If your small or medium business is experiencing significant growth, you may soon hear from the ATO regarding your inclusion in its medium and emerging program for private groups. This program is tailored to engage businesses and private groups that are rapidly expanding or have substantial turnover. Understanding its potential impact on your tax obligations and management strategies is essential.

Understanding the Medium and Emerging Groups Program

The ATO’s medium and emerging groups program targets private groups and businesses that meet specific criteria. Your business may be included if it falls into one of the following categories:

• Private groups associated with an Australian resident individual who, along with their associates, controls wealth between $5 million and $50 million.
• Businesses with an annual turnover exceeding $10 million, as long as they are not public or foreign-owned and are not linked to a high-wealth private group.

If your business fits into one of these categories, it’s important to familiarize yourself with the program’s focus areas and how they might apply to your operations. The ATO has indicated it will begin contacting businesses in November and December 2024.

Key Areas of Focus

The ATO has identified several key areas where errors commonly occur, potentially leading to penalties. Here’s what to watch out for:

• Trusts: If your business structure involves trusts, ensure you understand the governance requirements and which activities might attract ATO scrutiny.
• Business Loans and Division 7A: Regularly review your Division 7A arrangements to ensure compliance, paying close attention to accounting accuracy, compliance with Division 7A agreements, and the correct application of benchmark interest rates.
• Capital Gains Tax (CGT) Concessions: Before restructuring or applying for CGT concessions, verify your eligibility each year to avoid errors.
• Income Reporting: It’s crucial to report all income accurately. If you identify an omission or mistake, correct it promptly to avoid penalties.

Proactive Engagement

The ATO’s medium and emerging groups program isn’t solely about enforcement. It also aims to support businesses in effectively meeting their tax obligations. The ATO uses analytics and data from various sources, including income tax returns, business activity statements (BAS), and third-party data from banks and insurance providers, to understand the operating environments of these groups. This helps identify and address potential tax risks.

Here’s how you can engage proactively:

• Seek Professional Advice: Regardless of whether you’re contacted by the ATO, consulting with your registered tax professional ensures that you are meeting all obligations and addressing any areas of concern.
• Stay Informed: Regularly check the ATO’s website for updates and insights into evolving priorities and potential risks.
• Understand Your Business Profile: Recognize that your business may be part of a larger group with complex structures. The ATO often engages with the head of the group to understand decision-making processes and tax behavior.

Being part of the medium and emerging groups program can significantly impact how you manage your business’s tax affairs. By staying informed, addressing key focus areas, and engaging transparently with the ATO, you can navigate this program successfully and ensure your business remains compliant as it grows. Remember, strong tax governance and proactive management are essential for maintaining compliance and fostering trust with the ATO. As your business evolves, so should your strategies for managing tax obligations, ensuring they align with both your growth objectives and regulatory requirements.