Top 500 groups still making simple errors, says ATO

The ATO has released Its 2024 findings report on the key tax issues for the Top 500 privately owned and wealth groups’ tax performance program.

During the 2024 financial year, the ATO raised a total of $552.5 million in income tax liabilities from Top 500 groups, $41.3 million of which were from voluntary disclosures.

The ATO finalised 22 reviews and 25 audits during the 2024 financial year, with further reviews and audits still in progress.

It noted that 84 per cent of voluntary disclosures related to non-complex errors that could have been avoided with basic tax governance processes and procedures.

These matters included omitted income such as dividend and trust income and overclaiming deductions due to the use of an incorrect version of the financial records.

The ATO also found errors relating to understated interest income from non-arm’s length loans, incorrect calculation of capital losses and incorrect reporting of capital works and capital allowance deductions.

The ATO said that given the economic size of the Top 500 groups, small errors can have a big tax impact.

“Effective tax governance can help ensure that Top 500 groups get the basics right. The 2023–24 data shows 68 per cent of the groups that made errors requiring a voluntary disclosure and 90 per cent of the groups that had additional liabilities raised from audits had minimal or no tax governance,” the Tax Office said.

“Tax governance that is documented, operationally effective and regularly reviewed gives us, and the controllers of Top 500 groups, confidence the groups will continue to get things right and mitigate tax risks.”

In its assessments, the ATO found that roughly one-third of the Top 500 groups had implemented some level of documented tax governance.

“This proportion is increasing with a 20 per cent increase in the number of groups with tax governance across trading, non-trading and wealth extraction activities compared to last year,” it said.

The ATO noted that while most Top 500 groups had some tax governance in place, the majority did not document it.

“This raises doubts about its effectiveness, particularly if there is reliance on a key person and there are no safeguards to mitigate the key person risk,” it said.

“While the majority of those groups have not had instances of poor tax compliance, our findings show past performance is no guarantee of future results.”

The ATO said another area where improvement was needed for some groups was in recognising and managing tax issues and risks.

“Many groups tell us their tax agents are responsible for this aspect, but we find the group is responsible for providing figures for the tax return, and there are minimal or no checks done by the tax agent to ensure integrity,” it said.

“In those instances, groups should have an internal process or procedure for ensuring the integrity of the financial data provided to the tax agent.”

The Tax Office said it expected the Top 500 groups to have a documented end-to-end process in place for recognising and managing tax issues, and that it wanted to see detailed engagement letters and scope of works where a tax agent is used to ensure clear lines of responsibility.

Businesses and other groups should also have a lodgment and payment calendar to ensure obligations are met on time.

Other areas for improvement include the following.

“[Groups should also] have effective controls for data and information used internally to prepare the return and provide to external tax agents.

“For example, procedures for checking that accounting profit in the return matches closed and finalised accounts,” it said.

The ATO said they should also have procedures that specify when advice should be sought, including clear quantitative and qualitative thresholds when advice will be sought, who is responsible for seeking that advice and the process for engaging external advisors and the ATO.

The ATO warned that there has also been weakness observed in the GST governance framework for some Top 500 groups.

“Our recommendations for improving GST governance include documenting BAS procedures, regular processes to verify GST registration of suppliers subsequent to initial setup, periodic internal control testing and regular data testing processes.”

ATO assistant commissioner Glenn Cooper said the Top 500 report provided a comprehensive overview of the assurance and compliance results relating to Australia’s largest private entities.

“This is a crucial part of the Tax Avoidance Taskforce’s initiative to ensure wealthy private groups pay the correct amount of tax,” Cooper said.

“The report offers a deep dive into the tax behaviour, governance practices, and compliance results of Top 500 privately owned and wealthy groups, which are characterised by their large scale and influence in the Australian economy.”

Cooper said the report highlighted areas where these groups were performing well in terms of meeting their tax obligations and governance standards and also key areas for improvement.