Now more than ever, pre-emptive action is necessary to ensure your business is prepared for the ATO’s inevitable review. Failure to do so could not only create financial risk, but also commercial risk in the form of additional time commitment to an extended ATO review.
In particular, it is clear the ATO’s expectations have increased with respect to a Taxpayer’s level of documented tax governance procedures. The landscape has shifted and the times of documented tax governance being aspirational or “nice to have” are past. There is now a genuine expectation that such documentation exists and is readily available upon request by the ATO.
If a taxpayer cannot readily provide documented tax governance processes, and also evidence how that tax governance is actually implemented in the business, the taxpayer is already on the back-foot with the ATO. There is no “one-size fits all” tax governance template, so it’s important that care is taken when considering what tax governance should look like for your organisation.
Governance
The ATO has observed a correlation between the lack of governance documentation and the most commonplace tax errors. Accountable management oversight is an expectation for organisations regarding the specific roles individuals play in tax governance. The ATO confirms that having documented responsibilities for key personnel in regards to taxation matters is pivotal for good tax governance.
We recommend organisations keep documentation that demonstrates how they make purposeful consideration of contentious tax issues as well as analysing where they may have weaknesses in their internal environment. It is also recommended an external third party assesses the implementation of relevant governance documentation and procedures to ensure they are at an appropriate standard and are effective.
Tax matters should not be limited to spreadsheets and workpapers. To demonstrate effective compliance within today’s tax landscape, we recommend that tax is integrated at all levels and should be a key consideration for an organisation’s Board. For those organisations that have documented tax governance, it is just as important to implement and not just be a mission statement sitting on the intranet.
Methods should be in place that exhibit how businesses deal with routine compliance requirements. Proper documented procedures should be in place that flag any areas of tax risk as well as defining the accepted materiality levels of such risks. Similarly, where atypical transactions arise, governance procedures should provide for when these are dealt with internally or where external advisers are required.
The ATO commends documentation that considers how organisations deal with atypical transactions. Ensuring that policies are in place when atypical transactions arise and that escalation procedures exist to verify the tax consequences of such transactions are critical in pre-emptive tax governance.
Where the materiality and comfortability of in-house assessments of such transactions create cause for concern (based on defined materiality), it is of utmost importance to seek external tax advice early to reduce tax risks.
Common areas of tax errors identified by the ATO in their assurance reviews are:
- the treatment of related party transactions,
- incorrect tax and/or capital loss usage; and
- the treatment of sales of significant assets.
While most of these transactions may not occur daily for an organisation, it would be important that governance documents provide clear guidance as to how these items need to be dealt with internally (and potentially externally).
How We Can Help
Our team at Grant Thornton has extensive experience in corporate tax compliance and advisory matters. Contact us today if you would like to discuss what tax governance may look like for your organisation.
