In this issue:
Being across the above updates will enable you to have more control over your cash flow, compliance risk and strategic planning. If you have questions about how these changes affect your business or personal situation, we’re always here to help.
This tax season, we’ve seen a surge in questions about whether interest on a loan can be claimed as a tax deduction. It’s a great question as the way interest expenses are treated can significantly affect your overall tax position. However, the rules aren’t always straightforward. Here’s what you need to know.
The purpose of the loan
The most important thing when looking at the tax treatment of interest expenses is to identify what the borrowed money has been used for. That is, why did you borrow the money?
For interest expenses to be deductible you generally need to show that the borrowed funds have been used for business or other income producing purposes. The security used for the loan isn’t relevant in determining the tax treatment.
Let’s take a very simple scenario where Harry borrows money to buy a new private residence. The loan is secured against an existing rental property. As the borrowed money is used to acquire a private asset the interest won’t be deductible, even though the loan is secured against an income producing asset.
Redraw v offset accounts
While the economic impact of these arrangements might seem somewhat similar, they are treated very differently under the tax system. This is an area to be especially careful with.
If you have an existing loan account arrangement, you’ve paid off some of the loan balance and you then use a redraw facility to access those funds again, this is treated as a new borrowing. We then follow the golden rule to determine the tax treatment. That is, what have the redrawn funds been used for?
An offset account is different because money sitting in an offset account is basically treated much like your personal savings. If you withdraw money from an offset account you aren’t borrowing money, even if this leads to a higher interest charge on a linked loan account. As a result, you need to look back at what the original loan was used for.
Let’s compare two scenarios that might seem similar from an economic perspective:
Example 1: Lara’s redraw facility
Lara borrowed some money five years ago to acquire her main residence. She has made some additional repayments against the loan balance. Lara redraws some of the funds and uses them to acquire some listed shares. Lara now has a mixed purpose loan. Part of the loan balance relates to the main residence and the interest accruing on this portion of the loan isn’t deductible. However, interest accruing on the redrawn amount should typically be deductible where the funds have been used to acquire income producing investments.
Example 2: Peter’s offset account
Peter also borrowed money to acquire a main residence. Rather than making additional repayments against the loan balance, Peter has deposited the funds into an offset account, which reduces the interest accruing on the home loan. Peter subsequently withdraws some of the money from the offset account to acquire listed shares. This increases the amount of interest accruing on the home loan. However, Peter can’t claim any of the interest as a deduction because the loan was used solely to acquire a private residence. Peter simply used his own savings to acquire the shares.
Parking borrowed money in an offset account
We have seen an increase in clients establishing a loan facility with the intention of using the funds for business or investment purposes in the near future. Sometimes clients will withdraw funds from the facility and then leave them sitting in an existing offset account while waiting to acquire an income producing asset. This can cause problems when it comes to claiming interest deductions.
First, even if the offset account is linked to a loan account that has been used for income producing purposes, this won’t normally be sufficient to enable interest expenses incurred on the new loan from being deductible while the funds are sitting in the offset account.
For example, let’s say Duncan has an existing rental property loan which has an offset account attached to it. Duncan takes out a new loan, expecting to use the funds to acquire some shares. While waiting to purchase the shares, he deposits the funds into the offset account, which reduces the interest accruing on the rental property loan. It is unlikely that Duncan will be able to claim a deduction for interest accruing on the new loan because the borrowed funds are not being used to produce income, they are simply being applied to reduce some interest expenses on a different loan.
To make things worse, there is also a risk that parking the funds in an offset account for a period of time might taint the interest on the new loan account into the future, even if money is subsequently withdrawn from the offset account and used to acquire an income producing asset.
For example, even if Duncan subsequently withdraws the funds from the offset account to acquire some listed shares, there is a risk that the ATO won’t allow interest accruing on the second loan from being deductible. The risk would be higher if there were already funds in the offset account when the borrowed funds were deposited into that account or if Duncan had deposited any other funds into the account before the withdrawal was made. This is because we now can’t really trace through and determine the ultimate source of the funds that have been used to acquire the shares
To do
It’s worth reaching out to us before entering into any new loan arrangements. In this area, mistakes are often difficult to fix after the fact, which can lead to poor tax outcomes. That’s why getting advice from a tax professional before committing to a loan is essential. We can work alongside you and your financial adviser to ensure your loan is structured in a way that makes financial sense and protects your tax position.
With the purchasing of luxury vehicles on the rise it’s important to be aware of some specific features of the tax system that can impact on the real cost of purchase. Often the tax rules provide taxpayers with a worse tax outcome if the car will be used for business or other income producing purposes compared with a non-luxury car, but this depends on the situation.
Depreciation deductions and GST credits
Normally when someone purchases a motor vehicle which will be used in their business or other income producing activities there will be an opportunity to claim depreciation deductions over the effective life of the vehicle. Rather than claiming an immediate deduction for the cost of the vehicle, you will typically be claiming a deduction for the cost of the vehicle gradually over a number of years.
Likewise, a taxpayer who is registered for GST might be able to claim back GST credits on the cost of purchasing a motor vehicle that will be used in their business activities.
However, when you are dealing with a luxury car the tax rules will sometimes limit your ability to claim depreciation deductions and GST credits, impacting on the after-tax cost of acquiring the car.
How does it work?
Each year the ATO publishes a luxury car limit which is $69,674 for the 2025-26 income year. If the total cost of the car exceeds this limit, then this can impact the GST credits or depreciation deductions that can be claimed.
Let’s assume that Alice buys a new car for $88,000 (including GST) in July 2025. To keep things simple, let’s say Alice uses the car solely in her business activities and is registered for GST.
The first issue for Alice is that rather than claiming GST credits of $8,000, her GST credit claim will be limited to $6,334 (ie, 11th x $69,674).
We then subtract the GST credits that can be claimed from the total cost, leaving $81,666. As this still exceeds the luxury car limit, Alice’s depreciation deductions will be capped as well.
While she actually spent $89,000 on the car, she can only claim depreciation deductions based on a deemed cost of $69,674.
The end result is that Alice has missed out on some GST credits and depreciation deductions because she bought a luxury car.
Exceptions to the rules
There are some important exceptions to these rules.
The rules only apply to vehicles which are classified as ‘cars’ under the tax system. That is, the car limit doesn’t apply if the vehicle is designed to carry a load of at least one tonne or it is designed to carry at least 9 passengers.
The rules only apply if the vehicle was designed mainly for carrying passengers. The way we determine this depends on the nature of the vehicle and whether we are dealing with a dual cab ute or not.
For example, let’s assume Steve buys a ute which is designed to carry a load of at least one tonne. This isn’t classified as a car for tax purposes so Steve won’t miss out on GST credits or depreciation deductions.
However, let’s assume Jenny has bought a dual cab ute which is designed to carry a load of less than one tonne and fewer than 9 passengers. This is classified as a car and the luxury car limit will apply unless we can show that it wasn’t designed mainly to carry passengers. As we are dealing with a dual cab ute, we multiply the vehicle’s designed seating capacity (including the driver's) by 68kg. If the total passenger weight determined using this formula doesn’t exceed the remaining 'load' capacity, we should be able to argue that the ute wasn’t designed mainly for the principal purpose of carrying passengers, which means that Jenny should be able to claim depreciation deductions based on the full cost of the vehicle
The approach would be different if we were dealing with something other than a dual cab ute, such as a four-wheel drive vehicle.
Luxury car lease arrangements
Normally when someone enters into a lease arrangement for a car and they use the car in their business or employment duties there’s an opportunity to claim deductions for the lease payments, adjusted for any private usage.
However, if the value of the car exceeds the luxury car limit then the tax rules apply differently. Basically, what happens is that the taxpayer is deemed to have purchased the car using borrowed money. Rather than claiming a deduction for the actual lease payments, instead we will be claiming deductions for notional interest charges and depreciation, subject to the luxury car limit referred to above.
Luxury car tax
Cars with a luxury car tax (LCT) value which is over the LCT threshold for that year are subject to LCT, which is calculated as 33% of the amount above the LCT threshold.
The LCT thresholds for the 2025-26 income year are:
$91,387 for fuel-efficient vehicles
$80,567 for all other vehicles that fall within the scope of the LCT rules
From 1 July 2025 the definition of a fuel-efficient vehicle has changed, meaning that a car will only qualify for the higher LCT threshold if it has a fuel consumption that does not exceed 3.5 litres per 100km (this was 7 litres per 100km before 1 July 2025).
Buying a car or other motor vehicle can be a complex process and there will be a range of factors to consider. If you need assistance with the tax side of things please let us know before you jump in and sign any agreements.
From 1 July 2025, the superannuation guarantee (SG) rate officially rose to 12% of ordinary time earnings (OTE). This is the final step in the gradual increase legislated under previous reforms.
What’s changed?
Old rate: 11.5% (up to 30 June 2025)
New rate: 12% (from 1 July 2025)
This increase affects cash flow, payroll accruals and employment contracts, especially where total remuneration includes superannuation.
Employer checklist
Update payroll software: ensure systems are calculating 12% SG correctly from 1 July 2025 pay runs.
Review employment agreements: if contracts are set to inclusive of super, the take-home pay of employees may reduce unless renegotiated or the employer decides to bear the cost of the increased SG rate.
Budget for higher super contributions: consider possible cash flow impacts
Remember that significant penalties can be imposed for late or incorrect SG payments, including loss of deductions, interest and other administration charges.
The annual concessional contribution cap will remain at $30,000 for the 2025/2026 financial year. The annual non-concessional contribution (NCC) cap is set at four times the concessional contribution cap meaning it will also remain at $120,000.
Although the annual NCC cap has not changed, NCCs can now be made by individuals with a total super balance (TSB) of less than $2,000,000 on 30 June 2025 (assuming they have not reached the age 75 deadline and any prior bring forward periods are considered). This is due to the fact that the upper TSB limit links to the general transfer balance cap (TBC) which has increased to $2,000,000.
The relevant TSB amounts for NCCs in the 2025/2026 financial year are summarized in the table below:
Personal deductible contributions
A superannuation fund member may be able to claim a deduction for personal contributions made to their super fund with personal after-tax funds. A member will normally be eligible to claim a deduction if:
The member makes an after-tax contribution to their superannuation fund in the relevant financial year
They are aged under 67 or 67 to 74 and meet a work test or work test exemption
They have provided the superannuation fund with a valid notice of intent to claim
The super fund has provided the member with acknowledgement of the notice of intent to claim
Notice of intent to claim
If the member is eligible and would like to claim a deduction, then they must notify their super fund that they intend to claim a deduction.
The notice must be valid and in the approved form – Notice of Intent to Claim or vary a deduction for personal super contributions (NAT 71121).
The tax legislation provides a notice of intent to claim will be valid if:
What you need to consider
The member must provide the notice of intent to claim to the fund by the earlier of:
However, if a super fund member provides a notice of intent after they have rolled over their entire super interest to another fund, withdrawn the entire super interest (paid it out of super as a lump sum), or commenced a pension with any part of the contribution, the notice will not be valid.
This means the individual will not be able to claim a deduction for the personal contributions made before the rollover or withdrawal.
The following thresholds will remain unchanged for the 2025/2026 financial year.
In a move that surprised many commentators, the Reserve Bank of Australia (RBA) held the cash rate steady at 3.85% in July. A show of caution over action, amid mixed economic signals. Despite headline inflation easing within the RBA’s target band, concerns over economic fragility and employment softness prompted the central bank to delay a widely expected cut.
Why the RBA waited
Potential impacts
The interest rate hold means ongoing pressure on loan repayments and cash flow, particularly for those with variable debt or finance leases. Businesses relying on consumer discretionary spending may continue to feel the squeeze. The hold does however give business owners time to prepare. Analysts expect a possible cut in late Q3 or early Q4 if data trends continue potentially providing breathing room ahead of the holiday period. Given where things are at it’s a good time to review your debt exposure, optimise cash flow and consider refinancing options.
There’s a lot to take in. If we can help you with any of the content that’s been covered, please reach out.
Year-end Tax Planning Opportunities & Risks
With the end of the financial year fast approaching we outline some opportunities to maximise your deductions and give you the low down on areas at risk of increased ATO scrutiny.
Opportunities
Bolstering superannuation
If growing your superannuation is a strategy you are pursuing, and your total superannuation balance allows it, you could make a one-off deductible contribution to your superannuation if you have not used your $30,000 cap. This cap includes superannuation guarantee paid by your employer, amounts you have salary sacrificed into super and any amounts you have contributed personally that will be claimed as a tax deduction.
If your total superannuation balance on 30 June 2024 was below $500,000 you might be able to access any unused concessional cap amounts from the last five years in 2024-25 as a personal contribution. For example, if you were $8,000 under the cap in each of the last 5 years, you could contribute an additional $40,000 and take the tax deduction in this financial year at your personal tax rate.
To make a deductible contribution to your superannuation, you need to be aged under 75, lodge a notice of intent to claim a deduction in the approved form (check with your superannuation fund), and receive an acknowledgement from your fund before you lodge your tax return. For those aged between 67 and 74, you can only claim a deduction on a personal contribution to super if you meet the work test (i.e., work at least 40 hours during a consecutive 30-day period in the income year, although some special exemptions might apply).
