Increased ATO expectations for tax risk management by businesses

Therefore, if you meet any of these criteria, you will need to consider these changes by the ATO.

The main focus

The ATO is focused on businesses where there is a high risk of non-compliance, often due to inadequate internal teams, poor or non-existent risk management policies or increased complexity, meaning they have outgrown their existing, long-term advisor.

The number one focus of the ‘Next 5,000’ program is the taxpayer’s tax risk management framework. While this has been the case for a few years, the ATO published updated guidance on their expectations with respect to minimum tax risk management requirements. This updated guidance appears to have been issued because of the below reasons.

• Lack of compliance amongst the ‘Next 5,000’
• ATO concerns that many taxpayers in this group don’t consider tax risk management a priority:
  • a heavy reliance on a single individual within their organisation
  • a lack of documented processes and procedures
  • a finding that many taxpayers consider their tax risk management ‘framework’ to be no more than outsourcing all responsibility to their external accountant

The ATO’s activity amongst the ‘Next 5,000’ shows that only 30 per cent have a documented tax risk management framework and, of these, 69 per cent only commenced to document their policies and procedures after being notified of a review by the ATO. That means, right now, over 90 per cent of this target group do not even start to meet the ATO’s minimum tax risk management standards. Are you one of these?

What is ‘tax risk management’?

It is comprised of at least the following three features:

1. The risk profile or attitude of the business, its managers and owners (eg. conservative, neutral, aggressive) when it comes to managing and meeting tax obligations accurately and on time.
2. Documented processes and procedures for identifying potential tax risks, escalating them. In other words, who you turn to confirm, manage and resolve the risks.
3. Clearly defined accountability and responsibility for tax matters and managing tax risk.

‘Tax’ is not just income tax – it also includes GST, fringe benefits tax, superannuation, PAYG withholding, payroll tax and transfer duty. Although the last two are State Taxes, for which the ATO is not responsible, a business must understand and adhere to those rules.

What to expect

An ATO review is time consuming and expensive. Your internal team will be expected to meet tight ATO deadlines to provide a very wide range of information, while still completing their typical day to day tasks. The ATO will review at least three years of income tax returns – usually more – as well as undertake a BAS review and a walk-through of your finance system to understand how it works to help you comply with GST obligations.

They will review your tax risk management framework and determine whether they consider your business to be a risk to the tax system by its quality and application as evidenced by outcomes such as tax returns and BAS. If you lack a documented framework, there may be further requests from the ATO.

You’ll be supported

Don’t wait until you get notified of a review, at which point you’ll have limited time, because it will happen. We have significant experience with assisting clients to document their tax processes and policies in line with the ATO’s expectations. We can help prepare you for that day and let you focus on getting on with business.

If you’re within the parameters of the ‘Next 5,000’, reach out to us for a meeting to discuss how we can help.