What is catching ATO’s attention

Every year, there are certain areas or industries which attracts the Australian Taxation Office’s attention every year. Here is what we know of what they will be focusing on this year:

Business Structures

Consolidation allows wholly-owned corporate groups to operate as a single entity for income tax purposes. The below will be attracting attention:

  • CGT Consequences: The focus is on the reporting of capital gains or losses related to consolidation. Situations include:
            • Corporate groups that restructure and have one or more consolidated groups within a private group
            • where multiple entities join/leave the group
            • incorrectly reporting capital gains or losses arising from annual compliance arrangement calculations and allocation processes on joining or leaving the consolidated group.
  • Cost-setting rules: Focus is on allocable cost amount calculations and allocations on joining/leaving a group. Situations include:
            • restructuring which may affect the ACA calculation, before joining, forming or leaving a consolidated group
            • miscalculating or overstating the ACA.
            • inappropriately including or excluding assests before allocating ACA
            • incorrectly calculating ACA when leaving a group
            • incorrectly allocating ACA to the membership interests and treatment of pre-CGT shares.
  • Membership: Focus is on the formation of a consolidated group and eligibility of members. Situations include:
            • the incorrect formation of a consolidated group
            • incorrectly including or excluding an entity as a member of a consolidated group
            • late notifications of entries or exits from a consolidated group.
  • Losses: Focus is o n whether the available fraction has been correctly calculated and losses correctly used. Situations include:
            • incorrectly including or excluding an entity as a member of a consolidated group, where it may cause unintended tax benefits
            • incorrectly transferring or using losses
            • high available fractions that, if incorrect, would allow a consolidated group to use transferred losses at an inappropriate rate
            • failing to adjust the available fraction as required.

Demergers

Demergers involves restructuring of a corporate group by splitting its operations into two or more entities or groups. Situations include:

  • disposing of the demerged entity or business after the demerger event
  • shareholders acquiring more than their share of the new interests in the demerged entity
  • schemes aiming to inappropriately obtain CGT rollover concessions through a corporate restructure that does not satisfy the demerger requirements
  • demergers that appear to have been undertaken to obtain a tax benefit rather than to improve business efficiency
  • demergers that eliminate or significantly reduce assessable capital gains or dividends.

 

Other behaviours

  • tax or economic performance not comparable to similar businesses
  • low transparency of your tax affairs
  • large, one-off or unusual transactions, including the transfer or shifting of wealth
  • aggressive tax planning
  • tax outcomes inconsistent with the intent of the tax law
  • choosing not to comply, or regularly taking controversial interpretations of the law, without engaging with us
  • lifestyle not supported by after-tax income
  • accessing business assets for tax-free private use
  • poor governance and risk-management systems.

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