If your spouse’s assessable income is less than $37,000 and you both meet the eligibility criteria, you could contribute to their superannuation and claim a $540 tax offset.
If you are likely to face a tax bill this year and you made a capital gain on shares or property you sold, then making a larger personal superannuation contribution might help to offset the tax you owe.
Charitable donations
When you donate money (or sometimes property) to a registered deductible gift recipient (DGR), you can claim amounts of $2 and above as a tax deduction. The more tax you pay, the more valuable the tax deductible donation is to you. For example, a $10,000 donation to a DGR can create a $3,250 deduction for someone earning up to $120,000 but $4,500 to someone earning $180,000 or more (excluding Medicare levy).
To be deductible, the donation must be a gift and not in exchange for something. Special rules apply for amounts relating to charity auctions and fundraising events run by a DGR.
Philanthropic giving can be undertaken in a number of different ways. Rather than providing gifts to a specific charity, it might be worth exploring the option of giving to a public ancillary fund or setting up a private ancillary fund. Donations made to these funds can often qualify for an immediate deduction, with the fund then investing and managing the money over time. The fund generally needs to distribute a certain portion of its net assets to DGRs each year.
Investment property owners
If you do not have one already, a depreciation schedule is a report that helps you calculate deductions for the natural wear and tear over time on your investment property. Depending on your property, it might help to maximise your deductions.
Risks
Work from home expenses
Working from home is a normal part of life for many workers, and while you can’t claim the cost of your morning coffee, biscuits or toilet paper (seriously, people have tried), you can claim certain additional expenses you incur. But, work from home expenses are an area of ATO scrutiny.
There are two methods of claiming your work from home expenses; the short-cut method, and the actual method.
The short-cut method allows you to claim a fixed rate of 70c for every hour you work from home for the year ending 30 June 2025. This covers your energy expenses (electricity and gas), internet expenses, mobile and home phone expenses, and stationery and computer consumables such as ink and paper. To use this method, it’s essential that you keep a record of the actual days and times you work from home because the ATO has stated that they will not accept estimates.
The alternative is to claim the actual expenses you have incurred on top of your normal running costs for working from home. You will need copies of your expenses, and your diary for at least 4 continuous weeks that represents your typical work pattern.
Landlords beware
If you own an investment property, a key concept to understand is that you can only claim a deduction for expenses you incurred in the course of earning income. That is, the property normally needs to be rented or genuinely available for rent to claim the expenses.
Sounds obvious but taxpayers claiming investment property expenses when the property was being used by family or friends, taken off the market for some reason or listed for an unreasonable rental rate, is a major focus for the ATO, particularly if your property is in a holiday hotspot.
There are a series of issues the ATO is actively pursuing this tax season. These include:
Gig economy income
It’s essential that any income (including money, appearance fees, and ‘gifts’) earned from platforms such as Airbnb, Stayz, Uber, YouTube, etc., is declared in your tax return.
The tax rules consider that you have earned the income “as soon as it is applied or dealt with in any way on your behalf or as you direct”. If you are a content creator for example, this is when your account is credited, not when you direct the money to be paid to your personal or business account. Squirrelling it away from the ATO in your platform account won’t protect you from paying tax on it.
Since 1 July 2023, the platforms delivering ride-sourcing, taxi travel, and short-term accommodation (under 90 days), have been required to report transactions made through their platform to the ATO under the sharing economy reporting regime so expect the ATO to utilise data matching activities to identify unreported income.
Other sharing economy platforms have been required to start reporting from 1 July 2024. If you have income you have not declared, do it now before the ATO discover it and apply penalties and interest.
For your business
Opportunities
Write-off bad debts
Your customer definitely not going to pay you? If all attempts have failed, the debt can be written off by 30 June to claim a deduction this year. Ensure you document the fact that you have written off the bad debt on your debtor’s ledger or with a minute.
Obsolete plant & equipment
If your business has obsolete plant and equipment sitting on your depreciation schedule, instead of depreciating a small amount each year, scrap it and write it off before 30 June if you don’t use it anymore.
For companies
If it makes sense to do so, bring forward tax deductions by committing to pay directors’ fees and employee bonuses (by resolution), and paying June quarter super contributions in June.
Risks
Tax debt and not meeting reporting obligations
Failing to lodge returns is a huge ‘red flag’ for the ATO that something is wrong in the business. Not lodging a tax return will not stop the debt escalating because the ATO has the power to simply issue an assessment of what they think your business owes. If your business is having trouble meeting its tax or reporting obligations, we can assist by working with the ATO on your behalf.
Professional firm profits
For professional services firms - architects, lawyers, accountants, etc., - the ATO is actively reviewing how profits flow through to the professionals involved, looking to see whether structures are in place to divert income to reduce the tax they would be expected to pay. Where professionals are not appropriately rewarded for the services they provide to the business, or they receive a reward which is substantially less than the value of those services, the ATO is likely to take action.
Need support or have questions? Talk to us today about maximising your outcomes and reducing your risk.
Quote of the month
“The roots of education are bitter, but the fruit is sweet."
Aristotle
Instant asset write-off threshold finally confirmed
It has been a long time coming, but the Government finally passed legislation increasing the instant asset write-off threshold for the year ending 30 June 2025 to $20,000. This was announced back in the 2024-25 Federal Budget but the Government faced a number of hurdles in terms of passing the legislation.
This basically means that individuals and entities who carry on a business with turnover of less than $10m can often claim an immediate deduction for the cost of depreciating assets (eg, plant and equipment) that are acquired during the 2025 financial year as long as the cost of the asset, ignoring GST credits that can be claimed, is less than $20,000.
If you are thinking about purchasing an asset before 30 June 2025 with the hope of claiming an immediate deduction, then please reach out to us to confirm the position. The rules contain a number of tricks and traps which we can help you to navigate.
The threshold is due to drop back to $1,000 from 1 July 2025 unless further legislation is passed to provide another temporary increase to the threshold or a permanent modification.
Property subdivision projects: the tax implications
As the urban sprawl continues in most major Australian cities, we are often asked to advise on the tax treatment of subdivision projects. Before jumping in and committing to anything, it is important to understand the tax liabilities that might arise from these projects.
Unfortunately, many people make incorrect assumptions about the way that subdivision projects will be taxed, often believing that any tax exposure will be minimal. However, the reality is that there are a number of important issues that need to be considered and that could have a significant impact on the overall profitability of the project.
For example, when someone buys a property with the intention of subdividing it into smaller lots and selling them at a profit in the short term this will normally mean that any profit is taxed as ordinary income, rather than being taxed under the CGT rules. This means that the general CGT discount would not be available to reduce the tax liability, even if the property has been held for more than 12 months and it would not be possible to apply capital losses to reduce the taxable amount.
Also, in situations like this the sale of the subdivided lots will often trigger a GST liability, further reducing any after-tax profits generated from the project.
Many people fail to properly estimate the income tax and GST liabilities that will arise from property projects and can end up with a nasty shock when they realise the impact this has on the economic viability of the project.
The ATO has recently updated its guidance in this area, adding a number of new and practical examples to demonstrate how the tax rules will typically apply. The ATO’s examples cover the income tax and GST consequences of common property transactions such as property flipping, subdivision projects and property development activities.
For example, in one of the examples the ATO looks at a scenario where the taxpayer repeatedly buys, renovates, and sells properties. They engage in market research, seeking professional advice, taking out business loans, and then carrying out renovations in a business-like manner. The ATO takes the view that the taxpayer is running a business, since the taxpayer’s primary intention is to make a profit from the renovations and reselling of the property.
The profits are treated as ordinary income and taxed on revenue account. The CGT provisions don’t apply here since the property is held as trading stock. However, GST doesn’t apply on this particular situation as long as the properties have not undergone “substantial renovations”, which needs to be considered carefully.
On the other hand, in another example the ATO deals with a taxpayer who subdivides the vacant land from their main residence because of ill health and growing debt levels. Since they didn’t initially intend to profit from the subdivision and sale of the vacant land, the sale is viewed as the mere realisation of a capital asset rather than a business venture. The activities related to the subdivision are limited to necessary actions for council approval, reflecting a low level of complexity and small scale. The sale of the subdivided lot is taxed on capital account under the CGT rules, qualifying for the general CGT discount if the land has been held for more than 12 months. However, the main residence exemption cannot apply because the land is not being sold together with the dwelling that has been used as the taxpayer’s main residence.
You can find the ATO’s guide and examples here
The ATO’s updated small business benchmarking tool
The ATO has updated its small business benchmarks with the latest data taken from the 2022–23 financial year. These benchmarks cover 100 industries and allow small businesses to compare their performance, including turnover and expenses, against others in their industry.
While the ATO doesn’t use the benchmarks in isolation, small businesses who fall outside the ATO’s benchmarks are more likely to trigger a closer examination from the ATO. The ATO uses information reported in business tax return with key performance benchmarks for the relevant industry to identify potential tax risks.
Aside from determining the risk of unwanted attention from the ATO, the benchmarks can also be used to compare your business performance against other businesses in the same industry. The benchmarks could help you spot areas where you might be able to reduce costs or improve efficiency.
The small business benchmarks can be accessed here.
Aside from the small business benchmarks, the ATO also has a business viability assessment tool which can help business owners identify whether there are any obvious financial risks. The ATO consider a business to be viable if it is generating sufficient profits to meet commitments to creditors and provide a return to the business owners. If a business isn’t generating profits, the ATO looks at whether the business has sufficient cash reserves to sustain itself.
The business viability assessment tool can be found here.
Please let us know if you would like us to review your business performance and make recommendations on ways that performance could be improved.
Labor’s victory: unpacking the promises and priorities
As the Labor party settle back into their seats having secured a majority in the House of Representatives, we look at the campaign promises and the unfinished business from the last term.
Individuals
$1,000 instant work related expenses tax deduction
Energy rebate extended
The 2025-26 federal budget extended energy rebates. From 1 July 2025, households and small business will be eligible for a further $150 energy rebate until the end of the 2025 calendar year. The rebates will automatically apply to electricity bills in quarterly instalments.
Cheaper home batteries
The Government has committed to reducing the cost of home batteries from 1 July 2025. Through the scheme, households will be able to purchase a typical battery with a 30% discount on installed costs –saving around $4,000 on a typical battery. The initiative extends the existing Small-scale Renewable Energy Scheme.
5% deposit scheme for first home buyers
The Government has committed to a 5% deposit scheme for all Australian first home buyers. Under the scheme the Government will underwrite eligible first home buyers, enabling them to purchase a property with a 5% deposit without the need for Lenders Mortgage Insurance.
Expanding the existing first home buyer scheme, the media release says, “there will be higher property price limits and no caps on places or income, in a major expansion of the existing scheme.”
The existing Home Guarantee Scheme is limited in places and subject to income tests. The scheme is open to Australian citizens or permanent residents who have never owned property or land in Australia, or have not owned property or land in Australia in the last 10 years, and available to owner occupiers only.
Superannuation
Legislation enabling the proposed Division 296 tax on superannuation balances above $3m lapsed when Parliament dissolved. The question now is whether the Government will seek to push this reform through the Senate with the support of The Greens.
Greens Senator Nick McKim has previously advocated for the Division 296 threshold to be lowered to $2m and indexed to inflation. In addition, the Senator tied his support for the tax to a “prohibition for superfunds to borrow to finance investments.”
Originally intended to apply from 1 July 2025, if enacted, Division 296 will increase the headline tax rate to 30% for earnings on total superannuation balances (TSB) above $3m. The proposed calculation captures growth in TSB over the financial year allowing for contributions and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years.
Small business
Extending the instant asset write-off for small business: An increase to the $1,000 instant asset write-off threshold has been a consistent feature of federal budgets by various governments as an incentive for small business investment.
The extension of the increased instant asset write-off threshold to $20,000 for the 2024-25 financial was passed by Parliament on 26 March 2025. The Government has committed to extending the $20,000 instant asset write-off threshold to 30 June 2026.
National small business strategy
The Government has released its National small business strategy for consultation. The strategy primarily addresses how different government jurisdictions work with small business and how to relieve some of the friction when dealing across government systems and requirements.
Energy
Green Aluminium Production Credit: The Government has $2bn set aside for a new Green Aluminium Production Credit to support Australian aluminium smelters switching to renewable electricity before 2036 (there are four of them).
If you are wondering why the aluminium industry has been singled out, the reason is two-fold; aluminium is the second most used metal in the world and according to the Institute of Energy Economics and Financial Analysis, represents about 10% of Australia’s electricity demand - Tomago Aluminium just north of Newcastle in NSW, is the largest single user of electricity in the country with electricity making up about 40% of its costs. Transition from brown to green energy is not just a consumption issue for the industry, it’s a recreation of the value chain.
Under the initiative, smelters will be able to negotiate an emissions linked credit contract payable per tonne of green aluminium produced for up to 10 years. The final credit rates will be based on individual facility circumstances and be dependent on reducing Scope 2 emissions. Scope 2 emissions are indirect greenhouse gas emissions associated with the purchase of electricity, steam, heat or cooling. They account for around 85% of emissions from aluminium smelting.
See: Aluminium to forge Australia's manufacturing future and Department of Industry, Science and Resources. New Green Aluminium Production Credit will support the transition to green metals.
