For privately owned or wealthy groups, navigating the ATO’s tax requirements is getting increasingly complex. The ATO has flagged several areas where such groups commonly slip up and where better governance, documentation and proactive tax planning can make all the difference.
Here are the critical tax rules and risks your private group should be paying close attention to.
1. Thin Capitalisation and the Debt Deduction Creation Rules (DDCR)
One of the most important changes for private groups is the impact of the Debt Deduction Creation Rules (DDCR). These rules disallow certain debt deductions, especially where debt relates to related party transactions in acquisitions, payments or distributions.
Key points to watch:
- The DDCR apply if your group has more than AU$2 million of debt deductions in a year.
- Even domestic structures can be captured the rules are not just for multinational operations.
- Loans that comply with Division 7A (i.e., company loans to shareholders) are not exempt.
Failing to apply these rules correctly can create significant adjustments in your tax return.
2. Division 7A Scrutiny
The ATO continues to scrutinise how private companies handle Division 7A loans, payments or debt forgiveness.
Common issues include:
- Shareholder loans not documented correctly
- No minimum yearly repayments or incorrect interest rates
- Reborrowing to make repayments-a technique the ATO is increasingly watching
- Using guarantees or more complex financing to sidestep Division 7A implications
If your group hasn’t reviewed its inter company financing in a while, now is a good time.
3. Risks in Trusts, Distributions and Family Trust Elections
Trust structures, particularly family trusts, remain a high risk area:
- The ATO is paying close attention to Family Trust Elections (FTEs). These can trigger the Family Trust Distribution Tax (FTDT) if distributions go outside the nominated family group.
- FTDT can carry significant liabilities (currently 47%) and directors may even face joint and several liability.
- Poorly documented or overly aggressive trust distributions are under the spotlight.
Effective documentation and transparency around trust deeds, resolutions and beneficiary entitlements are no longer optional they are essential.
4. Poor Record Keeping and Transparency
Record keeping failures are a recurring issue, especially among the “Next 5,000” private groups.
The ATO has reported:
- Incomplete or inadequate supporting documentation for income and expenses
- Weak substantiation of related party transactions
- A lack of clarity linking expenses to income generating activities
These gaps can lead to denied deductions, missed credits and even audit risk.
5. Tax Governance Matters
Good tax governance helps you identify and manage risks before they become problems. The ATO’s tax governance guide for privately owned groups outlines several principles:
- Define clear roles and responsibilities around tax risk
- Document processes for identifying, escalating and managing tax issues
- Maintain a robust framework as your group evolves (e.g., during restructuring, succession or exit)
Groups that lack documented procedures are more likely to face compliance issues especially if the ATO’s focus intensifies.
6. ATO Focus Areas for 2025–26
The ATO has updated its compliance priorities for private groups for the 2025–26 year. These include:
- Lodgement and payment compliance: timely filings, correct schedules and accurate reporting
- Capital Gains Tax (CGT): including eligibility for concessions, correct structuring and cross-border issues
- Trust distributions: particularly non-commercial, circular or misaligned with economic benefit
- Division 7A arrangements and lifestyle assets: using business funds for personal or non-business uses is being closely watched
- Succession planning: restructures and wealth transfers are flagged for tax risk
These priorities reflect systemic risk areas the ATO considers most pressing.
7. Getting Proactive: What Your Group Should Do Now
To stay ahead and minimise risk, consider taking these actions:
- Review your inter entity and related party debt transactions against DDCR and Division 7A rules
- Audit your trust structures, especially FTEs and distributions
- Strengthen documentation: keep clear records of financial transactions, trust resolutions and governance decisions
- Implement or update a tax governance framework: make sure responsibilities are clear and processes are well documented
- Engage early with advisors (tax, legal, accounting) to ensure you are aligned with ATO expectations
Why This Matters for RG Partners & Associates Clients
For clients in private groups, these issues are not theoretical, they have real financial and reputational consequences. By proactively addressing these tax risks and having robust governance, you can reduce the chance of ATO adjustments, audits or even litigation.
At RG Partners & Associates, we help our clients navigate these complex rules. We can support you with structuring advice, documentation and process design and ensuring you are compliant and confident in the eyes of the ATO.
Reference: Australian Taxation Office
