Walk-Through Test Explained: Control & Ownership in Australian Tax (2025)

What really determines who’s in control when it comes to trusts, companies, and tax obligations in Australia? In 2025, the answer often lies in the walk-through test – a crucial, sometimes misunderstood, tool for financial compliance and transparency.

Understanding the Walk-Through Test: More Than Just a Checkbox

The walk-through test is an investigative method used by the Australian Taxation Office (ATO) and financial professionals to establish who truly controls or benefits from an entity, such as a trust or company. Rather than relying solely on formal titles or legal documents, the test “walks through” the practical reality of how decisions are made and who can exercise influence.

In 2025, with the ATO intensifying its scrutiny of trust arrangements and complex structures, this test is more relevant than ever. It’s especially important in these areas:

• Family trusts – to identify who genuinely controls distributions and assets
• Corporate groups – to determine ultimate ownership and control for tax consolidation or anti-avoidance rules
• SMSFs and other investment vehicles – for compliance with the sole purpose test and related-party rules

How the Walk-Through Test Works in Practice

Imagine a family trust where the deed names a corporate trustee, but all key decisions are made by a single family member behind the scenes. The walk-through test asks: If we follow the money and the decision-making, who really calls the shots?

Key steps in the walk-through test include:

1. Mapping formal structures – reviewing deeds, constitutions, and share registers
2. Tracing actual decision-making – who signs off on distributions, investments, or major changes?
3. Identifying beneficiaries or ultimate owners – who receives the benefits, directly or indirectly?
4. Following the flow of funds – tracking where money goes, not just where it’s supposed to go on paper

Recent ATO guidance in 2025 has reinforced that substance will always trump form. Even if a trust deed looks watertight, if the walk-through test reveals a different reality, the ATO may attribute control (and tax liability) accordingly.

2025 Updates: New Tax Compliance Focus and Real-World Examples

This year, the ATO has signaled a renewed focus on the walk-through test, particularly in the wake of high-profile court cases and evolving anti-avoidance measures. Notable updates include:

• Revised guidance on trust distributions: From 1 July 2025, the ATO expects trustees to demonstrate clear, documented processes for decision-making. Where actual control diverges from documentation, the walk-through test may be applied aggressively.
• Corporate transparency laws: New beneficial ownership registers require companies to disclose the individuals who ultimately control them, aligning with the walk-through test’s practical focus.
• Increased penalties: Entities found to misrepresent control or ownership face higher penalties under the expanded Promoter Penalty Regime.

Example: In a recent 2025 case, an investment group used a complex web of trusts and holding companies to shield the identity of the controlling party. ATO auditors applied the walk-through test, uncovering that all significant instructions originated from a single director, who was ultimately held responsible for undisclosed income and penalties.

Why the Walk-Through Test Matters for Your Financial Strategy

For accountants, lawyers, and business owners, understanding the walk-through test is no longer optional. It’s essential for:

• Ensuring your structures align with both the letter and spirit of Australian tax law
• Avoiding unintended tax liabilities or compliance breaches
• Responding confidently to ATO reviews or audits
• Designing transparent, robust governance frameworks

With the ATO’s 2025 compliance programs prioritising substance over paperwork, the walk-through test is now a frontline issue for anyone involved in trusts, family offices, or multi-entity groups.

Conclusion: Prepare Now for Greater Scrutiny

The walk-through test is reshaping how Australians must think about control, ownership, and compliance. In a landscape of heightened transparency and tougher enforcement, making sure your structures withstand this practical test is the smartest move you can make in 2025.