6 Tax Governance Focus Areas for Privately-Owned Companies
Updated: May 24
A company that has tax governance procedures has a clear way to process any business tax-related needs, such as managing tax or making a decision based on taxes. While it may seem like something that only large corporations require, tax governance is a must-have for any business. It ensures that the entity meets its tax obligations and helps business owners be confident that they are paying the right amount of tax.
With that said, privately-owned companies must have tax governance for both financial and legal reasons. They must also ensure that the tax governance they implement is effective. To ensure this, the ATO assesses tax governance by looking at the following focus areas:
1. The tax risks
One of the focuses the ATO places a heavy emphasis on are the tax risks a company faces and how it is managed. Note that how the taxes are addressed can differ from company to company. The ATO has their own view on tax treatments, while companies may have another. As such, the ATO requires companies to review their processes using the official rules and procedures on taxes to identify any issues that can lead to disputes. The ATO also needs companies to notify management as soon as these risks are identified so that action can be taken promptly.
2. The transactions
Plenty of transactions occur every week if not every day, all of which must be kept track of to ensure a company can stay on top of its finances. The ATO requires companies to categorize these transactions to the right tax classifications. They also need businesses to showcase their plans to manage tax risks to ensure that when such issues occur, it is minimal.
3. The tax outcomes
Tax results help businesses identify their performance. It also helps them identify any issues and explain why they exist and occur. The ATO requires that companies present an escalation process, a process that explains the boundaries and channels of decision-making in a company to solve problems. In terms of taxes, the ATO wants an escalation process for these risks, along with other documents such as reconciliations of accounting data and more.
4. The testing systems
Testing systems exist to ensure the current process is effective, that risks are kept at a manageable level. The ATO requires that companies present their audit plans for these testing systems. All tax-related processes should also be documented, such as reconciliation processes, to help further understand the testing systems' effectiveness.
5. The decision-makers
The final decisions lay on the decision-makers. As such, this group of people must know what they are responsible for and how they can make well-informed decisions. The ATO looks at the accountability of these decision-makers, asking for documentation of the roles and responsibilities of each of these individuals. They also ensure that important individuals like owners and managers understand their tax obligations and other responsibilities like reporting, record-keeping, and the like.
6. The systems and control
The systems and controls in any business are to ensure that reporting of accounting data is accurate and transparent. This is to ensure that decision-making based on these data is the best it can be. For that reason, the ATO requires that companies do a risk assessment of their systems and controls. This is to identify any tax risks that the current systems present that need to be addressed.
As you can see, the ATO considers plenty of areas when testing tax governance for privately-owned companies. However, there is a good reason for it. The ATO wants to ensure that such companies can satisfy their tax obligations and keep their financial standing afloat.
It’s important to remember that how the ATO goes about assessing your tax governance processes will be dependent on a case-by-case basis. That is because they know there is no such thing as a one-size-fits-all solution when it comes to taxes. As such, how they assess you will be specific to you, albeit focus areas will be the same. Work closely with the ATO and do your best to provide the right documents, and you will be able to ensure your tax governance process is as good as it can be.
New Wave Accounting is a small business accountant on the Gold Coast, providing bookkeeping and accounting services to help businesses stay on top of their finances. Work with us today to ensure you meet your tax obligations, maximize savings, and grow your business!