the taxpayer or advisor claims the FTDT liability arose because of a mistake or ‘no tax mischief’.”

Given the unforgiving nature of the FTDT provisions, and the fact that from 1 July 2025 general interest charge (GIC) will no longer be deductible, it is prudent for clients and their advisors to review historic distributions made by family trusts to identify and mitigate FTDT risks.

Finally, the ATO is also carefully scrutinising the use of newly incorporated corporate beneficiaries (i.e bucket companies) by family trusts, which potentially puts franking credits at risk by not satisfying the “45-day holding period rule”.

WHAT ELSE IS IN THE ATO’S SIGHTS?

Other notable areas for the ATO in FY2025-2026 include:

• incorrectly recognising the tax consequences of transactions or structuring to minimise or avoid tax when facilitating succession planning;
• property and construction clients misclassifying their real property transactions (i.e capital versus revenue distinction and GST on disposal of real property), or having non-arm’s length dealings between related entities;
• restructuring activities prior to the sale of a business to private equity, entering into arrangements to push expenses to target entities, or failing to lodge or report distributions, which are addressed through the ATO’s Private Equity Program;
• transferring assets or income to self-managed super funds to access concessional tax arrangements through non-arm’s length transactions;
• improperly claiming GST refunds, particularly those involving artificial and contrived transactions between entities of the same group (see TA 2025/2); and
• the ATO’s Private Wealth Adviser Program, which is focusing on the tax affairs of advisors themselves.

HOW CAN WE HELP?

Clients and their advisors engage us to help manage all interactions with the ATO, all the way from reviews, through to audits, objections and litigation. If you are under audit or in dispute with the ATO, HWLE Lawyer’s tax team is available to assist.

Please contact us if you would like more information about the services we provide.