All areas of an organisation are vulnerable to potential tax risks. The best remedy is to proactively identify and manage the risks within the organisation. If you don’t, then chances are you could be paying the wrong amount of tax, and/or exposing your organisation to unnecessary risk.
Taking the time to assess an organisation’s tax risks is vital to ensure it remains in step with the current legislative, economic and corporate environments. By adding a regular routine to your reporting processes, your organisation can instil a proactive tax risk management approach and reduce the likelihood of paying the wrong amount of tax or falling foul of tax rules.
To get you started, BDO’s Tax experts recommend five key areas leaders need to examine when assessing if their organisation is exposed to avoidable tax risks.
Understanding how the tax rules apply to your organisation’s structure is imperative. Consider things like the ownership structure, its international network (owners and/or subsidiaries), and changes to ownership. Carefully examining your organisation’s structure will help identify the tax rules and regulations that it must adhere to, and any potential areas for attention.
2. Business activities
Analyse the organisation’s activities from the past year. Were there any major transactions, or forgiven any loans during the year? If your organisation has recouped any revenue or capital losses during the year, it’s important to consider the tax loss recoupment tests. Were there any international related party transactions that could trigger transfer pricing considerations?
3. Goods and services tax (GST)
If your organisation provides goods and/or services in Australia, chances are you need to be registered for GST with the Australian Taxation Office. If your organisation imports or exports goods assess whether it has the records to support the GST treatment adopted. If your organisation has a parent company, or any subsidiaries, it’s important to know whether these entities are in a GST group.
4. Employment taxes and benefits
Leaders must determine how their organisation attends to employment taxes and how these impact their staff. Does your organisation employ contractors, and if so, are they considered an employee for tax purposes? Examine your organisation’s employee benefits – are they provided by associates or third-parties? If your organisation is a charity or not-for-profit, additional tax concessions may apply.
5. Funding or investment sources
Take a close look at whether your organisation has the capabilities and resources available to achieve its end goals. If not, consider the funding and/or resource requirements and investigate options such as grant programs and/or investors aligned with your business objectives. Leaders should have a plan in place for how any funding and/or resources gained will be used for the best benefit of the organisation. More importantly, consider how commercially viable the funding solution will be and the return on investment.
For a more in-depth look at how you can assess your organisation’s tax risks, and additional areas you should consider, download BDO’s Proactive Tax Risk Assessment Checklist. This detailed reference sheet lists key questions leaders should ask for a range of focus areas to help them assess whether or not their organisation is exposed to avoidable tax risks.
If you have a specific question regarding your organisation’s task risk, get in touch with a BDO Tax expert.