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Top 5 private group tax developments in 2021

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In this article our Tax team has reflected on the most significant tax developments for private groups over the past 12 months and some to watch out for in 2022.

1. Top 500 & Next 5,000 reviews gather pace

The ATO has ramped up its reviews of the Top 500 and Next 5,000 largest privately owned groups in Australia. Both programs involve tailored one-to-one-engagements to build a comprehensive understanding of a private group’s business and aim to prevent, rather than resolve, potential tax risks. It is not uncommon for these reviews to be converted to specific audits or to result in a voluntary disclosure being made, so care is required in the way a Next 5,000 or Top 500 response is prepared.

One particular theme we have noticed throughout these reviews is an emphasis on tax governance, with the ATO’s strong preference that a written tax governance framework be implemented regardless of the scale of operations undertaken by the private group. To assist our clients in meeting the ATO’s requirements, we have provided guidance on what the ATO is looking for when assessing a tax governance framework and the key elements that a tax governance framework should include. Click this link to visit our dedicated Tax Disputes Portal for private groups.

2. ATO targets offshore income

Bolstered by its significant information gathering powers and the release of the Pandora Papers, the ATO continued its crackdown on undisclosed offshore income. Particular focus has been paid to taxpayers characterising foreign assessable income as gifts or loans from related overseas entities. The ATO has released guidance on what it requires to prove that gifts and loans between related parties are genuine. The ever-expanding network of tax information exchange agreements (at last count there were 36 agreements with different jurisdictions, many of which would be considered traditional tax havens), ongoing AUSTRAC activity, and the release of the Pandora Papers mean the likelihood the ATO obtains information related to the repatriation of income from offshore is always increasing.

Partner Jonathan Ortner featured in the Financial Review discussing these changes, click here to read.

3. Foreign capital gains for foreign beneficiaries of Australian trusts

The Full Federal Court has confirmed that distributions of capital gains to non-resident beneficiaries of Australian resident discretionary trusts arising from the sale of non-taxable Australian property will be subject to Australian tax. This is a peculiar outcome (although technically correct) considering these non-resident beneficiaries would not be taxed if the gains were made directly. The decision casts further doubt on the flow through treatment applied to trusts and serves as a reminder of Australia’s complex legislative system that requires taxpayers to take great care and obtain accurate and timely advice.

Partner Clint Harding discussed the key elements of the decision and their consequences for taxpayers in an article, which can be accessed here.


The ATO has clarified its view on non-arm’s length expenditure (NALE) and non-arm’s length income (NALI) impacting the total asset pool for self-managed superannuation funds (SMSFs). The ATO’s published position is that incurring NALE which is not connected to a specific asset in the fund will result in all income of the fund being taxed at the top marginal rate. This can arise where sole-member SMSF trustees provide professional services to their SMSF at non-arm’s length rates – for example: an accountant providing accounting services or advice to their own SMSF at no cost or a discounted rate may taint all the income of the SMSF, resulting in tax at the top marginal rate. Given the potential monumental tax problems that may arise under the ATO’s approach, the ruling places significant emphasis on superannuation funds tightening their tax governance frameworks and risk management processes. 

Partner Shaun Cartoon wrote an opinion piece in the Financial Review calling for urgent legislative reform. Click here to read.

5. Changes in VIC/NSW property taxes

Significant changes to the taxation of property have taken place in Victoria and New South Wales.

The Victorian State Government has introduced a new windfall gains tax imposing tax on the increase in the value of land resulting from a rezoning. In an attempt to encourage more investment in the build-to rent-sector, the Victorian Government has also introduced some land tax concessions for eligible build-to-rent developments. From 1 January 2022 until 31 December 2031 eligible build-to-rent developments will receive a 50 per cent land tax concession for up to 30 years and a full exemption from Absentee Owner Surcharge over the same period.

In New South Wales, as part of the 2020-2021 Budget, the State Government proposed changes to the NSW property tax system by giving buyers the choice to pay annual property tax, rather than stamp duty and land tax (where applicable). Draft legislation has yet to be issued. Watch this space.

If you have any questions about the information in this article, please contact one of our team members below.

View our predictions below for tax developments to watch out for in the private groups space next year.


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