New financial year tax reform
New tax regulations will require all Australian taxpayers to be vigilant and transparent. The Australian Taxation Office (ATO) is cracking down on a number of areas, which will affect both individual and corporate taxpayers, so it’s essential to be up to date on requirements.
Balancing the business imperative to reduce tax obligations with the legal requirements to pay the correct amount of tax can involve a number of grey areas. Which means, as we move further into the new financial year, taxpayers will need skillful accounting advice to help them navigate their own unique circumstances within the changing tax environment.
Over the coming weeks we will be looking at four key areas of tax reform:
- Justified Trust
- Fringe Benefits Tax (FBT) changes
- Crackdown on the cash economy
- Closer examination of work-related deductions
This week we start with “Justified Trust”, the latest initiative in the government’s transparency drive.
What is Justified Trust?
“Justified trust” requires businesses to demonstrate to the ATO that they have the right systems in place to test significant transactions for tax risk.
Previously, the ATO relied on companies to self-identify their main tax risks, but now companies will need to provide fact-based evidence to justify their tax position, and not just to the government but to the broader taxpayer community.
“Australians are sick of companies that don’t appear to pay their fair share of tax. In response, the Australian Taxation Office (ATO) is looking to demonstrate governance and transparency so people can understand how the system works and be confident that Australia’s top 1,000 companies are paying the right amount of tax.”
And to do this, each business will need to cover four key areas:
- Understanding the business’s tax and risk management framework.
- Reviewing tax risks communicated to the market.
- Understanding significant new transactions.
- Understanding why accounting and tax results may vary.
For many companies, this will mean they need to re-examine how they structure their finance and tax teams, and how they approach data and technology.
Tools for transparency
Technology will naturally play a central part in enabling corporate tax transparency, but it must be the right technology to expedite the compliance process, ensuring valuable company resources remain focused on the business’s strategic needs.
Adopting the mindset
Perhaps one of the most significant aspects of the initiative is the emphasis it places on fostering collaboration within organisational systems and culture, so they can truly adapt to the new ‘justified trust’ mindset. This is not just a tax and finance issue, but one that involves everyone, from the board and senior leadership team through all the different departments, including risk, internal audit, and human resources. And this can only benefit the whole of an organisation’s culture, as Ben notes:
“Breaking down silos is crucial. Embedding the tax department in the activities of the finance department and other areas of the business can create a spirit of collaboration and a genuine appreciation for why each department needs certain information.”
Keep up with Ben’s tax and technology insights here and for more on transparency, read our latest report: Technology Builds Transparency: Achieving Justified Tax.