The ATO has announced its 2025-26 areas of focus for privately owned and wealthy groups. The ATO continues to focus on trusts and has raised a specific concern when it comes to applying the 45-day holding rule for franking credits in newly incorporated bucket companies.
The ATO has issued website guidance on its key focus areas for privately owned and wealthy groups. The ATO tends to release a summary of key focus areas each financial year.
First, we continue to see an increased level of scrutiny when it comes to possible family trust distribution tax (FTDT) issues. As many practitioners would be aware, when a trust makes family trust election this opens up access to a range of concessions within the tax system.
However, FTDT can be triggered if the trust makes a distribution outside the family group of the relevant test individual. FTDT is basically 47% of the amount of the distribution, with general interest charge accruing on unpaid amounts. One of the key issues with FTDT is that there is no time limit on the ATO seeking recovery of FTDT liabilities.
Second, the ATO makes reference to concerns with restructures that are undertaken in order to access concessions that would not otherwise be available. While the ATO doesn’t expand on this, presumably this would include situations where clients change the way a group is structured in order to access the small
business CGT concessions. We have seen instances in the past of the ATO seeking to apply the general anti-avoidance rules in Part IVA to situations involving group restructures which appear to enable access to
concessions that wouldn’t otherwise be available.
Third, the ATO indicates that it is focusing on situations where a trust receives a franked dividend, which is then distributed to a corporate beneficiary that was incorporated after the original dividend was paid. We have heard from multiple sources that the ATO has been looking at this issue closely in review and audit activities this year. The ATO seems to take the view that the corporate beneficiary can’t pass the 45 day holding period rule to access the franking credits if it didn’t exist when the original dividend was paid, even if the trust held the shares in the company paying the dividend for more than 45 days and has a family trust election in place.
The ATO expects all taxpayers, including privately owned and wealthy groups to meet key tax obligations.