The ATO runs many compliance programs targeting privately owned and wealthy groups, while the majority of the attention is focused on the “Top 500 private groups tax performance program” and the “Next 5,000 private groups tax performance program”, little or no attention has been paid to the “Medium and emerging private groups tax performance program”.

The medium and emerging private groups program is a part of the work of the Tax Avoidance Taskforce, which has been funded by the government to operate until the 2022-23 income year. According to the ATO, in the 2020-21 income year, the taskforce helped to raise approximately $1.5bn in tax liabilities from privately owned and wealth groups.

Specifically, the medium and emerging private groups program targets private groups linked to Australian resident individuals, who, together with their associates, control wealth of between $5m and $50m. It also covers businesses with an annual turnover of more than $10m that are not public or foreign owned and are not linked to a high wealth private group. The low threshold of $5m of “wealth” coupled with the current high property prices means that many business owners may not even know that they and their associates could be targeted under this program.

The ATO uses sophisticated data matching, data mining and analytic models to identify “wealthy” individuals and link them to associated entities, which it then looks at as a whole. It notes that this group approach enables it to understand businesses better including allow it to focus on specific entities when necessary. The process of identifying a group includes connecting entities that are under the effective control of an individual and their associates, this includes companies, trusts, partnerships, and SMSFs.

Effective control is defined as where an individual/associates has the primary decision-making role for the group.

Once the ATO has identified a group, it uses analytics to identify trends and priority risks specific to the sector, which it then uses to tailor its approach and develop strategies to mitigate these tax risks. This is done by using early engagement and pre-lodgment agreements for commercial deals to provide certainty on significant transactions and events, as well as conducting risk-based reviews and audits, where appropriate.

Generally, the ATO will be focusing its attention on larger or higher risk private groups and entities, as well as those private groups experiencing rapid growth, looking to expand offshore, or where controlling individuals are transitioning to retirement. However, it will also be looking at specific topics for various entities for example, companies inappropriately applying the lower company tax rate either when ineligible as a base rate entity, or through artificial or contrived arrangements (ie restructures or income shifting).

In addition to the compliance and enforcement activities, the ATO notes that it will also use the intel collected to publish public advice and guidance on significant or important issues faced by medium and emerging private group to enable to best decision to be made by the controllers.