When the ATO comes to help – dealing with the Next 5000 reviews

Strategies for dealing with the ATO – the Next 5000 Program

The ATO started its Next 5000 tax performance program, which runs for four years, from the 2020 financial year.

The Next 5000 program covers high wealth private groups who control wealth of more than $50 million. However, it does not cover groups that were already a part of the Top 500 private groups tax performance program.

The ATO will conduct ‘streamlined assurance reviews’ to make sure that groups in the ‘Next 5000’ have paid the correct amount of tax.

What happens in the review?

Advisers will receive notifications of client reviews around three months before the ATO starts the review process.

In the 2021 income year, the ATO may offer an option to start the review straight away but have an extended period of time to respond to a request for information – the aim is that this flexibility may help businesses manage the impact of COVID-19 on their business.

After that initial notification, you will need to meet with the ATO – both the taxpayer and their advisers will usually need to attend.

Following the meeting, the ATO will request information that you need to provide during the review and issue a final report.

What are the review risk areas?

In the review, the ATO will be looking for:

• information about the group’s tax governance policies and how effective they are
• information about the group’s structure
• whether any of the risks that the ATO flagged in practical compliance guidelines or tax alerts are relevant and, if so, information about the particular transaction and tax treatment to make sure it was correct
• information about any significant or new transactions and the tax outcomes of those transactions
• information and explanations about any differences between accounting and tax results.

What can you do to prepare for a review?

If the group has an audit insurance policy, check the terms of the policy to ensure that the costs of preparing for and responding to the review are covered. In some cases, the policy may make a distinction between a ‘review’ (which may not be covered) and an ‘audit’ (which will usually be covered).

It is important to be prepared early – often the turnaround times to provide information to the ATO are short.

Building a good rapport with the ATO during the review is important and one of the easiest ways to do this is to provide information to the ATO on time and in a way that helps with the review.

Be prepared to:

• discuss the group, including any offshore entities and foreign branches
• provide statements of income and financial position and any working papers calculating CGT gains or losses for the previous two years
• explain the group’s internal processes, systems and controls to manage the group’s tax compliance
• explain how the group identifies and mitigates any commercial and tax risks and prepares its tax returns
• provide explanations and evidence about any restructures; international tax issues; dividend withholding tax; thin capitalisation; loans or payments to shareholders, directors or associates; trust distributions; concessions and losses; self-managed superannuation funds; private ancillary funds; tax consolidation; fringe benefit tax; tax treatment of property disposals; and construction contracts
• discuss any arrangements that are described in a taxpayer alert or practical compliance guideline, together with any private binding rulings the group has obtained over the past two years.

There will be an opportunity to make a voluntary disclosure to correct any errors; however, you should act quickly to determine whether a disclosure should be made and make it at the earliest possible stage (ideally before the ATO issues the request for information).

Please contact a member of our team if you would like to discuss. This topic will be discussed in partner Sarah Lancaster’s session When the ATO ‘comes to help’ at our upcoming Annual Adviser Conference. For more information on the conference, click below.