Tax governance matters

Taxation in Australia is both complicated and constantly changing. Public interest in the tax system is arguably at an all-time high. Politically there is a desire to increase tax transparency for larger businesses and high net worth individuals to provide community confidence that ‘the bigger end of town’ is paying their fair share of tax.

Subsequently the Australian Taxation Office (ATO) has an ever-increasing focus on tax governance. In the view of the ATO, when an organisation has good governance in place then the ATO can have confidence that they are meeting their tax obligations and paying the right amount of tax. 

Tax governance means having clear processes and procedures in place in a documented corporate governance framework to support tax decision making and manage tax risks. 

Accordingly, it is more important than ever for an organisation to have tax governance documentation in place that is both fit for purpose and commensurate with their tax risk appetite. 

The ATO is committed to providing better tailored, less exhaustive and less frequent reviews/audits of taxpayers that have tax governance practices which meet ATO
expectations for taxpayers of a similar type and size.

Furthermore, organisations that do not have an appropriate tax governance framework in place will not be able to meet the ATO benchmark of ‘Justified Trust’. Per the ATO, achieving Justified Trust will generate a tangible change in the organisation’s experience with the ATO resulting in lower compliance costs due to a reduction in ATO review intensity.

In short, effective tax governance should result in less time spent managing future ATO reviews and audits.

Tax governance means having clear processes and procedures in place in a documented corporate governance framework to support tax decision making and manage tax risks.

Documenting tax governance practices can also provide additional practical benefits for your business, such as:

1. Ensuring accurate financial reporting and reinforcing the integrity of business records
2. Supporting business planning and decisions through expert advice and transparent decision making – which helps business stability and avoids unwelcome surprises
3. Retention of organisational knowledge which could otherwise be lost with the departure of key personnel
4. Ensures that new personnel understand their roles and responsibilities and how the group interacts with its advisors when minimising risk.

The seven principles of effective tax governance are:

1. Accountable management and oversight
2. Recognition of tax issues and risks
3. Seeking advice as appropriate
4. Integrity in reporting
5. Professional and productive working relationships
6. Timely lodgments and payments
7. Ethical and responsible behaviours.

The ATO expects taxpayers to ensure that the core elements below are present across each of these seven principles:

• Core element 1 – Existence:  Does the organisation have a tax governance framework and is it documented?

• Core element 2 – Design effectiveness: Has the framework, processes or procedures in the framework been designed effectively?

• Core element 3 – Operational effectiveness: Are the framework, processes and procedures operating effectively?

The PKF Audit & Assurance team works closely with PKF tax specialists. Together, we can assist you in achieving the ATO standard of Justified Trust.