From air fryers to swimwear: tax deductions to avoid
With the 2025 tax season fast approaching the Australian Taxation Office (ATO) is reminding taxpayers to be careful when claiming work related expenses. This is in reaction to a spate of claims that didn’t quite pass the ‘pub test’. To give you a few examples of what didn’t get through…
These claims were deemed personal in nature and lacked a sufficient connection to income earning activities. The advice here would be - if in doubt leave it out or run it by us.
2025 priorities
The ATO is focusing on areas where frequent errors occur including:
Working from home deductions
For those working from home there are two methods to calculate deductions:
It's important to note that double dipping is not allowed. For instance, if you claim deductions using the fixed rate method you can’t separately claim a deduction for your mobile phone costs.
As always, if you’re unsure or need help with your tax return please reach out.
ATO’s new requirements for NFP’s
If you are involved with running a not for profit (NFP) organisation it is important to be aware of key obligations and requirements. In particular, if the NFP qualifies as a tax exempt entity there are some specific conditions that need to be satisfied and a relatively new ATO reporting obligation which needs to be undertaken to maintain that income tax exempt status.
Annual NFP self-review return
From the 2023–24 income year, non-charitable NFPs with an active Australian Business Number (ABN) are required to lodge an annual NFP self-review return with the ATO. This return notifies the ATO of the organisation's eligibility to self-assess as income tax exempt.
The return has three sections:
When the return is being completed the NFP must answer ‘yes’ or ‘no’ to the question: ‘Does the organisation have and follow clauses in its governing documents that prohibit the distribution of income or assets to members while it is operating and winding up?’ This requirement needs to be satisfied in order for the NFP to self-assess its position as a tax exempt entity.
If a NFPs governing documents don’t have these clauses then it can still self-assess as income tax exempt for the 2024 income year as long as no income or assets have been distributed to members. As a transitional arrangement, the ATO is allowing NFPs until 30 June 2025 to update their governing documents. Failing to do this will mean that the organisation cannot self-assess as income tax exempt from 1 July 2024 for the 2025 income year, which would lead to the organisation being treated as a taxable entity that might then need to lodge a tax return.
Mandatory clauses in governing documents
Governing documents are the formal documents which set out the purpose of the organisation, its character and the rules and requirements for how decisions are made, how it operates and how long it operates for.
As noted above, NFPs must include specific clauses in their governing documents to self-assess as income tax exempt. These clauses must:
NFPs should also ensure that there are sufficient controls in place to ensure that members don’t receive income, property or assets which belong to the organisation, except where they are receiving remuneration for work performed for the entity or a reimbursement of expenses incurred on behalf of the organisation.
The advises that NFP governing documents should be reviewed at least annually or whenever there is a major change to the structure or activities of the organisation. An annual general meeting is a good time to review governing documents.
Taking a proactive approach helps identify any issues and reinforces your organisation's commitment to good governance.
Economic crossroads: US shrinks, China stimulates, Australia holds steady
The US economy experienced a notable slowdown in the first quarter of 2025. The latest GDP data showed the economy contracted at an annual rate of -0.3%. Businesses stockpiling goods (which increased import volumes) ahead of the implementation of President Trump's shemozzle of a tariff policy was one of the reasons for the contraction in GDP. The other was a decline in Government spending. Mr Trump’s tariffs are deflationary for the world and inflationary for the US. The sharp weakening in soft economic data points to rising recession risks, although markets still only seem priced for a mild slowdown which now seems right given the backdown.
It is no surprise that China announced a new stimulus package including interest rate cuts and a significant liquidity injection, as the Government looks to boost an economy that has been hit by the collapse in the property market and now the trade war with the US. China’s factory activity contracted at its fastest pace in 16 months in April following the frontloading of orders to beat the tariffs. Trade talks between the US and China have driven market optimism over the past few weeks and sentiment has turned positive. The US-China deal has 30% import taxes on Chinese goods, which could still stem trade flow. The trade announcement with the UK has disappointed many in the market as it kept the 10% tariff on imports into the US up from 3.4%. The EU hasn’t even begun negotiations with the US.
In Australia, the election has come and gone fairly uneventfully for financial markets. We are waiting on GDP data to be released in the next few weeks which should confirm a sluggish economy given consumer spending remains weak. The RBA has cut interest rates and this should underpin mild growth.
The outlook for financial markets remains one of uncertainty reflected by the increase in volatility. Tight policy, lingering inflation risks and tariff-related drag still weighs on markets. What seems to have been achieved so far is a whole lot of volatility and the realisation the US needs China as much as China needs the US. Within the Australian share market there was a notable softening in outlook statements by company management in the recent reporting season. With full-year forecasts being revised lower, it is reasonable to suggest that market-wide earnings growth is slowing, with expectations moderating for the rest of this year and potentially into the next.
Personal tax cuts
From 1 July 2026, personal income tax rates will change.
On the last sitting day of Parliament, the personal income tax rate reduction announced in the 2025-26 Federal Budget was confirmed. The modest reduction of 1% applies to the $18,201-$45,000 tax bracket, reducing from its current rate of 16% to 15% from 1 July 2026, then to 14% from 2027-28. The saving from the tax cut represents a maximum of $268 in the 2026-27 year and $536 from the 2027-28 year.
With a 1 July 2026 start date, the outcome of the Federal election on 3 May 2025 and subsequent budgets will determine whether this change comes to fruition.
Medicare levy threshold change for low-income earners
Low-income earners do not pay the compulsory 2% Medicare levy until their assessable income reaches the threshold. The threshold is different depending on whether you are a single taxpayer, pensioner, and the number of children you have that are dependent on you.
Parliament has confirmed the increase to the Medicare levy threshold announced in the Federal Budget. The threshold change is backdated to 1 July 2024, which means that taxpayers will benefit when they lodge their 2024-25 tax return.
See our Budget 2025-26 summary for details.
Super guarantee rules catch up with venues and gyms
The superannuation guarantee rules are broad and, in some circumstances, extend beyond the definition of common law employees to some directors, contractors, entertainers, sports persons and other workers.
Employers need to pay compulsory superannuation guarantee (SG) to those considered employees under the definition in the SG rules. But, the SG definition of an employee is broad and just how far this definition extends has sparked debate of late about the rights of performers, gym instructors and others not typically considered employees.
For employers and business owners, it is crucially important that if there is any uncertainty about the rights of workers to SG, your position is confirmed. This might be an initial assessment of the position by us, confirmed by an employment lawyer, or clarified by applying for a ATO private ruling covering your specific workplace arrangements. One of the things that employers find most alarming is that there is no tangible time limit on the recovery of outstanding SG obligations. In theory, the ATO can go back as far as it determines necessary to recover unpaid superannuation contributions for workers who are classified as employees for SG purposes. One of the key features of the SG system is to ensure that appropriate contributions are being made for employees and deemed employees, to adequately support them in their retirement. The SG laws, and complimentary director penalty regime, ensure that every cent owing to an employee for SG is paid.
Who is not paid super guarantee?
Super guarantee does not need to be paid to:
Generally, SG is not payable if you have entered into a contract with a company, trust or partnership.
If you have Australian employees temporarily working outside of Australia in a country with a bilateral social security agreement, for example, the United States, you should continue paying SG and apply for a certificate of coverage to avoid paying super (or the equivalent) in the country where the employee is temporarily located.
SG’s broader definition of an employee
There is a section of the SG rules, section12, that specifies who is deemed to be an employee for SG purposes. This section extends the definition of an employee beyond common law to cover:
Are contractors entitled to SG?
If your contractor holds an Australian Business Number (ABN), this of itself will not prevent SG from applying. Where the arrangement looks like it is a contract for the provision of an individual’s labour and skills, it is likely they will meet the definition of an employee and SG will be payable.
The SG rules state if, “a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.”
This definition is alarming to many employers as the rate paid to contractors, and often the terms of the agreement, factor in an uplift for super guarantee and other entitlements that would normally be paid if the person was an employee. But for SG purposes, it does not matter what the contract says, if the person is deemed to be an employee under the rules, they are entitled to SG and the employer is obligated to pay it.
The Australian Taxation Office (ATO) states that SG needs to be paid to contractors if you pay them:
In a recent ruling, the ATO says that where the worker is required to use a substantial capital asset (such as a truck) this will help in arguing that the contract is not mainly for the labour of the worker, but this will always depend on the facts.
Are directors paid SG?
Yes. Directors (members of executive bodies of bodies corporate) should be paid SG if they are remunerated for performing duties for the company.
Entertainers, performers and sportspeople
Generally, if a performer operates through a company, trust, or partnership then there is not an employment relationship and SG is not payable.
However, individual artists, performers and sportspeople are captured as employees under the SG rules (section12(8)) where they are paid to:
Whoever is paying the individual for their labour, is generally responsible for the payment of that individual’s SG. For example, a music festival operator that contracts a sole trader to perform at a festival might be liable for SG for that performer. Likewise, if the sole trader contracts band members to perform with them at the festival, then the sole trader is responsible for the SG of the band members. If however, the music festival worked with an agency to supply the performers (the music festival pays the agency, the agency pays the performers), then the agency is likely to be responsible for the SG of the artists if there is a liability. If the agency only charges a booking fee and the festival pays the performers directly, then the festival is likely to be responsible for the performer’s SG.
You can see from this how important it is to determine who meets the definition of an employee for SG purposes, and if so, to understand the parties to the deemed employment relationship.
What’s a service “in connection to”
The definition of an employee for SG purposes captures workers who work with performers, for example individuals that are producers, videographers, editors, etc. If the person meets the definition of an employee under the SG rules, then it is likely SG is payable.
Is a gym instructor a sportsperson?
A gym instructor may be captured under the definition of a deemed employee under the SG rules. Whether the gym is liable to pay the instructor SG really depends on the facts of the individual arrangement.
Let’s look at the example of a gym instructor operating as a sole trader under an ABN.
Employee? Most likely because the ATO places a heavy significance on whether an individual is working to build their own business or someone else’s. If the instructor “..works under a contract that is wholly or principally for the labour of the person” then this also brings them into the SG net.
If the employer, the gym, had not been paying SG, is it exposed to SG payments for the instructor since the employment relationship began.
Concerned about your workplace SG liability? Please contact us for an initial review.
Quote of the month
“Elections belong to the people. It's their decision. If they decide to turn their back on the fire and burn their behinds, then they will just have to sit on their blisters.”
- Abraham Lincoln
The proposed ban on non-compete clauses
In the 2025-26 Federal Budget the Government announced a ban on non-compete clauses and “no poach” agreements.
In the 2025-26 Federal Budget, the Government announced its intention to ban non-compete clauses for low and middle-income employees and consult on the use of non-compete clauses for those on high incomes (under the Fair Work Act the high income threshold is currently $175,000).
The reason? A recent Australian Bureau of Statistics (ABS) report found that 46.9% of businesses surveyed used some kind of restraint clause, including for workers in non-executive roles. The survey also found 20.8% of businesses use non-compete clauses for at least some of their staff and 68.2% for more than three-quarters of their employees.
From an economic perspective, declining job mobility impacts wage growth and innovation as restraints prevent access to skilled workers within the economy. Productivity is a key concern as Australia’s productivity has declined in the last 20 years.
Treasury’s consultation paper Non-compete clauses and other restraints states that, “the direct consequence of a non-compete clause is that it hinders competition among businesses: it disincentivises workers from leaving their current job, creating a barrier to the entry of new businesses and the expansion of existing businesses.”
A Productivity Commission report estimates the effect of limiting the use of unreasonable restraint of trade clauses will be increased wages for workers - by up to up to 2.4% in industries with high use of non-compete clauses and up to 1.4% in others.
Non-competes: the state of play
Non-compete clauses in Australia are generally enforced under common law. For all regions except New South Wales, restraints are generally presumed to be against the public interest and therefore void and unenforceable except where they are deemed to be reasonably necessary to protect the legitimate interest of the employer.
In NSW, a restraint of trade is valid to the extent to which it is not against public policy.
When non-competes are contested, the courts consider the nature and extent of the business interest to be protected (e.g., confidential client information) and whether the scope of restriction the business wants imposed is reasonable including its geographic area, time period and activities which the restraint seeks to control.
Interests considered ‘legitimate’ by courts include the protection of trade secrets or other confidential information; protection against solicitation of clients with whom the former worker had a personal connection; and protection against key staff being recruited by a former colleague. An employer is not entitled to protect themselves against mere competition by a former worker.
What now
The ban on non-compete clauses was announced in the 2025-26 Federal Budget. The Government has stated that it intends to consult on policy details, including exemptions, penalties, and transition arrangements. Following consultation and the passage of legislation, the reforms are anticipated to take effect from 2027, operating prospectively.
There is a lot of uncertainty at this stage about this measure, despite the enthusiasm of the Treasury economists, not least of which is the impending election.
We’ll bring you more as further information is available.
Threshold for tax-free retirement super increases
The amount of money that can be transferred to a tax-free retirement account will increase to $2m on 1 July 2025.
Each year, advisers await the December inflation statistics to the be released. The reason is simple, the transfer balance cap – the amount that can be transferred to a tax-free retirement account – is indexed to the Consumer Price Index (CPI) released each December. If inflation goes up, the general transfer balance cap is indexed in increments of $100,000 at the start of the financial year.
In December 2024, the inflation rate triggered an increase in the cap from $1.9m to $2m.
