Navigating ATO focus areas for 2025: From a private perspective

By Tsae Liew and Tim Hall

20 June 2025

The Australian Taxation Office (ATO) continues to intensify its compliance activities on privately owned groups, driven by its focus on reducing the tax gap within this market and in building "justified trust".

The tax gap is the difference between what the ATO theoretically expects the tax revenue to be, compared to the actual revenue collected. The current tax gap within high net worth individuals and private groups is higher than the tax gap for multinational corporations and large Australian corporations - therefore, the Government continues to provide funding to the ATO in targeting this community of taxpayers.

Backed by strong funding and demonstrated return on investment, the ATO is also now better equipped to identify and address potential compliance issues through increased access to data and data matching capabilities.

How the ATO is achieving justified trust with private groups - risk-based review programs:

The ATO has a number of risk-based programs specifically focussed on private groups. 

The two key risk review programs are the Top 500 and Next 5,000.

In brief, the Top 500 program targets Australia’s largest private companies, with reference to factors such as turnover, net assets and market leaders or groups of specific interest. There have been some changes to the taxpayers who fall within the Top 500 program, effective from April 2025.

The Next 5,000 program focuses on reviewing Australian resident individuals, who together with their associates, control wealth of more than $50 million. Within this program, there are 3 types of engagements:

• Streamlined assurance reviews, 
• Review of risks specific to your business and industry; and
• Pre-lodgement compliance for commercial deals and restructure events.

Risk-based programs scrutinise significant transactions - notably those exceeding $20 million, or those of public interest. 

Key ATO focus areas - what you need to consider:

There are three main categories of risk areas the ATO focuses on - foundational issues, emerging or evolving risks and targeted focus areas. This forms a comprehensive framework for understanding the ATO’s focus areas.

These are based on the risks and issues identified through data collection, analysis and case work.

It is essential for private groups to understand the ATO’s targeted areas of concern. Doing so is critical to maintain compliance, minimise tax risks and prepare for increased attention from the ATO.

Foundational issues

With advancements in technology, the ATO has access to more data than ever before. Real-time data analysis allows the ATO to quickly identify patterns of non-compliance through inconsistent information disclosed on different sources of filings and/or publicly available information.

Private groups and high net wealth individuals should ensure the accuracy and timeliness of their tax obligations. Issues to consider include:

1. Registration, lodgment, and payment: Correct registration for all tax obligations, including income tax, fringe benefits tax, withholding tax, and activity statements. Risks exist where taxpayers do not engage with the ATO when they are unable to meet tax debts on time.
2. Incorrect reporting: Common pitfalls include omitted income, incorrectly claiming GST credits, ineligible claims for research and development (R&D) activities and incorrectly claiming base rate entity status (i.e. 25% reduced corporate tax rate).
3. Division 7A compliance: Division 7A remains a focus area, as mentioned in our previous article, with risks involving unreported shareholder loans, non-complying loan agreements, and inadequate record-keeping.
4. Capital gains tax (CGT): Inappropriate use of small business CGT concessions, 50% CGT discount and creation of capital losses from related party transactions.
5. Property & construction: An industry which the ATO is particularly interested in due to potential tax leakage. Common risks include mistreatment of disposal of real property on capital versus revenue account, and correct GST treatment and reporting on property transactions.

Emerging or evolving risks

In parallel with foundational issues, the ATO is proactively identifying emerging risks that reflect the current business environment. These include:

1. Division 149 (about pre-CGT companies which have had a change in majority ownership)
2. Cryptocurrency based business models
3. Thin capitalisation, noting the significant re-write of the thin capitalisation rules for income years starting 1 July 2023
4. Share buy back arrangements

Targeted focus areas

The ATO has also identified sectors and market thematics that are of specific interest.

1. Succession planning: With Australia’s ageing population, succession planning may involve preparing your business for sale, or planning to transfer control or wealth to family members. With this, there are complex tax issues to consider, including:

• Transactions between related parties 
• Existence of pre-CGT shareholdings and assets
• Use of CGT roll-overs
• Resettlement of trusts
• Profit extraction from private groups (in the form of loans, forgiveness of debts, payments and use of company assets) 

2. Private equity: risks across the life cycle of private equity investment, including tax outcomes for all private equity participants (funds, private businesses and investors) at different stages of the private equity lifecycle (pre-acquisition, acquisition, holding, pre-exit and exit).

3. GST focus areas: the ATO are focussed on two key industries, being retail and construction. 

• Within retail, the misclassification of voucher sales and warranty payments, and errors arising from poor internal controls, are key focus areas. 
• Within construction, the ATO is looking for misclassification of commercial adjustments (such as contract variations), misreporting and underreporting of GST for construction sales or payments to suppliers, employees or contractors.

How can you stay compliant?

1. Establish a tax governance framework: designing and embedding a tailored tax governance framework for your private business and/or private group that is workable for you is critical to ensure tax risks are appropriately considered and addressed as they arise. Good governance includes contemporaneous documentation of decisions and transactions. The ATO will examine and test a private group’s tax governance framework as part of their Top 500 and Next 5,000 review.
2. Transparent communication: Engage stakeholders across a business (founders, management, finance function) to allow time for proactive planning ahead of new transactions or activities.
3. Strategic planning: Consult with tax specialists to proactively plan for non-recurring and significant transactions, such as restructures, sale of business events and transfer of assets or wealth between related parties.

What next? 

With the ATO strengthening its focus on tax compliance in privately owned groups and high net wealth individuals, staying informed and prepared is critical to mitigate risks. Understanding these key focus areas will enable private groups to remain compliant and prepared throughout 2025 and beyond.

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