ATO's latest findings from Top 1,000 reviews

1 November 2022

In Brief

During October 2022, the Australian Taxation Office (ATO) issued its latest findings from its Top 1,000 income tax performance, combined assurance review and goods and services tax (GST) assurance review programs completed to 30 June 2022.

The Justified Trust Program has been in place in one form or another since 2017 and the ATO has conducted a total of 1,174 reviews as at 30 June 2022 on 1,031 taxpayers. 143 taxpayers have been reviewed twice and 444 taxpayers have been reviewed for GST.

The report provides some interesting statistics, covering areas of ATO focus, further detailed guidance on what criteria contributes to a high assurance rating, the role of governance, how the ‘second round reviews’ have fared and ‘next actions’ resulting from the reviews.

Some meaningful findings are also presented from the GST reviews that have been conducted to date, which provide insight into how taxpayers have performed, as well as providing some help in preparing for the reviews.

The findings report references data extracted from the Reportable Tax Position (RTP) Schedules lodged by taxpayers and provides an analysis of what the expected level of documentation and risk levels are as disclosed in the tax return, to what the ATO is finding as part of their reviews.

In this Tax Alert, we will provide a summary of the ATO’s findings as at 30 June 2022. As the report includes some interesting information and observations across a number of areas and disciplines, PwC will release more detailed and tailored Tax Alerts in due course.

In Detail

The Top 1,000 income tax and GST assurance program broadly represents members of large public and multinational corporate groups with a group turnover greater than $250 million and not covered by the ATO’s Top 100 Program.

In this latest findings report, of the total taxpayers reviewed, 23 per cent achieved overall high assurance for income tax as at their last review with most taxpayers (61 per cent) having achieved an overall medium assurance rating. For those taxpayers that were reviewed a second time, 34 per cent received high assurance - indicating a potential increase in the number of taxpayers receiving high assurance upon their second review by the ATO.

Areas attracting the ATO’s attention

The findings report provides some guidance on the topics that are attracting attention as part of the review process and resulting in next steps to be taken by the ATO. 

Transfer pricing - financing

Transfer pricing relating to financing continued to be an area that has a higher amount of low and red flag assurance (24 per cent). The ATO has noted that it has seen some improvements in second reviews and this has been due to actioning recommendations from the first review, providing self assessment against PCG 2017/4 and changing or ending higher risk arrangements.

Transfer pricing - non-financing 

One of the most common areas that have been referred to “Next Actions” to date are transfer pricing matters (non-financing) where 40 per cent of these “Next Actions” referrals have resulted in an audit. These non-financing transfer pricing cases relate largely to licence fees and royalties and inbound and outbound supplies of goods and services.

Licence fees and royalties

The ATO’s concern is whether sufficient benefit is received by the Australian taxpayer to justify the payment of the licence fees to the international party. The key comment made in the report is that the ATO is expecting that sufficient documentation is provided to evidence the analysis of the benefit.

Inbound and outbound supplies of goods and services

The ATO is applying the risk assessment framework set out in its Practical Compliance Guidelines PCG 2019/1 and PCG 2017/1 in conjunction with contemporaneous transfer pricing documentation that is provided by the taxpayer. 

The expectation is for taxpayers to provide objective evidence and documentation and then to overlay this to the disclosures provided in the RTP Schedule. Where there are inconsistencies or insufficient documentation, low assurance has been provided with next actions proposed.

Hybrid mismatch rules 

Only 29 per cent of hybrid arrangements reviewed were rated high assurance and 29 per cent were rated with a low assurance. 

The ATO has noted that one key reason for low assurance in this risk area is inadequate evidence to support the processes and procedures taxpayers are taking to ensure compliance with the law. The expectation is that the ATO’s PCG 2021/5 is reviewed, applied and the outcomes evidenced. The report also makes reference to the RTP Schedule, and it is clear that the ATO will be cross checking its reviews to the lodged RTP Schedule.

Revenue vs capital

Revenue versus capital characterisation continues to feature in ATO reviews. The ATO has flagged to taxpayers that they should be reviewing their contractual arrangements, including sign-on fees, incentives and payments for cancellations in the context of the recent case law on the revenue vs capital risk.

Other income tax matters 

Other tax matters, such as tax consolidation, withholding taxes, losses, capital gains tax, capital allowances, research and development incentive, and thin capitalisation have also resulted in lower or red flag assurance ratings, however, it is less likely for a taxpayer to progress to ‘Next Actions' as a result of receiving a low assurance rating on these topics.


Tax governance continues to be a key factor in the combined assurance review (CAR), with a minimum Stage 2 required in order to obtain an overall high assurance rating. 

In recent times, the ATO has published more tailored guidance to set out the expectations for ‘fit for purpose’ tax governance through the Income Tax Risk Management and Governance Guidance for Top 1000 Taxpayers and the GST Governance, Data Testing and Transaction Testing Guide. The ATO’s aims to apply a tailored and practical approach to each taxpayer, however the minimum requirement to obtain a Stage 2 rating continues to be evidence that the tax control framework is designed effectively and that all key controls have been addressed in the taxpayer’s framework. There is a particular focus on how a taxpayer has included their commitment to undertake periodic internal controls testing. 

Obtaining high assurance - and what does that mean for the taxpayer 

The report provides some more insight on what the ATO takes into account when giving a high assurance rating - breaking down their decision making to two elements - quantitative and qualitative. 

The quantitative element is largely straightforward - more than 90 per cent of tax paid needs to be assured and the economic activity of the taxpayer needs to be correctly reported. 

There are seven qualitative factors which are to be addressed objectively. There may be some limited circumstances where a high assurance can be provided where an undertaking is provided by the taxpayer that they are actively working towards addressing the below.