The complexity with the transfer balance cap is that each person has an individual transfer balance cap. If you have started a retirement income stream, when indexation occurs, any increase only applies to your unused transfer balance cap.
Considering retiring in 2025?
If you are considering retiring, either fully or partially, indexation of the transfer balance cap provides a one-off opportunity to increase the amount of money you can transfer to your tax-free retirement account. That is, if you start taking a retirement income stream for the first time in June 2025, your transfer balance cap will be $1.9m but if you wait until July 2025 your transfer balance cap will be $2m, an extra tax-free $100,000.
Already taking a pension?
If you are already taking a retirement income stream, indexation applies to your unused transfer balance cap - so you might not benefit from the full $100,000 increase on 1 July 2025.
Where can I see what my cap is?
Your superannuation fund reports the value of your superannuation interests to the ATO. You can view your personal transfer balance cap, available cap space, and transfer balance account transactions online through the ATO link in myGov.
If you have a self-managed superannuation fund (SMSF), it is very important that your reporting obligations are up to date.
“Succession planning, and the tax risks associated with it, is our number one focus in 2025. In recent years we’ve observed an increase in reorganisations that appear to be connected to succession planning.”
ATO Private Wealth Deputy Commissioner Louise Clarke
The Australian Taxation Office (ATO) thinks that wealthy babyboomer Australians, particularly those with successful family-controlled businesses, are planning and structuring to dispose of assets in a way in which the tax outcomes might not be in accord with the ATO’s expectations.
If you are within the ATO’s Top 500 (Australia's largest and wealthiest private groups) or Next 5,000 (Australian residents who, together with their associates, control a net wealth of over $50 million) programs, expect the ATO to be paying close attention to how money flows through the entities you control.
A critical issue for many business owners is how to effectively (and compliantly) benefit from a successful business. In many cases, the owners have spent years building the business and the business has become not only a substantial asset, but a lucrative source of income either through salary and wages, dividends, or through the sale of shares or assets. Generally, under tax law, you can legitimately structure assets if there is a good reason to do so - like for asset protection, but if you tip across the line and the only viable reason for a structure is to reduce tax, then you risk the ATO taking a very close look at your operations or worse, denying any tax benefits under the general anti-avoidance rules in Part IVA of the tax rules, designed to combat “blatant, artificial or contrived” tax avoidance activities.
“We’re seeing that succession planning behaviour is primarily done by group heads who are approaching retirement. They typically own groups that family members are a part of, and wealth is transferred to the next generation to keep it within the family (via trusts and other means),” ATO Private Wealth Deputy Commissioner Louise Clarke said in a recent update.
Use of Trusts
Trusts are also a key area of concern in 2025. Where a trust which has made a family trust election (FTE) or interposed entity election (IEE) makes a distribution outside of the family group, a 47%Family Trust Distribution Tax applies (tax at the top marginal tax rate plus Medicare).
In addition, the ATO has recently tightened its approach to trust tax returns for closely held trusts to ensure that trustee beneficiary (TB) statements are being completed. These are required when a trust makes a distribution of income or assets to the trustee of another trust, unless an exclusion applies.
For example, a trust which has made an FTE or IEE doesn’t need to make a TB statement. The TB statement will then be used to cross reference against what the beneficiary has declared in its tax return. Where a valid TB statement is not made on time this can trigger a hefty 47%Trustee Beneficiary Non-Disclosure Tax.
Reducing Risks
Where you or your family have control over multiple entities, particularly where the value of these entities is significant, it is important that the connections between these - be it in Australia or overseas - are looked at closely to avoid any nasty surprises or lost opportunities.
Transferring control of your business may involve restructuring your business operations – changes to share structures, changes to the trustee and appointor of a trust, changes to partnership structures – or transferring assets to family members via the creation of trusts or other entities. All these events have legal and tax implications that need to be carefully considered.
Will credit card surcharges be banned?
If credit card surcharges are banned in other countries, why not Australia? We look at the surcharge debate and the payment system complexity that has brought us to this point.
In the United Kingdom, consumer credit and debit card surcharges have been banned since 2018. In Europe, all except American Express and Diners Club consumer surcharges are banned. And in Australia, there is a push to follow suit. But, is the issue as simple as it seems?
The push for change
The Reserve Bank of Australia (RBA)launched a review in October 2024 of Merchant Card Payment Costs and Surcharging. The review explores whether existing regulatory frameworks are still fit for purpose given the rate of technological change and complexity, and if there is a need for greater transparency –surcharges, transaction fees, and the way in which payments are regulated, are all up for review. Ultimately, the review is about reducing costs to merchants and consumers.
In general, customers dislike surcharges and would be happy to see them go – they represent a personal loss of value in much the same way a discount is seen as a personal gain. And, they have support for a ban from the large credit card providers and financial institutions with the Australian Banking Association’s (ABA) submission to the RBA review saying, “The current surcharging framework is clearly not working and requires targeted reform. Consumers should never be surcharged for bundled costs like POS systems, business software products or other business incentives.” The reference to “business incentives” is where a higher fee is charged by the payment service provider to provide the merchant with reward points and other incentives.
The push for a ban accelerated when the government announced that it would ban debit card surcharges from 1 January 2026, subject to the outcome of the RBA review later this year.
If surcharges are banned for some or all payment methods, businesses currently charging surcharges will need to either absorb the cost of merchant fees or increase prices. The issue for many businesses is not whether to charge a fee, but the costs of accepting what is now the most common payment method – cash is free to transact, cards are a facility to transact legal tender, not legal tender in and of themselves.
Small business pays 3 times more
While the average card payment fee in Australia is lower than the United States (which is close to double Australia’s rates), we pay a higher rate than in some other jurisdictions such as Europe. The RBA have flagged there might be room to improve this by capping interchange fees and/or introducing competition into how debit card payments are routed (allowing systems to default to the ‘least cost’ option available).
In Australia, it is not a level playing field when it comes to card transaction fees with a large disparity between fees paid by small and large merchants – small merchants pay around three times the average per transaction fee than larger merchants (large merchants are able to secure wholesale fees or utilise ‘strategic’ interchange rates). But even within the small business sector, fees vary dramatically with the cost of accepting card payments ranging from less than 1% to well over 2% of the transaction value.
How we use cards and digital transactions
The RBA are generally in favour of allowing surcharges, pointing out that they signal to consumers which payment methods offer better value and enable market forces to determine the dominant payment providers. And, this might be true for large purchases, but do we really notice when we’re tapping our phones or watches to grab that morning coffee?
Cards (including debit, prepaid, credit and charge cards) are the most frequently used payment method in Australia, accounting for three-quarters of all consumer payments in 2022.
According to the Australian Banking Association:
Contact less payments now account for 95% of in-person card transactions, compared to less than 8% in 2010.
Online payments, as a share of retail payments, have grown from 7% in 2010 to 18% in 2022.
Mobile wallet (Apple Pay, Google Pay, etc.,) usage has grown from 1% of point-of-sale payments in 2016 to 44% in October 2024.
Buy Now, Pay Later (BNPL) services, virtually unknown 8 years ago, are now used by nearly a third of Australians.
When are surcharges allowed
In the days before the RBA’s surcharge standard, it was not uncommon for businesses to apply a flat 3% surcharge.
The surcharge rules enable merchants to surcharge consumers for the “reasonable cost of accepting card payments”.
This means:
A business can only charge a surcharge for paying by card/digital wallet, but the surcharge must not be more than what it costs the business to use that payment type. These costs, measured over a 12 month period, can include gateway costs, terminal costs paid to a provider, and fraud prevention etc., if they relate directly to the card type being surcharged.
If a business charges a payment surcharge, it must be able to justify how the surcharge fee was calculated.
If the surcharge applies to all payment types regardless of type, it must not be more than the lowest surcharge set for a single payment type.
If there is no way for a customer to pay without incurring a surcharge, the business must include the surcharge in the displayed price. That is, if your customer cannot use cash or another payment method that does not incur a surcharge, then the price displayed must include the surcharge.
The RBA estimates that, on average, card fees cost:
Card type Fee
Eftpos less than 0.5%
Visa and
Mastercard debit between 0.5% and 1%
Visa and
Mastercard credit between 1% and 1.5%.
Source: RBA
Excessive surcharging is banned on eftpos, Debit Mastercard, Mastercard Credit, Visa Debit and Visa Credit. The Australian Competition and Consumer Commission (ACCC) reportedly stated that excessive surcharge complaints increased to close to 2,500 in the 18 months from the start of 2023.
Tax on surcharges
If your business charges goods and services tax (GST) on goods or services, then GST should also apply to any surcharge payments made.
Tax and tinsel Q&As
Can you avoid giving the Australian Tax Office a gift this Christmas?
The top Christmas party questions
What can I do to make the staff Christmas party tax deductible or tax-free?
Not have one? Ok, seriously, it’s likely that you will pay tax one way or another; it’s just a question of how. If you structure your celebrations to avoid fringe benefits tax (FBT), then you normally can’t claim a tax deduction for the expense or goods and services tax (GST) credits.
No FBT
If you host your Christmas party in the office on a working day, then FBT is unlikely to apply to the food and drink. Taxi travel that starts or finishes at an employee’s place of work is also exempt from FBT - helpful if you have a few team members that need to be loaded into a taxi after overindulging in Christmas cheer.
If you host your Christmas party outside of the office and keep the cost per head under $300 (the FBT minor benefit limit) then FBT often won’t apply to the cost of entertaining your employees.
But, if you do not incur FBT, you cannot claim GST credits or a tax deduction for the Christmas party expense.
Tax deductible
If your business hosts slightly more extravagant parties away from the business premises and the cost goes above the $300 per person minor benefit limit, you will pay FBT but you can also claim a tax deduction and GST credits for the cost of the event.
Are the costs of client gifts deductible?
It depends on the gift and why you’re giving it. If you send a client a gift, the gift is tax deductible if you have an expectation that the business will benefit; it’s marketing. While this seems like a mercenary way to look at Christmas giving, it is the business giving the gift, not you personally. This assumes that the gift is not a gift of entertainment like golf, or restaurants, which would not be deductible.
What about gifts for staff? Are they tax deductible?
The key to Christmas presents for your team is to keep the gift spontaneous, ad hoc, and from a tax perspective, below the $300 FBT minor benefit limit. So, no ongoing gym memberships or giving the same person several of the same gift that adds up to $300 or more unless you want to give a gift to the ATO at the same time. But, you can give gifts at different times throughout the year without triggering FBT as these are counted separately for the minor benefit limit.
A cash bonus will be treated as income in much the same way as salary and wages.
I like to catch up with clients for lunch or a drink (or two) at Christmas. These expenses are deductible, right?
Regardless of whether it’s for Christmas or at any other time of the year, the cost of entertaining your clients – food, drink or other entertainment – is not deductible. The ATO is keen to ensure that taxpayers are not picking up part of the cost of your long lunches or special events while you’re bonding with clients.
Merry Christmas
We want to take this opportunity to wish you and your family a safe and happy Christmas.
It’s been an eventful and busy year. Let’s hope 2025 is a year of stability and peace.
We will look forward to working with you again in 2025 and making it the best possible year for you.
We wish you and your family the warmest of Christmas wishes.
Office closure
Our office will be closed for Christmas from 12pm 23rd December 2024 and will reopen 8:45am 6th January 2025.
Quote of the month
“If you haven't got any charity in your heart, you have the worst kind of heart trouble.”
- Bob Hope, Comedian
What’s ahead in 2025?
The last few years have been a rollercoaster ride of instability. 2025 holds hope, but not a guarantee, of greater stability and certainty. We explore some of the key changes and challenges.
An election
Welcome to political advertising slipping into your social media, voicemail, and television viewing - most likely with messages from the opposition asking if you are better off, and from the incumbents telling you all the reasons why you are.
The 2025-26 Federal Budget has been brought forward to 25 March 2025. This suggests an election will be held in either March or May 2025 but no later than 17 May 2025.
Legislation in limbo
The Senate pushed through 32 Bills on the final sitting day of parliament for 2024 including seven of direct relevance to business and to the financial interests of some Australians. However, two key announcements remain in limbo:
$3m tax on earnings in a superannuation fund
The proposed Division 296 tax, which imposes a 30% tax rate on future earnings for superannuation balances above $3 million, is proposed to commence from 1 July 2025. The Bill enabling the new tax is stalled in the Senate. It’s unlikely that this tax will pass parliament prior to the election; at which point, the Bill lapses. It then becomes a question of whether the elected Government chooses to rectify the concept or let it fade into oblivion as a bad idea.
$20,000 instant asset write-off for small business
In the 2024-25 Federal Budget, the government announced the extension of the $20,000 instant asset write-off threshold for small business for a further year to 2024-25. The concession enables businesses with an aggregated turnover of less than $10 million to immediately deduct the full cost of eligible depreciating assets costing less than $20,000. Without this measure, the threshold returns to $1,000. This concession was removed by amendment from the enabling legislation at the last minute in the final sitting of Parliament of 2024. The removal of this measure is unfortunate, as once again, SMEs now have no confidence about the tax treatment of investments in assets that they might be looking to make, or have made, in the current financial year.
Tax & super changes
Foreign resident capital gains withholding changes on sale of property
One of the Bills pushed through Parliament at the end of 2024 changes how capital gains withholding applies to foreign residents from 1 January 2025.
