The ATO have recently shared their key risk areas for the 2025-26 financial year. These areas are likely to receive increased scrutiny. Key ATO focus areas include:
- Minimum standards for tax governance: Expectation that appropriate documentation supports transactions and tax positions and all registration, lodgment, payment and reporting obligations are met.
- Capital gains tax (CGT) concessions: Eligibility for small business and general CGT discount concessions will be under the microscope. Careful consideration of requirements is crucial.
- Division 7A arrangements: Transactions designed to defeat or sidestep Division 7A obligations, including the use of additional borrowings for repayments, are a target area.
- Family trust distributions: Distributions outside the family group, particularly where historical arrangements exist, are receiving significant attention. Note that 'distribution' has a particularly wide meaning and the applicable amendment period is unlimited.
- Corporate beneficiaries and the 45-day holding rule: Incorporating bucket companies late in the financial year can breach holding rules and result in loss of franking credits.
- Succession planning: Transitional wealth arrangements (such as using concessions to reduce or avoid tax) are under review.
- Property construction and misclassified transactions: The ATO is scrutinising property transactions where income tax, CGT or GST treatments are used in a non-arm’s length or related party context to gain a tax advantage.
- Private equity and restructuring: Deals involving private equity and group restructures, whether completed pre-deal or as part of the transaction, are a focus.
- Use of SMSFs: Transfers into self-managed super funds for concession access, especially involving related party transactions or those not at arm’s length, may come under review.