The seven factors are as follows: 

1 Governance  At least Stage 2 rating 
2 Tax Risks flagged to market and significant transaction At least a rating of ‘Medium’
3 International related party dealings and CFCs At least a rating of ‘Medium’
4 Losses At least a rating of ‘Medium’
5 Effective tax borne (ETB)

Where an ETB is completed, there are no areas of concern highlighted.

Where an ETB is not completed there is a high level of assurance rating for alignment between accounting and tax results

6 Reportable Tax Positions Schedule  The RTP disclosures are consistent with what is identified in the review.
7 Cooperation and collaborative behaviour Cooperation and collaboration with the ATO - example, timely provision of sufficient documentation for review.

In terms of what getting a high level of assurance means for taxpayers, the report states that in recognition of the level of trust obtained, the ongoing engagement from the ATO is to be tailored to maintain this high level of trust (with the exception of circumstances where there is a significant change in the business). 

What the tailored approach will actually look like is not further elaborated on, but it will likely depend on the individual taxpayer circumstances. 

Next Actions 

Throughout the life of the Top 1000 program, we have seen the ATO provide next actions in two ways: 

  • Recommended next actions for the taxpayer to implement (recommended next actions)
  • Next actions to be initiated by the ATO either by way of a risk assessment or through an audit (ATO imposed next actions).

In terms of the next actions that are recommended for taxpayers, the ATO states in their report that these will be subject to review on the second round of reviews and any subsequent ratings will be dependent upon the steps that have been taken since the first review in line with those recommendations. 

The statistics do provide support that where there has not been any action against the ATO recommendations then there is likelihood that the rating for the second review will suffer. 

For the CAR reviews that are currently in progress, only 5 per cent of cases have required ATO imposed next actions. 

About 40 per cent of the ATO’s next actions cases are arising from non-financing transfer pricing cases.

The statistic for how many taxpayers required an ATO imposed next action as a result of the initial reviews is not implicitly stated in the report, however, the report notes that of the taxpayers that have had ATO imposed next actions, 55 per cent have been resolved without any financial adjustment potentially due to to the provision of additional information, the issue not warranting investigation based on further review and education being provided for future action. The ATO notes that the percentage of next actions resulting in no financial action is likely to decrease in the future due to an increase in ATO sophistication and tailoring, suggesting that any ATO imposed next actions that are flagged will likely be the result of scrutiny and further work.


Of the 444 taxpayers that have been reviewed for GST, only 38 per cent (i.e. 173 taxpayers) were reviewed under the GST assurance program and given an assurance rating, with the remaining 62 per cent reviewed under the CAR program and given a risk rating. 

For taxpayers reviewed under the GST assurance program, 95 per cent have achieved an assurance rating of high or medium, with 26 per cent achieving a high rating (marking a 5 per cent increase from the 2021 results).

Tax governance continues to be a key focus area for GST. The three fundamental controls for good GST governance are BLC 4 - Periodic internal control testing, MLC 4 - Controls in place for data and MLC 6 - Documented control framework.

Only a very small number of taxpayers to date have obtained a stage 3 rating for GST governance and in the past 12 months no taxpayers achieved a stage 3 rating for governance (i.e. evidence that the documented tax control framework is both designed and operating effectively in practice).

Areas of concern or areas of focus during ATO GST assurance reviews include incorrect reporting, financial supplies, food classification, property and recipient created tax invoices (RCTI).

From 1 July 2022, no new GST assurance reviews for top 1,000 taxpayers will be undertaken, and all GST reviews will form part of the CAR and will receive an assurance rating. The GST component of the CAR now also requires taxpayers to undertake a reconciliation of their statutory profit and loss statement to the GST amounts reported in their BAS using the ATO’s GST Analytical Tool (“GAT”) methodology. 

The Takeaway

Taxpayers who have received a prior review, and are still within the Top 1,000 population, should review their findings report and identify any next actions and recommendations that were made by the ATO as part of the first review. Taking action on any of these items could mean an increase in the rating received as a result of the second review.

Tax governance continues to be a core focus of the ATO, the expectation is clearly that taxpayers continue to develop their tax risk management processes and are at a Stage 2 rating before an overall  high assurance rating can be achieved.

The report makes reference to cross checking of data that is provided in the taxpayer’s RTP Schedule to the information that is reviewed as part of the CAR. Taxpayers should take care to ensure that accurate disclosures are made in the RTP Schedule and that there is sufficient evidence to support the risk ratings that are disclosed in the Schedule as this will be subject to review in the CAR and will affect the rating provided.

It is also worth noting that as announced in the October 2022 Federal Budget the ATO Tax Avoidance Taskforce, which includes the Top 1,000 program, will be extended for a further year from 1 July 2025 and be provided with additional funding. The boosting and extension of the Tax Avoidance Taskforce will support the ATO to pursue new priority areas of observed business tax risks, complementing the ongoing focus on multinational enterprises and large public and private businesses.

Contact us

David Earl

Partner, Corporate Tax, PwC Australia

Tel: 613 8603 6856

Armineh Aghazarian

Director - Corporate Tax, PwC Australia

Tel: +61 436 090 999

Shahzeb Panhwar

Partner, Tax Controversy and Dispute Resolution, PwC Australia

Tel: +61 434 736 899

Greg Weickhardt

Partner, Global Tax, PwC Australia

Tel: 613 8603 2547

Matthew Strauch

Partner, Tax Reporting and Innovation, PwC Australia

Tel: +61 408 180 305

Sarah Saville

Partner, Tax Reporting and Innovation, PwC Australia

Tel: +61 421 052 504

Chris Vanderkley

Special Counsel, PwC Australia

Tel: +61 412 170 744