Currently, residents selling taxable Australian property must provide a clearance certificate to the purchaser at or before settlement to avoid having 12.5% withheld from a property sale where the value of the property is $750,000 or more. If applicable, the withholding is then made available as a credit against any tax liability. The vendor only receives any refund due after their next income tax return is processed at tax time.
From 1 January 2025 however, the threshold will be removed and the withholding rate increased so that:
The reforms apply to acquisitions made on or after 1 January 2025.
Superannuation rate increases to 12%
The Superannuation Guarantee (SG) rate will rise from 11.5% to 12% on 1 July 2025 - the final legislated increase.
Super on Paid Parental Leave
From 1 July 2025, superannuation will be paid on Paid Parental Leave payments. Eligible parents will receive an additional payment based on the superannuation guarantee (i.e. 12% of their PPL payments), as a contribution to their superannuation fund.
Interest rates
At the last Reserve Bank Board (RBA) meeting, RBA governor Michele Bullock recognised the easing of headline inflation from 5.4% to 2.8% over the year to September 2024 but suggested that the economy still has some way to go before inflation is sustainably within the 2% to 3% target range. The RBA appears wary of volatility and wants to see inflation sustainably trending down before making any move. Commbank is predicting a February 2025 rate cut, ANZ and Westpac May 2025, and NAB June 2025.
Cost of living pressures
The National Accounts released in early December took economists by surprise with living standards growing by a mere 0.2% in the September quarter – the expectation was much higher. Discretionary spending only increased by 0.1%.
The personal income tax cuts that came into effect from 1 July 2024 helped households, as did energy subsidies, but the impact is still working its way through the system. At the same time, mortgage costs continue to rise as past increases continue to impact.
Through the year, Australia’s economy grew 0.8%, the lowest rate since the COVID-19 affected December quarter 2020. Economic activity in the Australian economy right now is heavily dependent on Government spending.
Slow and steady is the expectation for 2025.
The ‘Trump effect’
President-elect Trump will recite his oath of office on 20 January 2025. The Trump administration will hold the presidency, Senate and the House.
For Australia, the question is the likely impact of some of President-elect Trump’s stated policy objectives including the imposition of tariffs. On social media, Trump has said:
The issue for Australia is the secondary impact of a trade war. China is Australia's largest two-way trading partner, accounting for 26% of our goods and services trade with the world in 2023. A slowdown in the Chinese economy impacts Australia and the region generally.
An immediate impact of the idea of a trade war has been the decline of the AUD/USD, currently sitting at around 64c.
Fuel efficient cars
New standards for vehicle manufacturers come into effect from 1 January 2025. Vehicle manufacturers will have a set average CO2 target for all new cars they produce, which they must meet or beat. The target will be reduced over time and car companies must provide more choices of fuel-efficient, low or zero emissions vehicles.
Suppliers can still sell any type of vehicle they choose but with more fuel-efficient models offsetting any less efficient models. If suppliers meet or beat their target, they'll receive credits. If they don’t, they will have two years to either trade credits with a different supplier, or generate credits themselves, before a penalty becomes payable.
Wage theft criminalised
As of 1 January 2025, the intentional underpayment of workers will be criminalised.
Employers will commit an offence if:
Employers convicted of wage theft face fines of up to 3 times the amount of the underpayment and $7.825 million.
Phasing out cheques
The Government has announced a transition plan to phase out the use of cheques. Under the plan, cheques will stop being issued by 30 June 2028 and stop being accepted on 30 September 2029.
The use of cheques has declined dramatically over the last 10 years, declining by around 90%. In response, banks have stopped issuing chequebooks to new customers. However, financial institutions have a legislated requirement to accept cheques until the Government no longer requires them to do so.
Danish banks stopped accepting cheques in 2017 and New Zealand's banks in 2021.
Cheques out but cash remains king
While Australians have moved to digital payment methods, the Government has been careful to maintain cash as a payment method.
Around 1.5 million Australians use cash to make more than 80% of their in‑person payments. Cash also provides an easily accessible back‑up to digital payments in times of natural disaster or digital outage.
According to the most recent data, up to 94% of businesses continue to accept cash.
The Government has stated that they will mandate that businesses must accept cash when selling essential items, with appropriate exemptions for small businesses.
Currently, businesses don’t have to accept cash – business can specify the terms and conditions that they will supply goods and services.
The issue of card surcharges often comes up when a business adds a surcharge rather than recognising this cost of doing business in their pricing. A business can charge a surcharge for paying by card, but the surcharge must not be more than what it costs the business to use that payment type.
Tax deduction denied for signature basketball shoe R&D
The Federal Court has denied a sports company’s appeal to claim research & development incentives for the creation of an Australian signature basketball shoe.
The Movie Air highlighted the importance of the signature Air Jordan shoe to Nike. While expected to sell around $3 million worth of shoes by its fourth year, the signature shoe eclipsed expectations raking in $126 million in its first year. Nike sold 1.5 million in the first six weeks following clever marketing suggesting that the colourful shoes were in breach of the NBA regulations.
Nike’s recent fourth quarter results to 31 May 2024 show the Jordan brand worth $7 billion, and the bright spot in the company’s results with a 6% sales gain.
In Australia, Peak Australia created the Delly1. Peak worked with Australian Olympian and NBA Champion, Matthew Dellavedova, on the final shoe design. Dellavedova has stated in interviews that he had, “...a whole lot of involvement with the shoe… I wanted a low-cut shoe that was light and close to the ground because I need to guard all these quick guards that are tough to defend over here [in the NBA]. They [Peak] did a great job with that, and as we went through the process of me testing it we just made minor adjustment.”
But did the process undertaken to create the Delly1 meet the requirements to access research and development (R&D) concessions?
Accessing R&D concessions
The R&D tax incentive program encourages research and development that companies might not otherwise undertake. The incentive offers a tax offset which is calculated with reference to qualifying R&D expenditure. The rate of the tax offset and whether it is refundable or non-refundable depends on the company’s situation.
To access the incentive, R&D activities have to be “core” or “supporting.”
Active Sports Management Pty Ltd lodged applications with Industry Innovation and Science Australia (IISA), to register activities relating to the development of a customised basketball shoe (Delly1) as “core R&D activities.” A core activity is one that can’t be determined in advance, can only be determined by systematic progression through scientific principles and experimentation, and is conducted for the purpose of generating new knowledge.
Unfortunately for Active Sports Management, the ATO, Administrative Appeals Tribunal, and now the Federal Court did not see the development of Delly1 as core R&D.
The claim was denied on the basis that the outcome did not appear to have technical or scientific uncertainty, just subjective views.
What makes or breaks Christmas?
The cost of living has eased over the past year but consumers are still under pressure. For business, planning is the key to managing Christmas volatility.
The countdown to Christmas is on and we’re in the midst of a headlong rush to maximise any remaining opportunities before the Christmas lull. Busy period or not, Christmas causes a period of dislocation and volatility for most businesses. The result is that it is not ‘business as usual’ and for many, volatility can create problems.
Added to this dislocation are cost of living pressures impacting consumers. Employee households are the hardest hit experiencing mortgage cost fuelled increases – spiked by the rollover of fixed rate loans to higher variable rate loans. While there has been some relief from energy subsidies and a reduction in fuel prices, underlying inflation remains persistently above the RBA’s target rate. Services inflation - the cost of your rent, insurance, your hairdresser, etc. – is sitting at around 5%. With the Reserve Bank of Australia (RBA) Board keeping rates on hold for now and hinting that it will be some time yet before they are comfortable reducing rates, consumers want a reason to spend based on value for money. The irony is that if we all spend up big, which a recent Roy Morgan poll suggests we are, there is a risk this elevated spending will further delay rate cuts. But, while we might spend more, some of this increase is simply to compensate for inflation - we need to spend more to buy at the same level as previous years.
The discounting trend
Consumers expect a bargain and can generally find one. If you choose to discount stock (or the market forces you to), it’s essential to know your profit margins to determine what you can afford to give away. A business with a 20% gross profit margin that offers a 15% discount, needs a 300% increase in sales volume simply to maintain the same position. Worst case scenario is that a business trades below its breakeven point and generates losses.
Increased sales from discounting can be great if you know your numbers, have excess or older stock that needs to be moved, generates demand, or drives new customers to you.
Also think about how you create value; it does not always have to be a direct discount on a product. Packaging might be a better option than a straight discount where you can increase sales of multiple items, even better if you can combine higher demand with lower demand stock. Quantity discounts, value added are also options.
The Christmas cost hangover
Costs tend to go up over Christmas. More staff, lower efficiency, downtime from non-trading days, increased promotional costs, all mean that the cost of doing business increases. It’s great to get into the Christmas spirit as long as you don’t end up with a New Year hangover. Cost control is important.
Many businesses also bring in casual staff. It’s essential that you pay staff at the correct rates and meet your Superannuation Guarantee obligations.
Check the pay calculator to make sure you have it right.
New Year cashflow crunch
The New Year often leads into a quieter trading and tighter cashflow period. The March quarter is often the toughest cashflow quarter of the year. You will need a cash buffer. Don’t over commit yourself in the run up to the end of the year and start the new Year with a problem.
Take a lesson from Scrooge
If you work with account customers, start your debtor follow up early. If your customers are under cashflow pressure, the Christmas period will only exacerbate it. The creditors that chase debt hard and early will get paid first. Don’t be the last supplier on the list; the bucket might be empty by then.
Christmas is a great time of year. Just don’t get caught up in the rush and forget about the basics.
Trading stock headaches
If business activity spikes over the Christmas period and you sell goods, then there is a temptation to increase stock levels. That makes sense as long as you don’t go too far. Too much stock post the Christmas period and you will either be carrying product that is out of season, or you will have too much cash tied up in trading stock. Try to work with suppliers that can supply on short notice.
Managing your trading stock is not just about managing cost. If your customers are in your store but can’t find what they need, have an online option available in store to take the sale.
When overseas workers are Australian employees
The Fair Work Commission has determined that a Philippines based “independent contractor” was an employee unfairly dismissed by her Australian employer.
Like us, you are probably curious how a foreign national living in the Philippines, who had an ‘independent contractors’ agreement with an Australian company, could be classified as an Australian employee by the Fair Work Commission?
The recent case of Ms Joanna Pascua v Doessel Group Pty Ltd highlights just some of the issues Australian businesses face when working with overseas contractors and staff.
What underpinned the Fair Work decision?
Ms Pascua worked under contract as a legal assistant, investigating credit claims on clients’ behalf, for a specialist credit repair legal firm based in Queensland between 21 July 2022 until 20 March 2024. She worked from home in the Philippines, using her own computer, a firm email address and a PBX phone system that gave the appearance that she was calling from the legal office.
The contract described the relationship as one of an independent contractor, with the standard clauses that the firm will not be liable for any other benefits or remuneration other than what was specified and that the firm was not liable for taxes, worker’s compensation, unemployment insurance, employer’s liability, social security or other entitlements. Ms Pascua also bore a liability in the event that something went awry with her work.
For her work, Ms Pascua was paid “AUD$18 per hour Salary all inclusive as a Full Time Employee,” capped at 8 hours per day, 5 days per week, excluding breaks. While working with the firm, Ms Pascua used a firm supplied pro forma invoice to bill 83 weekly invoices at the full hours allowable and 28 other invoices for lesser amounts when she worked less than 40 hours in the week.
For the first 12 months of her time with the legal firm she was supervised by a solicitor. Within 12 months, her work was unsupervised, and in the last 7 months of the relationship, she was the only person conducting investigative work.
Underpinning the Fair Work Commission’s decision were the recent High Court cases that changed the way in which disputes over the nature of employment relationships are determined (CFMMEU v. Personnel Contracting Pty Ltd and ZG Operations Pty Ltd and Jamsek). Whereas once the courts looked at the substance of the overall arrangement (let’s call it the ‘if it walks like a duck and talks like a duck, then it’s a duck’ principal), now greater weight is given to the contract, with reference to the rights and duties created by that contract.
To determine this case, the FWC stepped through the contract clause by clause to evaluate whether it suggested an employment or independent contractor relationship, and looked at how these clauses were brought into effect.
In this case, on weight, the FWC determined Ms Pascua was an employee because the contract indicated that Ms Pascua was required to perform work “in the business of another”, instead of for her own enterprise. The contract suggested that:
The FWC found that the description of the arrangement as that of independent contractor belied the actual nature of the contract.
When it came to the clauses excluding matters such as the payment of income tax, workers compensation, annual and personal leave relied on by the legal firm as confirmation of an independent contractor arrangement, the FWC referred to the Deliveroo Australia Pty Ltd v Diego Franco case and others. That is, the FWC considers, “the statements in the contract about meeting the obligations consequent upon the labelling of the arrangement as one of independent contractor to have little weight in determining the true nature of the relationship.”
The new definition of employee and employer
In August 2024, a new definition of what is an employee and employer came into effect in the Fair Work Act. This new definition extends the High Court’s decision in CFMMEU v. Personnel Contracting Pty Ltd and ZG Operations Pty Ltd and Jamsek to rely on the nature of the contract between the parties, not just what the contract says. The intent of the legislative change appears to be to ensure that clever drafting of a contract alone will not be sufficient to define an independent contractor arrangement.
