ATO Compliance Focus for Private Groups FY2025–26

The Australian Taxation Office (ATO) has released its refreshed compliance focus for privately owned and wealthy groups for the 2025–26 financial year. The update reflects the changing landscape of private wealth management, increasing tax complexity, and recurring compliance risks.

The ATO will direct its resources towards the following key areas:

• Use of company funds or assets for personal or inter-entity purposes

• Tax risks and compliance issues arising from succession and family wealth transfer planning

• High-risk industries such as property, construction, private equity, retail, and cross-border transactions

• Enhancing overall tax governance and reporting quality

Core Tax & Compliance Issues

During engagements with private groups, the ATO frequently observes risks and issues arising from inadequate governance, internal controls, or professional advice.

While processes and procedures differ depending on a group’s size, structure, and industry, all private groups are expected to maintain appropriate documentation to support their transactions and tax positions. Recognising when specialist advice is required is also important. As groups expand or evolve their business and investment strategies, their approach to identifying and managing tax risks should also evolve.

The ATO’s Tax Governance Guide for Privately Owned Groups provides practical guidance to help embed effective tax governance practices.

The following are the core tax and compliance risks and issues the ATO intends to focus on for privately owned wealthy groups:

Registration, Lodgment & Payment – Key Compliance Focus

All taxpayers, including those in privately owned and wealthy groups, are expected to meet key tax obligations that support transparency and effective engagement with the tax system. These include:

• Registering for obligations, such as PAYG withholding and GST, where required;

• Choosing the correct accounting basis and reporting cycles;

• Lodging tax returns, activity statements, fringe benefits tax (FBT) returns, and Taxable Payments Annual Reports on time;

• Paying tax debts when due and engaging early with the ATO where more tailored support is needed.

Reporting – Key Compliance Focus

Due to inadequate internal controls, the ATO continues to observe the following issues in private groups:

• Incomplete reporting of tax returns, activity statements, and schedules (including information labels such as shareholder loans, assets, and liabilities);

• Omitted or underreported income, sales, or fringe benefits;

• Companies incorrectly claiming base rate entity status;

• Incorrect or overclaimed deductions, GST credits, fuel tax credits, and research and development (R&D) tax incentive, where not entitled – including situations where legislative requirements for the entitlement are not met or insufficient evidence exists to substantiate claims, for example:

  • Trusts overclaiming deductions to reduce net income;

  • Businesses claiming for ineligible R&D expenditure or activities.

The ATO takes a data-driven approach to identifying potential risks and will continue to monitor these risks through engagements.

Capital Gains Tax (CGT) Compliance Risks

The ATO has observed taxpayers incorrectly or inappropriately claiming CGT concessions, exemptions, or rollovers, resulting in capital gains being understated, disregarded, or deferred. Key focus areas include:

• Claiming CGT concessions without properly considering or meeting eligibility requirements;

• Restructuring to access concessions that would not otherwise be available;

• Inappropriate application of the CGT discount or small business CGT concessions;

• Misuse of the small business restructure rollover;

• Trusts inappropriately disregard capital gains for foreign beneficiaries.

The ATO will continue to use data and case insights to detect and address misuse of CGT concessions and cross-border trust arrangements.

Trust Compliance Risks

The ATO continues to focus on private groups with higher-risk trust structures or distributions, particularly those involving non-commercial arrangements or misinterpretations of tax law.

Key areas of concern include:

• Distributions to lower-taxed beneficiaries where the economic benefit flows elsewhere, potentially exploiting mismatches or constituting tax avoidance.

• Circular trust distributions where tax has not been paid on some or all distributions, to ensure compliance with Trustee Beneficiary Non-disclosure Tax (TBNT).

• Family trusts distributing outside the family group, which may trigger Family Trust Distribution Tax (FTDT). The ATO is concerned about a lack of awareness of FTDT’s compounding effect, which can lead to significant liabilities.

• Franked dividend distributions where beneficiaries claim the franking credit tax offset without satisfying the 45-day holding rule, particularly for newly incorporated corporate beneficiaries.

