Next 5,000 private groups urged to seek advice on significant transactions
Receiving tax advice for significant transactions can help ensure these transactions are reported correctly, says the ATO.
The ATO is encouraging private groups that fall within its Next 5,000 private groups program to obtain tax advice for significant transactions to ensure they are making the correct disclosures.
Australian resident individuals fall into the ATO’s Next 5,000 private groups tax performance program if they, together with their associates control more than $50 million and don’t fall within the Top 500 tax performance program.
“Through our reviews with these groups, we’ve found that when they seek the right tax advice for significant transactions, they’re more likely to make correct disclosures and adopt the right tax treatments,” the ATO said in a recent update.
“In cases where Next 5,000 groups don’t have that advice, we often see cost base errors, reporting of transactions in the wrong year or not at all and mischaracterisation of the sale of a property as revenue or capital.”
In one review, the ATO said a Next 5,000 group subdivided properties, reported sales of $18 million on capital account, then applied the capital gains tax (CGT) discount to reduce those capital gains by 50 per cent.
“During our review, the group couldn’t support its tax position, so we started an audit. We found the properties were revenue assets so the CGT discount couldn’t be claimed,” the Tax Office said.
“We amended the group’s tax returns, which increased their tax payable to almost $3.5 million, plus interest and penalties.”
The ATO said it sharing tips for correct reporting ahead of tax time so taxpayers can avoid these errors.
If a private group undertakes significant transactions or activities, the ATO said it should define what counts as a significant transaction or event for the group and identify and record the sale of significant assets and material transactions throughout the year.
Private groups should also keep records to substantiate expenses and income relating to an asset or event and seek independent valuations to support sales between related parties.
They should also communicate significant transactions to their tax agent and advisers in a timely and accurate way, the ATO said.
The ATO also previously stressed the importance of Next 5,000 groups maintaining accurate reporting processes during periods of business change.
“Many Next 5,000 groups are dynamic. During phases of change it’s easy to overlook establishing the right reporting and tax administration procedures,” the ATO said.
“We expect your record-keeping and administrative procedures to keep pace with the changing scale and complexity of your business."
The Tax Office also noted that the tax and financial advice needs of captured entities often change during periods of business change.