The Fair Work Act now requires that the true relationship between the parties is, “determined by ascertaining the real substance, practical reality and true nature of the relationship between the individual and the person.” The totality of the relationship needs to be considered including how the contract is performed in practice.
What does this decision mean for employers?
The FWC’s decision in Ms Joanna Pascua v Doessel Group Pty Ltd highlights how cautious employers should be about the nature of employment relationships. Just because you label an arrangement as that of an independent contractor, does not mean it is. And if you get it wrong, beyond the industrial relations impact, you might be liable for the tax, payroll tax and workers compensation payments that should have been made.
What makes this decision unusual is how an international employment arrangement can be drawn into the national workplace system. Regardless of the geographic location of an employee, if your business is an Australian national system employer (bound by the Fair Work Act), and the individual is deemed to be an employee, the same rights and obligations may apply to that employee as to other employees located in Australia.
While not addressed in this case, the FWC also referred to the minimum wage for a paralegal performing work such as that undertaken by Ms Pascua. While not applicable to this case, from 1 January 2025, wage theft will become a criminal offence - where an employer is required to pay an amount to an employee but intentionally underpays. For international employees where rates might be significantly different to Australian expectations, it is more important than ever to ensure you have characterised the employment relationship correctly.
Tax obligations and international workers
We’re often asked about the implications of working with overseas, non-resident workers who are working for a resident Australian company.
Let’s say you want to engage the services of a non-resident individual.
Contactor or employee?
The first step is to ensure that the arrangement is correctly classified. As we have seen from the Ms Joanna Pascua v Doessel Group Pty Ltd case, this really depends on the specific situation. From a tax perspective, the ATO has outlined their guidance in Employee or independent contractor, but you might need specific advice if you are uncertain.
Implications of an employment relationship
If the worker is classified as an employee and they are a non-resident for Australian tax purposes, then they should only be taxed in Australia on income that has an Australian source. However, you need to check whether a double tax agreement (DTA) could impact on the outcome – Australia has around 45 bilateral DTAs. For example, if the employee was a resident of say the Philippines, then Article 15 of the double tax agreement (DTA) between Australia and the Philippines generally prevents Australia from taxing the employment income unless the work is performed in Australia.
Pay as you go (PAYG) withholding should not generally apply if the worker is a non-resident employee and is only deriving foreign sourced income. Generally, PAYG does not need to be withheld under the PAYGW rules from a payment of salary / wages to someone if the payments are not taxed in Australia.
Superannuation guarantee should not apply if all the work is performed overseas, and the worker is a non-resident.
It will be important to get specialist advice in the employee’s country of residency to determine whether there are any obligations that need to be satisfied under local tax or super systems (e.g., withholding, superannuation or superannuation like contributions, etc).
Tax implications of independent contractors
If the worker is classified as a genuine independent contractor (or they are working through a trust or company) and they are a non-resident, then they should only be taxed in Australia on Australian sourced income. Using the same example, if the contractor is a resident of the Philippines, then Article 7 of the DTA would generally prevent Australia from taxing their business profits or income unless they relate to a permanent establishment that the contractor has in Australia (see Will a foreign worker mean your business is carrying on a business overseas? below).
PAYG withholding should not apply as long as:
Payments to foreign contractors might need to be reported to the ATO on the taxable payment annual report (TPAR) if your business provides building and construction, cleaning, courier and road freight, IT or security, investigation or surveillance services.
Will a foreign worker mean your business is carrying on a business overseas?
By having foreign workers, there is a risk that the business will be considered to be carrying on a business through a permanent establishment in the relevant foreign country. This could potentially expose an Australian business to tax in the foreign country on some of its business profits.
A permanent establishment is generally defined in Australia’s double tax agreements as being a fixed place of business through which the business of the enterprise is carried on in whole or part. Each DTA is a unique document which means that the definition of permanent establishment might be different depending on which foreign country you are dealing with.
This area can become complex very quickly and it is a good idea to get advice to ensure that you have certainty about your obligations.
Are student loans too big?
Australian voters tend to reject US style education favouring more egalitarian systems where income does not determine access.
In the US, average student debt is USD $37,693 (public and private debt) taking an average of 20 years for individuals to repay. But, students often have a gap not fulfilled by loans.
For Australian domestic students, the cost of completing a bachelor degree is generally between $20,000 and $45,000, excluding some of the higher value courses. HECS-HELP loans are available for eligible students to cover the cost of tuition up to $121,844 for most degrees, and $174,998 for higher value degrees like medicine. The average higher education student debt in Australia is around $27,000 and on average takes just over 8 years to repay. Close to 3 million Australians have a student loan debt with debt totalling over $81 bn.
Currently, student loans start to be paid back when an individual’s income reaches $54,435, with a repayment rate that scales according to income ranging from 0% to 10% when income reaches $159,664.
The Government has announced a series of changes to HECS-HELP including:
These changes are subject to the passage of legislation and are not yet law.
Quote of the month
“We cannot solve our problems with the same thinking we used when we created them.”
- Albert Einstein
Payday super: the details
‘Payday super’ will overhaul the way in which superannuation guarantee is administered. We look at the first details and the impending obligations on employers.
From 1 July 2026, employers will be obligated to pay superannuation guarantee (SG) on behalf of their employees on the same day as salary and wages instead of the current quarterly payment sequence.
The rationale is that speeding up the payment sequence for SG will not only help reduce the estimated $3.4 billion gap between what is owed to employees and what has been paid, but will also improve outcomes for employees – the Government estimates that a 25‑year‑old median income earner currently receiving super quarterly and wages fortnightly could be around 1.5% better off at retirement.
Announced in the 2023-24 Federal Budget, payday super is not yet law. However, given the structural changes required to administer the new law, Treasury has released a fact sheet to help employers better understand the implications of the impending change.
How will payday super work?
Under payday super, the due date for SG payments will be seven days from when an ordinary times earning* payment is made.
That is, employers have seven days from an employee’s payday for their SG to be received by their super fund. The only exceptions are for new employees whose due date will be after their first two weeks of employment, and for small and irregular payments that occur outside the employee’s ordinary pay cycle.
Over the last few years, employers have moved to single touch payroll (STP) reporting for employee salary and wages. It is expected that payday super will fold into the existing electronic systems and some changes will be made to STP to collect ordinary times earning data.
The impact for some employers however will not be the compliance cost of administering the regular SG payments, but the cashflow. Employers will not be holding what will be 12% of their payroll until 28 days after the end of the quarter, but instead paying this amount out on the employee’s payday. The upside is that where an employer has either fallen behind or not paying SG, particularly when the business is insolvent, the damage is contained.
What happens if SG is paid late?
The penalties for underpaying or not paying SG are deliberately punitive and this approach will continue under payday super.
Currently, a super guarantee charge (SGC) applies to late SG payments - comprised of the employee’s superannuation guarantee shortfall amount, interest of 10% per annum from the start of the quarter the SG payment was due, and an administration fee of $20 for each employee with a shortfall per quarter. And, unlike normal superannuation guarantee contributions, SGC amounts are not deductible to the employer, even when the liability has been satisfied.
Under payday super, employees are fully compensated for delays in receiving SG amounts and larger penalties apply for employers that repeatedly fail to comply with their obligations. If you make a payment late, the SGC is made up of:
| Outstanding SG shortfall | Calculated based on OTE, rather than total salaries and wages as it is currently. |
| Notional earnings | Daily interest on the shortfall amount from the day after the due date, calculated at the general interest charge rate on a compounding basis. |
| Administrative uplift | An additional charge levied to reflect the cost of enforcement and calculated as an uplift of the SG shortfall component of up to 60%, subject to reduction where employers voluntarily disclose their failure to comply. |
| General interest charge | Interest will accrue on any outstanding SG shortfall and notional earnings amounts, as well as any outstanding administrative uplift penalty. |
| SG charge penalty | Additional penalties of up to 50% of the outstanding unpaid SG charge, that apply where amounts are not paid in full within 28 days of the notice of assessment. |
As you can see, if the proposed SGC becomes law, late SG payments can spiral out of control quickly. This will be a particular issue for employers that pay employees less than their entitlements over time, or have misclassified employees as contractors and have an outstanding SG obligation.
But, unlike the current SGC, the new SGC will be tax deductible (excluding penalties and interest that accrue if the SG charge amount is not paid within 28 days).
Payday super is not yet law. We will keep you up to date as change occurs and work with you to get it right once the details have been confirmed.
*Ordinary time earnings are the gross amount your employees earn for their ordinary hours of work including over-award payments, commissions, shift loading, annual leave loading and some allowances and bonuses.
The ban on genetic test insurance discrimination
The ability for life insurers to discriminate based on adverse predictive genetic test results will be banned under a new Government proposal.
Predictive genetic tests detect gene variants associated with heritable disorders that appear after birth, often later in life, but are not clinically detectable at the time of testing.
To overcome concerns about discrimination by life insurers, the Government has announced a total ban on predictive genetic testing.
Life insurance and genetic testing
Voluntary insurance, including life insurance is individually underwritten and ‘risk-rated’. The cost of premiums is proportionate to the unique risks of the person seeking the cover. Most of us would be familiar with the questions about family history, personal medical history and habits.
As life insurance is a guaranteed renewable product, once a policy has been underwritten and commenced, the life insurer cannot change or cancel a person’s cover, provided they pay all future premiums when due – premium prices will change across a risk pool, for example based on age. This is why it’s important to carefully assess changing life insurance policies if health issues or conditions have arisen since you put the original policy in place.
In 2019, Australia’s life insurance industry introduced a partial moratorium on the requirement to disclose genetic test results. The moratorium, which is in place for life insurance applications received from 1 July 2019, prevents genetic results being used for certain types of insurance cover below certain thresholds. However, using APRA data, when compared to the average sum insured, the moratorium coverage thresholds are well below par:
| Policy cover | Moratorium limit | APRA average |
| Death | $500,000 | $713,959 |
| Total permanent disability | $500,000 | $849,128 |
| Trauma and/or critical illness | $200,000 | $207,414 |
| Disability income insurance | $4,000* a month | $7,706 a month |
* any combination of income protection, salary continuance or business expenses cover.
Genetic test discrimination
Despite the moratorium, there is evidence that people are not undertaking genetic tests or participating in scientific research because of concerns about obtaining affordable life insurance. And, discrimination still exists.
The Australian Genetics and Life Insurance Moratorium: Monitoring the Effectiveness and Response Report by Monash University found that of the consumers surveyed who had undertaken a genetic test, 35% reported difficulties obtaining life insurance including insurers rejecting life insurance applications, financial advisers advising participants that their applications would be rejected, and insurers placing conditions on insurance policies or charging higher premiums. Alarmingly, a 43 year old woman with a BRCA2 variant and no personal history of cancer, was denied life cover outright despite having her ovaries and fallopian tubes removed, and regular intensive breast imaging.
The Government response
The Government has stepped in and announced a total ban on the use of genetic testing in life insurance underwriting. The ban will be subject to a 5 year review. However, the Government has not introduced legislation enabling the reforms nor has it announced the date that the ban will take effect.
And, the total ban impacts predictive genetic testing only – it does not cover clinical diagnostic genetic testing to confirm a suspected condition based on signs or symptoms.
A global issue
Australia is not the first country to grapple with the issue of adapting to the increase in available genetic data.
In the UK, insurers cannot use predictive genetic test results unless the result is favourable, or the result has been given to the insurer (voluntarily or accidently). Huntington’s disease is a specific exception for life cover worth more than £500,000.
Canada’s Genetic Non-Discrimination Act prohibits any entity (including insurers) from requesting or using genetic test results. The exception is for individuals to voluntarily disclosure a test result showing they do not have a genetic change that runs in the family.
In the USA, the Genetic Information Nondiscrimination Act (GINA), prevents genetic test results being used in health insurance and employment contexts but not life insurance. The US state of Florida however introduced a law prohibiting life insurers from using predictive genetic test results in underwriting.
More women using ‘downsizer’ contributions to boost super
If you are aged 55 years or older, the downsizer contribution rules enable you to contribute up to $300,000 from the proceeds of the sale of your home to your superannuation fund (eligibility criteria applies).
In 2023-24, over 57% of people making a ‘downsizer’ contribution to super were women. And, the average value of the contribution was marginally higher at $262,000 versus $259,000 contributed by men.
The most likely age someone makes a downsizer contribution is between 65 and 69. From age 65, a downsizer contribution can be withdrawn from super if your circumstances change, even if you are still working. Those aged 55 to 64 generally won’t have access to these funds until they are at least 60 and retired.
Downsizer contributions are excluded from the existing upper age test, work test, and the total super balance rules (but the amount that can be moved to a retirement pension is limited by your transfer balance cap).
For couples, both members of a couple can take advantage of the concession for the same home. That is, if you or your spouse meet the other criteria, both of you can contribute up to $300,000 ($600,000 per couple). This is the case even if one of you did not have an ownership interest in the property that was sold (assuming they meet the other criteria).
To be eligible to make a downsizer contribution you do not have to buy another home once you have sold your existing home, and you are not required to buy a smaller home - you could buy a larger and more expensive one and make a downsizer contribution if you have access to other funds.
Please contact us if you would like the facts about downsizer contributions, or speak to your financial adviser for advice on your personal scenario.
01 Succession: the series
Ok, not that Succession series. Each month we’ll bring you a new perspective on transferring property. Be it estate planning, managing an inheritance, or the various forms of business succession. This month, we look at the tax consequences of inheriting property.
