The Tax Office’s head of Private Wealth (the division of the ATO with over 1,500 staff that audits Australia’s private groups and high wealth clients) Deputy Commissioner Louise Clark has set out her target areas for 2025.
Clients and their advisors need to pay particular attention to the following areas this year. If any of these areas apply to you, then it is crucial that they are addressed proactively as soon as possible.
Don’t put it off. The ATO is hunting for tax risks and cash collections.
The Tax Office’s debt book has ballooned and it is actively reducing it
The ATO is intensifying its efforts to address the “unacceptably high” levels of unpaid tax debt, particularly amongst smaller groups in the Private Wealth market. We are expecting to see more assertive debt collection techniques, which include garnishees, director penalty notices, statutory demands and court action. Additional penalties and interest could apply too. The Tax Office will also be chasing clients who delay the lodgment of tax returns and activity statements to avoid paying the ATO on time, or because a restructure is planned or being implemented.
Succession planning is leading to tax risks
The ATO is observing that ageing demographics amongst individuals who control more than $50 million in assets is causing a big increase in succession planning.
The Deputy Commissioner said that “this has led to plenty of planning, structuring, and disposal activity in the market with mature family-controlled businesses being sold or passed onto the next generation, either as on-going businesses or the accumulated wealth from those businesses”.
The Tax Office’s private rulings and commercial deals teams are busy. They are seeing tax risks and clients wanting certainty in the following areas:
- the settlement of Division 7A loans;
- asset transfers;
- internal restructures; and
- amendments to trust deeds and related documents.
Further to these areas, one of the big risks that the Tax Office will be chasing in 2025 will be Family Trust Distributions Tax (FTDT). FTDT arises when distributions occur outside a family group for tax purposes. We expect to see the ATO run awareness campaigns on the topic this year too.
Tax governance which is tailored to a group’s size and complexity is around the corner
The ATO is differentiating what tax governance processes it expects from private groups, particularly those in the Top 500 and Next 5,000 categories. It will also differentiate the intensity of its reviews and audits based on the historical tax compliance of the client. We expect this to be a welcome change because it should reduce compliance and other unnecessary costs for all parties. Overall, clients with good compliance records and internal governance systems should expect to see a reduction in their compliance burden whereas higher-risk entities should expect a shorter monitoring cycle and increased scrutiny by the ATO.
Key takeaways
Clients should expect additional scrutiny from the Tax Office if they owe tax to the ATO, have outstanding lodgements, and/or are planning or implementing their succession plans. Each of these areas are fertile ground for the ATO where cash collections could or will be owing, making any compliance activity fruitful for the Tax Office.
How can we help?
Clients and their advisors engage us to help manage all interactions with the Tax Office, all the way from private rulings, through to audits, objections and litigation. If you are under audit or in dispute with the ATO, HWL Ebsworth’s tax team is available to assist. Please contact us if you would like more information about the services we provide.
This article was written by Vincent Licciardi, Partner and Isabelle Smith, Senior Associate.