Using Business Money for Other Purposes

Many private groups operate through multiple legal entities. While engagement with the ATO may occur at a group level, it’s important to note that unless the entities form a tax consolidated group, multiple entry consolidated group, or GST group, transactions between entities within the group may still attract tax and fall under specific taxing provisions.

The ATO stresses that private groups and their advisers must recognise that using business funds or assets for personal or inter-entity purposes can trigger significant tax consequences. In some cases, opportunistic behaviours have been observed where taxpayers seek to avoid these outcomes.

The ATO continues to focus on arrangements where company money or assets are used for personal or other group purposes without being properly reported or characterised for tax purposes.

Division 7A – Key Compliance Focus

The ATO continues to identify instances where private groups fail to meet their obligations under Division 7A of the Income Tax Assessment Act 1936. This provision ensures that funds or benefits provided by a private company to shareholders or their associates—such as loans, payments, or debt forgiveness—are properly treated for tax purposes and not used to avoid tax.

Key non-compliance behaviours include:

• Inadequate record keeping

• Unreported shareholder loans

• Non-complying loan agreements

• Failure to make minimum yearly repayments (including not applying the correct benchmark interest rate)

• Using new or re-borrowed funds to make repayments on existing Division 7A loans

The ATO is also targeting arrangements designed to circumvent Division 7A, such as when private companies guarantee third-party loans.

In addition, the ATO will closely scrutinise requests under section 109RB seeking the Commissioner’s discretion to disregard the operation of Division 7A or to allow a deemed dividend to be franked, especially where the breach was not due to an honest mistake or inadvertent omission.

Lifestyle Assets and Private Use Risks

The ATO continues to identify cases where private pursuits or “hobby-like activities” are incorrectly characterised as business activities. These often involve taxpayers who have acquired or improved high-value assets—such as yachts, luxury cars, aircraft, or holiday homes—without sufficient reported income to demonstrate their financial capacity to fund such purchases.

Where assets are acquired and used through another business in the group or related entities, the following tax issues commonly arise:

• Division 7A implications when assets are provided for use by shareholders or their associates;

• Incorrectly claimed deductions or offsets to which the taxpayer is not entitled;

• Improperly claimed GST credits without appropriate apportionment for private use;

• Failure to recognise fringe benefits provided to employees or their associates.

The ATO remains focused on ensuring that lifestyle assets are properly reported and taxed in line with their actual use and ownership structure.

Specific Industries and Tax Advisers – Key Compliance Focus

Tax advisers and professional firm– Key Compliance Focus

Tax advisers and professional firms play a critical role in influencing clients’ tax performance and strengthening the integrity of the tax system.

Through the Private Wealth Adviser Program, the ATO will continue to ensure advisers meet their own tax obligations, reflecting the expectation that advisers lead by example.

Beyond foundational issues applicable to all private groups, the ATO is particularly focused on:

• Professional firms failing to lodge partnership returns or statements of distributions;

• Compliance with PCG 2021/4 – Allocation of professional firm profits – action will be taken against high-risk arrangements that reduce an individual professional practitioner’s tax liability;

• Intermediaries (including R&D and GST advisers) who either:

  • Promote tax avoidance or exploitation schemes;

  • Encourage clients to take high-risk or non-compliant tax positions, including R&D, GST, or fuel tax credit refund arrangements where adviser fees are charged on a contingency basis.

Property and Construction – Key Compliance Focus

The ATO continues to focus on private groups operating in the property and construction industry, particularly those at higher risk of misclassifying real property transactions due to misunderstanding or disregarding the law.

Areas of focus include:

• Property disposals: Increased activity has been observed in property flipping, suburban residential block development, and large-scale subdivision;

• Capital vs. revenue classification: While most taxpayers aim to classify correctly, non-compliance ranging from misclassification to disregarding the law has been observed. The ATO seeks to ensure a level playing field;

• GST on real property disposals: Including the application of the going concern or margin scheme. The ATO is concerned about lack of awareness regarding adjustments, eligibility, and margin scheme calculations, and aims to help taxpayers get it right;

• Non-arm’s length dealings within the group: Transactions intended to reduce taxable income, incorrect reporting of property sales, or omitted income, particularly in groups with ongoing property sales and sustained losses or minimal taxable income, are considered higher risk;

• Failure to lodge or report sales/income: Identified via the Taxable Payments Reporting System, especially where taxpayers have received income as subcontractors and should comply with ATO reporting obligations.

Private Equity – Key Compliance Focus

In recognition of the growing size and scale of private capital investment in Australia, the ATO has established a Private Equity Program, focusing on tax risks associated with transactions and activities of Australian-based private equity firms and their associated participants.

These participants include investors, funds, target entities, owners of domestic private equity firms, and family offices that undertake or participate in private equity activities.

The ATO’s focus spans all stages of the private equity investment lifecycle:

• Pre-acquisition

• Acquisition

• Holding

• Pre-exit

• Exit

Retail Industry – Key GST Compliance Focus

The ATO continues to focus on GST risks within the retail industry, where reporting errors often arise due to inadequate systems and controls. These risks typically increase during periods of business growth or when there are changes to business structure or operating model.

Key focus areas include:

• Transactions between entities within the same private group;

• Omission of income from sales;

• Misclassification of voucher sales and warranty payments;

• Claiming input tax credits for non-creditable acquisitions.

Cross-Border Transactions – Key Compliance Focus

The ATO has observed that some privately owned wealthy groups engage in diverse cross-border transactions without understanding or being aware of their reporting obligations. Risks and issues include:

• Intangible migration arrangements;

• Incorrect self-assessment of Significant Global Entity (SGE) status;

• Related-party financing, thin capitalisation, and debt deduction creation rules;

• Controlled Foreign Company (CFC) compliance (see common CFC errors);

• Failure to disclose international related-party dealings in the International Dealings Schedule.

For more information, see the Private Wealth International Program.

Crypto Assets – Key Compliance Focus

The ATO is focused on ensuring crypto asset transactions are reported correctly, with particular attention to:

• Crypto asset investors omitting or incorrectly reporting capital gains or losses from crypto transactions;

• Crypto asset businesses omitting or incorrectly reporting income and expenses.

The ATO’s Crypto Assets Data-Matching Program matches what private groups report in their tax returns with data on crypto asset transactions and accounts from service providers to ensure accuracy.

Use of Tax-Exempt or Concessionally Taxed Entities – Key Compliance Focus

While there are legitimate reasons for having a self-managed super fund (SMSF) or a not-for-profit organisation, the ATO focuses on arrangements where private groups inappropriately use tax-exempt or concessionally-taxed entities and structures to minimise or avoid tax.

This includes private groups:

• Inappropriately using SMSFs to access concessional tax rates;

• Inappropriately establishing or using income tax-exempt vehicles, including ancillary funds, to access tax concessions and private benefits they would otherwise not be able to access.

Private groups need to consider the potential tax consequences for entities within their group arising from these arrangements.

Retirement Villages – Key Compliance Focus

The ATO continues its focus on retirement villages, based on insights from previous engagements, reviewing both GST and income tax positions throughout the retirement village lifecycle.

Key areas of focus include:

• Incorrect application of GST-free provisions;

• Omission or incorrect calculation of the GST increasing adjustment when purchasing a retirement village as a GST-free going concern;

• Related-party transactions and incorrect valuations;

• Land-lease structures.

GST Refund Fraud – Key Compliance Focus

The ATO maintains a strong focus on arrangements designed to improperly obtain GST refunds, particularly those involving artificial and contrived transactions between entities within the same private group, as described in TA 2025/2.

These arrangements typically involve:

• False or exaggerated invoicing;

• Mismatched accounting methods;

• The appearance of high-value transactions where no genuine economic activity has occurred.

  
  

Compliance efforts are informed by intelligence and data analytics, working across the system to detect and disrupt these arrangements early.

📞 If you need assistance in understanding how these updates may affect you, or if your affairs involve restructures, trust distributions, or Division 7A loans, our professional team can help review your structure and compliance position, identify potential risks, and strengthen your tax governance. Please contact our team for tailored professional advice.