Beyond the difficult task of dividing up your assets and determining who should get what, it’s essential to look at the tax consequences of how your assets will flow through to your beneficiaries.
When assets pass from a deceased individual to a beneficiary of the estate, the tax impact will generally depend on the nature of the asset and the tax characteristics of the beneficiary, such as their residency status.
Inheriting cash
When cash passes from a deceased individual to their estate and then to a beneficiary, generally, there should not be any direct tax issues to deal with, assuming that the cash is denominated in AUD.
Inheriting assets
Death is a taxing event. When a change of ownership of an asset occurs, generally, a capital gains tax event (CGT) is triggered. However, the tax rules provide some relief from CGT when someone dies. The basic rule is that a capital gain or loss triggered by a death is disregarded unless the asset is transferred to one of the following:
Once the asset has been transferred to the beneficiary, the beneficiary will need to manage the tax impact when they sell the asset.
Inheriting shares
Let’s assume you inherit an ASX listed share portfolio under your mother’s will. The tax outcome will depend on whether your mother was an Australian resident for tax purposes when she died, and whether the shares were acquired by your mother before or after 20 September 1985 (i.e., pre-CGT or post-CGT).
If your mother was an Australian resident for tax purposes when she died, and the shares were acquired post-CGT, then the cost base of the shares is normally based on the original purchase price. That is, the tax rules treat the inherited shares as if you purchased them. For example, if your mother purchased BHP shares for $17.82 on 2 January 1997, when you sell the shares, the gain is calculated based on your mother’s purchase price of $17.82.
If your mother was a resident of Australia when she died, and the shares were acquired pre-CGT, then the cost base of the shares is normally reset to their market value at the date of death. That is, if your mother passed away on 1 October 2024, the share price at close was $45.96. If you subsequently sold the shares in three years, the gain or loss is calculated using this value.
If your mother was a non-resident when she died, then the cost base of the shares is normally based on their market value at the date of death.
But it’s not all about the tax. Managing shares in your will can be difficult as prices and allocations change over time, and the companies you are invested in evolve. A portfolio that was once worth a small amount 20 years ago, might be worth significantly more when you die.
Inheriting property
Let’s assume you inherit an Australian residential property from your father under his will. For certain tax purposes, you are taken to have acquired the property at the date of his death.
The general rule is that the executor and/or beneficiaries of the estate inherit the cost base and reduced cost base of the CGT assets (the house) owned by the deceased just before their death, but this isn’t always the case, especially when it comes to pre-CGT properties and a property that was the main residence of the deceased individual just before they died.
Special rules exist that enable some beneficiaries or estates to access a full or partial main residence exemption on the inherited property. If the house was your father’s main residence before he died, he did not use the home to produce income (did not rent it out or use it as a place of business) and he was a resident of Australia for tax purposes, then a full CGT exemption might be available to the executor or beneficiary if either (or both) of the following conditions are met:
For example, if the house was your father’s main residence and was eligible for the full main residence exemption when he died, if you sell the house within the 2 year period, no CGT will apply. However, if you sell the house 10 years later, the CGT impact will depend on how the property has been used since the date of your father’s death.
An extension to the two year period can apply in limited certain circumstances, for example when the will is contested or is complex.
If your father did not live in the property just before he died, it still might be possible to apply the full exemption if your father chose to continue treating the home as his main residence under the ‘absence rule’. For example, if he was living in a retirement village for a few years but maintained the property as his main residence for CGT purposes (even if it was rented out).
If your father was not an Australian resident for tax purposes when he died, the cost base for CGT purposes will normally be based on the purchase price paid by your father if he acquired it post-CGT.
Inheriting foreign property
If you are an Australian resident who has inherited a foreign property or asset from an individual who was a non-resident just before they died, the cost base is normally taken to be the market value at the time of death. For example, if you inherited a house from your uncle in the UK, the cost base is likely to be the value of the house at the date of his death.
If a taxable gain arises on sale, then it is necessary to consider whether the CGT discount can apply, but the discount will sometimes be less than 50%. If the gain is also taxed overseas, then a tax offset can sometimes apply to reduce the amount of tax payable in Australia.
Managing an inheritance can become complex. For assistance with estate planning, or to understand the tax implications of an inheritance, please contact us.
It wasn’t me: the tax fraud scam
You login to your myGov account to find that your activity statements for the last 12 months have been amended and GST credits of $100k issued. But it wasn’t you. And you certainly didn’t get a $100k refund in your bank account. What happens now?
In what is rapidly becoming the most common tax scam, myGov accounts are being accessed for their rich source of personal data, bank accounts changed, and personal data used to generate up to hundreds of thousands in fraudulent refunds. For all intents and purposes, it is you, or at least that’s what it seems. And, the worst part is, you probably gave the scammers access to your account.
But it’s not just activity statements. Any myGov linked service that has the capacity to issue refunds or payments is being targeted. Scammers are using the amendment periods available in the tax law to adjust existing data and trigger refunds on personal income tax, goods and services tax (GST), and through variations to pay as you go (PAYG) instalments. In some cases, the level of sophistication and knowledge of how Australia’s tax and social security system operates is next level.
Once the scammers have access to your myGov account, there is a lot of damage they can do. So, how does this happen and why is it so pervasive? Humans are often the weakest link.
Common scams utilise emails (78.9% of reported tax related scams in the last 12 months) or SMS (18.4% of reported scams) that mimic communication you might normally expect to see. The lines of attack used by tax related scammers are commonly:
Approximately 75% of all email scams reported to the ATO to March 2024 were linked to a fake myGov sign in page.
How to spot a fake
Often the first sign that something is amiss is alerts about activity on your myGov account or a change in details - which might seem a little ironic if the way in which scammers got into your account in the first place is via these very same messages. But, there are ways to spot a fake:
In general, you should always log into your myGov account directly to check on any details alerted in messages rather than clicking on links. This way, you know that you are not being redirected to somewhere you should not be.
And, don’t log into your myGov account on free wifi networks. Ever.
Who is getting scammed?
There is a pervasive view that older, technology challenged individuals are the most at risk. And while this might be the case generally, scamming is impacting all age groups.
The ATO says that the demographic who most reported providing personal information to scammers was 25 to 34 year olds. And, the younger generation are more likely to fall for investment scams. According to the AFP-led Joint Policing Cybercrime Coordination Centre (JPC3), people under the age of 50 are overtaking older Australians as the most reported victims of investment scams. Australians reported losing $382 million to investment scams in the 2023-24 financial year. Nearly half (47%) of the investment scam losses involved cryptocurrency.
Other scams
Scammers are in the business of scamming and they will use every trick and opportunity to part you from your money.
Investment scams.
Pig butchering. Pig butchering is a tactic where scammers devote weeks or months to building a close relationship with their victims on social media or messaging apps, before encouraging them to invest in the share market, cryptocurrency, or foreign currency exchanges. Victims think they are trading on legitimate platforms, but the money is siphoned into an account owned by the scammers, who created fake platforms that look identical to well-known trading and cryptocurrency sites. Scammers will show fake returns on these platforms to convince victims to invest more money. Once they have extracted as much money as possible, the scammers disappear with all the invested funds.
Deepfakes. Deepfakes are lifelike impersonations of real people created by artificial intelligence technologies. Scammers create video ads, images and news articles of celebrities and other trusted public figures to promote fake investment schemes, which can appear on social media feeds or be sent by scammers through messaging apps. Unusual pauses, odd pitches, or facial movement not matching their speaking tone are often giveaways but increasingly, the fakes are difficult to spot.
Invoice scams
The names and details of legitimate businesses are used to issue fake invoices with the money transferred to the scammer’s account. These scams are often tied to cyber breachers where hackers have accessed your systems and have identified your suppliers.
Bank scams
There has been a lot in the media of late about people receiving phone calls purporting to be from their bank, advising them there is a problem with their account, and then walking them through a resolution that involves transferring all their money into a ‘safe’ scammers account. Victims commonly state that they believed the scammer because of the level of personal information they relayed.
Your bank will never send an email or text message asking for any account or financial details, this includes updating your address or log in details for phone, mobile or internet banking.
A CHOICE survey found that four out of five of the victims of banking scams in their report said their banks did nothing to flag a scam before they transferred their money to the perpetrator.
The Australian Banking Association have stated that, if not already, banks will introduce warnings and payment delays by the end of 2024. And, in addition to other measures, they will limit payments to high-risk channels such as crypto platforms.
What to do if you have been scammed
myGov
If you have downloaded a fake myGov app, have given your details to a scammer, or clicked on a link from an email, text message or scanned a QR Code, contact Services Australia Scams and Identify Theft Helpdesk on 1800 941 126, or get help with a scam here.
Tax scams
Before acting on any instructions, please contact us and we will verify the information for you.
If you have already acted, contact the ATO to verify or report a scam on 1800 008 540.
The Government use external agency recoveriescorp for debt collection but we will advise you if you have a tax debt outstanding.
Property and ‘lifestyle’ assets in the spotlight
Own an investment property or an expensive lifestyle asset like a boat or aircraft? The ATO are looking closely at these assets to see if what has been declared in tax returns matches up.
The Australian Taxation Office (ATO) has initiated two data matching programs impacting investment property owners and those lucky enough to hold expensive lifestyle assets.
Investment property
What investment property owners declare and claim in their personal income tax returns is a constant focus for the ATO. Coming off the back of data matching programs reviewing residential investment property loan data, and landlord insurance, the ATO have initiated a new program capturing data from property management software from the 2018-19 financial year through to 2025-26. Data collected will include:
While the ATO commit to specific data matching campaigns, since 1 July 2016, they have also collected data from state and territory governments who are required to report transfers of real property to the ATO each quarter. This latest data matching program ramps up the ATO’s focus on landlords, specifically targeting those who fail to lodge rental property schedules when required, omit or incorrectly report rental property income and deductions, and who omit or incorrectly report capital gains tax (CGT) details.
Lifestyle assets
Data from insurance providers is being used to identify and cross reference the ownership of expensive lifestyle assets. Included in the mix are:
The data collected is substantial including the personal details of the policy holder, the policy details including purchase price and identification details, and primary use, among other factors.
The ATO is looking for those accumulating or improving assets and not reporting these in their income tax return, disposing of assets and not declaring the income and/or capital gains, incorrectly claiming GST credits, and importantly, omitted or incorrect fringe benefits tax (FBT) reporting where the assets are held by a business but used personally.
Is the RBA to blame? The economic state of play
The politicians have weighed in on the Reserve Bank of Australia’s economic policy and their reticence to reduce interest rates in the face of community pressure. We look at what the numbers are really showing.
Treasurer Jim Chalmers has stated that global uncertainty and rate rises are “smashing the economy”.
Former Treasurer Wayne Swan weighed in and told Channel 9 that the RBA was, “putting economic dogma over rational economic decision making, hammering households, hammering Mums and Dads with higher interest rates, causing a collapse in spending and driving the economy backwards” and that the RBA was, “simply punching itself in the face.”
Australian mortgage holders and renters have had no relief from interest rates following 13 successive interest rate rises to the official cash rate since May 2022.
The Reserve Bank’s position and the flow through effects
The Reserve Bank of Australia (RBA) Board opted to maintain the official cash rates at 4.35% at its September Board meeting. The rationale is that inflation remains persistently high and has been for the last 11 quarters. The consumer price index (CPI) rose 3.9% over the year to the June quarter and remains above the RBA’s target range of 2-3%.
But, it is not persistently high inflation that is causing the politicians to weigh in. RBA Governor Michele Bullock has warned that “it is premature to be thinking about rate cuts” and “the Board does not expect that it will be in a position to cut rates in the near term.”
The Australian Bureau of Statistics (ABS) June Quarter National Accounts paint a bleak picture of the Australian economy. Per capita GDP fell for the sixth consecutive quarter by -0.4% to -1.5%. The longest consecutive period of extended weakness ever recorded.
Household spending weakest since COVID Delta
Household spending fell by -0.2% in the quarter, the weakest growth rate since the Delta-variant lockdown affected September quarter 2021.
Discretionary spending – travel and hospitality impacted most
The ABS says that we spent less on discretionary items (-1.1%), particularly for events and travel. It will come as no surprise that spending on hotels, cafes and restaurants was down 1.5%. Spending on food also fell -0.1% as households looked to reduce grocery bills.
Household savings lowest since 2006
The savings ratio remains low. Households saved only 0.9% of their income over the year. This was the lowest rate of annual saving since 2006-07. Net savings reduce when household income grows slower than household spending.
Economic growth from Government spending
The Australian economy did grow by 0.2%, the eleventh consecutive quarter of growth but the growth rate was unimpressive. The ABS says that, “the weak growth reflects subdued household demand, which detracted 0.1 percentage points from GDP growth while government consumption contributed 0.3 percentage points, the same contribution to growth as previous quarter.”
Government spending increased by 1.4% over the quarter. Commonwealth social assistance benefits to households led the rise, with continued strength in expenditure on national programs providing health services. State and local government expenditure also rose with increased employee expenses across most states and territories.
The RBA’s position on interest rates
The RBA is on a narrow path. It’s trying to bring inflation back to target within a reasonable timeframe while preserving the gains in the labour market over the last few years. The RBA expects to reach this target range by the end of 2025.
