ATO Review Priorities: Key Tax Risks Businesses Should Prepare For
On 17 September 2026, the Australian Taxation Office (ATO) released its latest findings from the Top 100 and Top 1,000 income tax and GST assurance programs. Covering reviews completed to 30 June 2026, the reports provide a useful perspective on large business tax compliance and the issues shaping the ATO's ongoing scrutiny.
This article draws on the Top 1,000 findings to highlight the areas businesses should consider when preparing for an ATO review.
The results point to continued improvement, with 89% of Top 1,000 taxpayers receiving high or medium assurance for income tax and 95% for GST. Nevertheless, a favourable rating is not a permanent outcome: some taxpayers received lower ratings on subsequent review.
Governance, the treatment of significant transactions and evidence supporting accounting-to-tax differences therefore remain important features of the ATO's assurance work.
To understand these findings, it is helpful to consider the broader framework behind the ATO's approach. Its public and multinational business three-tier model connects the behaviours affecting tax compliance with the transactions and arrangements that warrant closer attention.
This provides context for the specific risks discussed below.
Follow us on LinkedIn for the latest industry updates and trending news.
How the Three tier Model Shapes ATO Scrutiny
The model starts with the broad drivers of tax compliance (Tier 1), then identifies the observable events associated with those behaviours (Tier 2), before narrowing its focus to the specific issues where the ATO may intervene (Tier 3). Rather than assigning high, medium or low assurance ratings, it explains how the ATO moves from an overall compliance concern to a particular area of scrutiny.
At Tier 1, the ATO groups these behaviours into five areas: international related-party dealings, cross-border investment structures, domestic tax positions and structures, administrative compliance obligations, and actions that support tax compliance. A financing arrangement illustrates how the layers connect.
Within cross-border investment structures, debt and capital structures form a Tier 2 event; the related Tier 3 focus areas include debt pricing and amount, interest withholding tax, the third-party debt test and restructures responding to thin capitalisation rules.
For businesses, the value of the model lies in understanding which parts of their operations may attract attention and addressing potential issues early. Not every focus area applies to every taxpayer.
With that context in mind, the Top 1,000 report highlights several recurring issues, beginning with international related-party transactions and financing. The discussion below concerns assurance reviews, which are distinct from audits, although unresolved concerns may lead to further review or audit activity.
1. International Related party Transactions and Financing
The ATO examines whether cross-border related-party arrangements reflect their commercial substance and arm's-length conditions. Areas reviewed include management and administration services, goods, royalties and financing.
Inadequate contemporaneous documentation is a common obstacle to assurance. Supporting analysis should explain the functions performed, assets used and risks borne by the parties, rather than relying only on contractual descriptions.
Financing receives particular attention where pricing or conditions differ from third-party transactions. The report identifies interest-bearing related-party loans, cash pooling, guarantee fees and outbound interest-free loans as arrangements associated with low or red flag ratings.
The ATO also examines the arm's-length amount of debt, interest withholding tax and hybrid financing risks. Financing and transfer mispricing are expressly identified as areas leading to subsequent reviews and audits.
2. Thin Capitalisation and Hybrid Mismatches
The ATO identifies the revised thin capitalisation rules and debt deduction creation rules as continuing priorities in combined assurance reviews. It expects strong processes to address the provisions, including consideration of guidance on restructures and the third-party debt test.
For hybrid mismatches, the focus includes evidence of the processes used to comply with the imported hybrid mismatch rule. The report states that inability to provide this evidence is the most common reason for medium or low assurance in this area.
As a practical preparation measure, businesses should retain both their technical analysis and the information supporting it.
3. Capital Expenditure, Deductions and Significant Transactions
The report identifies incorrect asset classification between Division 40 and Division 43, inadequate support for self-assessed effective lives, capital improvements treated as repairs, and incorrect low-value pool deductions. These are concrete examples of the issues the ATO examines when reviewing capital allowance claims.
For capital gains, concerns include rollover eligibility, market valuations supporting asset cost bases, and insufficient evidence of proceeds or calculations. A useful preparation step is to check that significant transaction files support both the amounts reported and the tax treatment adopted.
This is a practical recommendation, not a separate ATO requirement.
4. GST Treatment and Reporting Controls
GST scrutiny covers both individual transactions and the systems generating BAS figures. The ATO highlights margin scheme application, GST-free farmland provisions and input tax credits associated with residential accommodation supplied to employees.
Other concerns include agency arrangements, staff expenses and reverse charge treatment of services from overseas branches or related entities.
The ATO also reviews GST data controls, documented procedures, periodic control testing and explanations of significant differences between accounting and BAS outcomes. A recurring coding error can create substantial shortfalls when repeated across many transactions.
Conclusion
The central preparation message is to support tax outcomes with objective evidence, not merely completed returns. For businesses within the program, priority should be given to commercially supportable related-party arrangements, properly analysed debt deductions, substantiated asset and transaction calculations, and reliable GST controls.
The report also shows that governance weaknesses and insufficient evidence can prevent high assurance, even where further tax has not been established as payable.
Official Sources
Disclaimer
This article reflects publicly available information regarding the exposure of draft legislation as at the date of publication and is general in nature. It does not constitute tax, financial, or legal advice and should not be relied upon without obtaining professional advice tailored to your specific circumstances. To discuss how these proposed changes may affect you or your business, please contact our advisory team at Wis Australia.
Liability Limited By A Scheme Approved Under Professional Standards Legislation.
