Australian Taxation Office Commissioner Chris Jordan will announce the income tax performance for high wealth private groups in a speech to the Tax Institute in Sydney on Thursday. This reveals that over 90% of the high wealth private groups’ income tax was paid voluntarily or with little intervention from the ATO in 2016-17.
There are approximately 5,000 high wealth private groups comprising 9,000 individuals and 18,000 companies. In 2016-17 they contributed over $9 billion in income tax and employed around 780,000 people.
The ATO estimates the 2016-17 high wealth private groups tax gap to be 7.7% or approximately $770 million. Having regard to the tax performance information already released across other markets, it is clear that high wealth private groups are performing well in terms of income tax compliance.
“The vast majority of high wealth private groups take their tax obligations seriously and are trying to do the right thing,” Deputy Commissioner Tim Dyce said.
“Many of the issues we see are genuine errors and honest mistakes resulting from misunderstandings in applying the tax law or miscalculations.
“Our data shows that these groups will often voluntarily self-correct once they become aware of errors. This allows us to direct our resources towards the small number that are seeking to do the wrong thing.”
Our research does also show that a small number of high wealth private groups are deliberately engaging in risky behaviour. This includes seeking to engage in artificial and non-commercial arrangements that are intentionally designed to avoid paying tax.
“While we continue to observe a small number that are deliberately engaging in tax avoidance, we are confident that our compliance strategies are tackling the bad behaviour we see from higher-risk taxpayers and their agents,” Mr Dyce said.
“From 1 July 2020 we will be expanding the work of the Tax Avoidance Taskforce and as part of this we are introducing a new program focusing on high wealth private groups and engaging early to help them get it right. Those seeking to obtain an unfair advantage by avoiding their tax obligations will attract our full attention and will be the subject of strong enforcement action.”
“Access to sophisticated data and analytical tools has increased our ability to match data from Australian and off-shore institutions and regulators and means that those engaging in tax avoidance activities will be caught out. It is not a matter of if but when.”
The ATO’s primary focus is on supporting these taxpayers to get things right, and has seen the continual improvement of the advice and guidance we provide taxpayers and their agents to help high wealth private groups meet their tax obligations:
“We recognise the important role that tax professionals have in helping high wealth private groups get their tax right. In addition to seeking qualified advice from a registered tax professional, we know that high wealth private groups who invest in robust tax governance practices are more likely to get their tax right”.
“However, we know a small number of tax advisors intentionally do the wrong thing by placing their high wealth private groups’ clients into risky and even illegal tax avoidance arrangements. These tax advisors and others who promote aggressive tax arrangements risk being subject to significant financial penalties and face the prospect of prosecution.”
The Commercial Deals program is an example of one of our strategies to proactively help taxpayers to get things right. In 2018-19 we engaged with over 300 taxpayers on transactions totalling $15.5 billion in value. Under this program we look at significant commercial transactions in the Private Wealth market that are each worth over $10 million, before they are included in a tax return. This helps taxpayers get things right at the very beginning. We are now covering approximately 75% of these transactions.
“Early engagement allows us to clarify our view of how the law applies prior to lodgement. This delivers clarity to business, avoids long-running and costly disputes and protects Australia’s tax revenue,” Mr Dyce said.
“The mums and dads of Australia want confidence that wealthy Australians are paying the right amount of tax and that we are doing our job and dealing with those who are deliberately avoiding paying tax”
The high wealth tax gap population includes individuals and companies linked to a high wealth private group with group net wealth greater than $50 million and ownership greater than 40%.
It is important to recognise that wealth does not necessarily correlate with taxable income. Notwithstanding this, a wealthy taxpayer who does not pay tax is more likely to attract the ATO’s attention and be subject to further scrutiny to assure they are complying with their tax obligations.
Internationally, tax gaps are difficult to compare, and Australia is the first jurisdiction to release a tax gap in relation to high wealth private groups.
“This income tax gap estimate will be our benchmark going forward. Increasing transparency for this market is important to the ATO and will provide the community with confidence that the vast majority of these wealthy groups are doing the right thing and paying their taxes.”
“We now have the staff, the tools and the data to take the necessary steps to further improve tax performance over the coming years. We want to turn off the tap, not just mop up the puddles,” Mr Dyce said.