Through 2022 and 2023, most components of the CPI basket were growing faster than usual (the CPI is literally a basket of 87 types of expenditure across 11 groups such as household spending, education and transport.) Over the last 18 months, the price of goods has come down as supply disruptions like COVID-19 and the war in Ukraine have eased, and are now growing close to the historical average.
The key problem areas are housing costs and services. In housing, the growth is from increased construction costs and strong increases in rent. For services, while discretionary spending is down, as we can see from the June National Accounts, inflation in this category remains high at 5.3% to the June quarter. Wage increases and lower productivity, combined with the increased costs of doing business (electricity, insurance, logistics, rent etc) are all impacting. The RBA is keen to point out that inflation causes hardship for the most vulnerable in our community. Lower income households tend to allocate more of their spending towards essentials, including food, utility bills and rent. Higher income households tend to spend more on owner-occupied housing as well as discretionary items such as consumer durables.
Younger households and lower income households have been particularly affected by cost-of-living pressures.
$81.5m payroll tax win for Uber
Multinational ride-sharing system Uber has successfully contested six Revenue NSW payroll tax assessments totalling over $81.5 million. The assessments were issued on the basis that Uber drivers were employees and therefore payroll tax was payable.
The Payroll Tax Act 2007 (NSW) imposes the tax on all taxable wages paid or payable by an employer. The Act also extends to contractors by capturing payments made “by a person who, during a financial year, supplies services to another person under a contract (relevant contract) under which the first person (designated person) has supplied to the designated person the services of persons for or in relation to the performance of work.”
So, are Uber drivers employees? The New South Wales Supreme Court says no. Among the reasons is that, “amounts paid or payable by Uber to the drivers or partners were not for or in relation to the performance of work …and are not taken to be wages paid or payable.”
The payroll tax assessments were revoked.
Uber is a special case because of its method of operation. Businesses working with contractors need to be vigilant that they have assessed the relationship with their contractors correctly.
When is a gift not a gift?
The Tax Commissioner has successfully argued that more than $1.6m deposited in a couple’s bank account was assessable income, not a gift or a loan from friends.
The case of Rusanova and Commissioner of Taxation is enough for a telemovie. The plot features an Australian resident Russian couple ‘gifted’ over $1.6m in unexplained bank deposits, over $67,000 in interest, the Russian father-in-law seafood exporter, a series of Australian companies, and the generous friend loaning money in $20,000 tranches.
The crux of the case before the Federal Court is whether you can prove to the Australian Tax Office (ATO) that unexplained deposits should be treated as gifts or loans and what happens when the Tax Commissioner thinks otherwise? If the Commissioner suspects the deposits are income, he can issue a default tax assessment and decide what tax should be paid. The burden of proof is then on the taxpayer to prove the Tax Commissioner wrong.
The unexplained deposits
Between 2012 and 2016, an Australian resident husband and wife had an estimated $1,636,000 deposited into their bank accounts. The ATO became curious when neither spouse had lodged tax returns in the mistaken belief that they had not earned any income.
The money deposited, they said, was a gift from the wife’s father and therefore not assessable income. Curiously, there were no records produced to support the deposits and not a single text or email notifying that money had been remitted, or acknowledging its receipt.
In addition, a friend of the couple deposited money into the husband’s account including a series of $20,000 transactions over about a week. These, the friend said, were interest-free loans with no agreed terms but an expectation that they would be repaid. The friend could not remember how he was requested to make the loans and there were no loan documents, emails, or texts disclosed to support the loans. Around the same time as the loans were being advanced, there was evidence of the husband ‘repaying’ amounts in excess of what had been lent. In addition, documents show the husband transferred a Porsche Cayenne to his friend in Russia, said to be repayment of the loan.
Compounding the issue were the four directorships of Australian companies held by the husband, none of which had lodged tax returns. One of the companies was a seafood wholesaler, distributing the product of his father-in-law’s American registered Russian export company. The dedicated son-in-law stated that he was merely trying to develop his father-in-law’s business during 2010 and 2016, without remuneration.
Contesting the Tax Commissioner
In 2017, a covert tax audit utilised entries in the couple’s bank accounts to assess their income tax liability and the ATO issued a default assessment based on the unexplained deposits and expenses. The couple objected to the assessment and this objection was partly allowed. A second assessment was then issued to which the couple again objected before the Administrative Appeals Tribunal (AAT) on the grounds that the assessment was excessive.
But, here is the problem for the couple. While genuine gifts of money are not taxable, the burden is on the taxpayer to prove that the gift is truly a gift, if the ATO asks. The AAT held that, “absent any reliable evidence..., there is no proper basis to make any findings as to whether the deposits constitute part of the applicants’ taxable income or not.”
The Tax Commissioner can rely on a “deficiency of proof”.
The couple’s stance that the deposits were either gifts from the father or loans from a friend were rejected by the AAT. This is despite an affidavit and evidence from the wife’s father stating that the amounts transferred to them were gifts. The couple did not demonstrate what their income actually was to prove the Tax Commissioner’s assessment was unreasonable, and they could not substantiate that the gifts were indeed gifts from a very generous father.
The Federal Court dismissed the couple’s appeal with costs, leaving the Tax Commissioner’s default tax assessment and penalties in place.
Can the Tax Commissioner really decide how much tax you should pay?
The Tax Commissioner has the power to issue a ‘default assessment’ for the amount he believes is owing from overdue tax returns or activity statements. The assessment is the amount the ATO believes is owing, not what has been declared.
The problem with a default assessment is not just the Tax Commissioner deciding how much tax you should pay, it is the potential addition of an administrative penalty of 75% of the tax-related liability for each default assessment issued. This penalty may be increased to 95% of the tax-related liability in certain circumstances for taxpayers who have a pattern of non-compliance.
Avoiding the gift tax trap
A gift of money or assets from an individual is generally not taxed if the gift is given voluntarily, nothing is expected in return, and the gift giver does not materially benefit.
However, there are some circumstances where tax might apply.
Gifts from a foreign trust
If you are a tax resident of Australia and the beneficiary of a foreign trust, it’s possible that at least some of the amounts paid to you (or applied for your benefit) will need to be declared in your tax return. This applies even if you were not the direct beneficiary of the foreign trust, for example, a family member received money from a foreign trust and then gifted it to you. This applies to cash, loans, land, shares, etc.
Inheritances
Money or property you inherit from a deceased estate is often not taxed. However, there are circumstances where capital gain tax (CGT) might apply when you dispose of an asset you inherited. For example, if you inherit your parents’ house, CGT generally does not apply if:
However, CGT is likely to apply if for example:
Managing the tax consequences of an inheritance can become complex quickly. Please contact us for assistance when planning your estate to maximise the outcome for your beneficiaries, or managing the tax implications of an inheritance. These issues are often not taken into account if you are drafting or updating a will.
Gifting an asset does not avoid tax
Donating or gifting an asset does not avoid CGT. If you receive nothing or less than the market value of the asset, the market value substitution rule might come into play. The market value substitution rule can treat you as having received the market value of the asset you donated or gifted when calculating any CGT liability.
For example, if Mum & Dad buy a block of land then eventually gift the block of land to their daughter, the ATO will look at the value of the land at the point they gifted it. If the market value of the land is higher than the amount that Mum & Dad paid for it, then this would normally trigger a CGT liability. It does not matter that Mum & Dad did not receive any money for the land. Mum & Dad might have a CGT bill for land they gifted with nothing in return.
Donations of cryptocurrency might also trigger CGT. If you donate cryptocurrency to a charity, you are likely to be assessed on the market value of the crypto at the point you donated it. You can only claim a tax deduction for the donation if the charity is a deductible gift recipient and the charity is set up to accept cryptocurrency.
Divorce, you, and your business
Breaking up is hard to do. Beyond the emotional and financial turmoil divorce creates, there are a number of issues that need to be resolved.
What happens when there is a family company?
For couples that have assets tied up in a company, the tax consequences of any settlements paid from the company will need to be assessed. Settlements paid out by a corporate entity can sometimes be treated as taxable dividends and taxed at the relevant spouse’s marginal tax rate.
If you are receiving assets from a corporate entity as part of a property settlement, it’s essential that you understand the tax implications prior to settlement or a sizeable portion of the settlement could go to the ATO.
For business owners, outside of the tax and financial issues, it’s important to not lose focus on what’s important to keep the business running efficiently.
What happens to your superannuation in a divorce?
A spouse’s interest in superannuation is a marital asset and can be split as part of the breakdown agreement. It’s important to be aware however that superannuation cannot be paid directly to a spouse unless the spouse is eligible to receive superannuation (they have met a condition of release) but it can be rolled over into the spouse’s fund until they are eligible to receive it. Laws exist to prevent taxes such as CGT being triggered when superannuation assets are transferred. This is particularly important where your superannuation fund holds property.
A Court order or Superannuation Agreement is required to give effect to the agreed split in the SMSF assets or to execute a rollover eligible for the CGT rollover concession.
If you have an SMSF and both spouses are members, it’s important to get advice to make sure that all of the appropriate administrative issues are taken care of. Where a divorce is not amicable, it’s important to keep in mind that the SMSF trustee is required under law to act in the best interests of the fund and its beneficiaries. Anything less and the fund members may seek compensation for loss or damage.
Can you protect both parties from divorce?
In a divorce, assets are split based on a multitude of factors such as earning capacity, maintenance of children, and the assets held pre-marriage. Many couples don’t go through their marriage with an equal view of how assets and income should be attributed until something goes wrong. If there is a disparity between the income levels of each spouse, there are a lot of benefits to the household in general of evening out how income flows through to the family. If your partner earns less than you, there is a very real financial benefit to topping up their super as superannuation has preferential tax rates. The same goes for taxable income. If you can even out income coming into the household, it spreads the tax burden. Good planning can make a difference.
The changes to how tax practitioners work with clients
The Government has amended the legislation guiding registered tax practitioners to include compulsory reporting of material uncorrected errors to the Tax Commissioner.
The Government has legislated a series of changes to the Tax Agents Services Act 2009 that place additional requirements on registered tax practitioners and how they interact with clients.
The reforms are in response to the recommendations of a Senate enquiry into the actions of accounting group PwC and the consulting industry in Australia generally. The enquiry was sparked when a now former PwC Partner shared confidential information from Treasury consultations and through his engagement with the Board of Taxation. Despite having signed multiple confidentiality agreements, the Partner intentionally shared this confidential information with PwC partners and others in Australia and overseas, seeking to assist existing and potential new clients avoid some proposed anti-avoidance tax laws. The Senate enquiry estimates that the scandal put at risk $180 million in tax revenue per annum and generated new income of at least $2.5 million for the first tranche of PwC's services assisting clients to “sidestep the new laws”.
Among other issues, the scandal revealed a series of flaws and deficiencies within the regulation of tax practitioner services, the investigative powers of the Tax Practitioners Board (TPB), and the ability of Government departments to share information.
While many of the resulting legislative reforms impact consulting services to Government, we are now obligated to advise clients of: how to check the currency of our registration as tax practitioners; how to access the complaints process for registered practitioners; and, our obligation to report material uncorrected errors and omissions to the Tax Commissioner.
Tax practitioner registration
The TPB registers and regulates tax practitioners in Australia. Only licensed practitioners can provide tax or BAS services to you. You can check the public register here: https://www.tpb.gov.au/public-register
MVA Bennett's registration number is 25781718.
Managing complaints
We are committed to providing quality services to you. If we fall short of your expectations and you would like to make a complaint, in the first instance, please contact us on mvab@mvabennett.com.au.
If your matter is not resolved to your satisfaction, you have the right to make a complaint to the TPB: https://www.tpb.gov.au/complaints.
Correcting errors and omissions
We are prohibited from making a statement to the Tax Commissioner or other government agency that we know, or ought to know, is false, incorrect or misleading, or incorrect or misleading by omission.
If we become aware that a statement made to the Tax Commissioner is materially incorrect, we are obligated to either:
If the misstatement is not corrected, we are obligated to report this to the Tax Commissioner.
The rise in business bankruptcy
ASIC’s annual insolvency data shows corporate business failure is up 39% compared to last financial year. The industries with the highest representation were construction, accommodation and food services at the top of the list.
Restructuring appointments grew by over 200% in 2023-24. Small business restructuring allows eligible companies – those whose liabilities do not exceed $1 million plus other criteria – to retain control of its business while it develops a plan to restructure its affairs. This is done with the assistance of a restructuring practitioner with a view to entering into a restructuring plan with creditors.
Of the 573 companies that entered restructuring after 1 January 2021 and had completed their restructuring plan by 30 June 2024, 89.4% remain registered, 5.4% have gone into liquidation, and 5.2% were deregistered as at 30 June 2024.
In the latest statement from the Reserve Bank of Australia, Michelle Bullock stated that, “...there’s also some signs that the business sector is under a bit of pressure, that the business outlook isn’t as rosy as it was.” Productivity is also lagging.
Strategically, managers need to be on top of their numbers to identify and manage problems before they get out of hand. If you do not know what the key drivers of your business are - the things that make the difference between doing well and going under - then it’s time to find out.
A business becomes insolvent when it can’t pay its debts when they fall due.
The top three reasons why companies fail are:
It’s easy to miss the warning signs and rely on optimism that things will get better if you can just get past a slump. The common problem areas are: