With the calling of the election for May 3, the proposed Division 296 legislation (additional taxation on superannuation accounts greater than $3 million) has lapsed. As Parliament is in caretaker mode due to the election, all proposed bills and other business before the House of Representatives (HOR) and Senate expire.
What does this mean?
Although the Bill has lapsed due to the election, the Australian Labour Party (ALP) has indicated that where they are returned to Government, they will be re-introducing the Bill. This is particularly given that in their recent federal Budget they accounted for the revenue that would be generated from this measure in their forward estimates.
In the lead up to the election announcement, the Bill had stalled in the Senate, where it was considered that the Government lacked the support for it to be passed, and was the reason that it hadn’t been read a second time. In order to pass in the Senate, a certain number of cross-bench Members would be required to vote in favour of the Bill, whereby that support hadn’t been secured.
One of the biggest criticisms of this proposed legislation is that unrealised capital gains are subject to taxation. Therefore, if the proposed policy remains as per the current draft Bill, the ALP will need to justify that approach through the course of their election pitch, which may or may not resonate positively with voters. If the ALP is successful, as the Bill has lapsed, they would need to reintroduce the Bill and effectively commence the entire process again. This involves having the Bill read and passed in the HOR again, and where that is successful, the Bill would then proceed to be read, debated and require passage in the Senate. Where there is a minority Government, or cross-bench Members are required to vote positively, that may remain a challenge to overcome for an ALP Government.
Next Steps
For now, it remains a “Watch this Space” concept. Depending on the outcome of the election, and in fact the progress of the election and any polling that may indicate that the policy is a barrier to a win and may therefore be entirely shelved, there is no action to take.
Current polling is indicating that a minority Government may be the outcome, however until polling day, we will not know the result.
Where the Bill is ultimately passed, it is also highly likely that the introduction will be deferred until 1 July 2026, as none of the requisite systems are in place for the administration of the provisions. This is particularly where any legislation is unlikely to be introduced, let alone pass until the first sitting week of the new Parliament after 3 May.
We will keep you updated, including whether any action is required to be taken.
If you would like some more information on these proposed (now lapsed) provisions, please refer to our previous newsletters here or feel free to contact one of our team.
This newsletter is current as of 04 April 2025, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve. Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.
Cooper Partners Financial Services Pty Ltd AFSL 000 327 033
This year’s federal Budget walks a tightrope between cost-of-living relief and cautious election-year politics.
With major tax reforms notably absent, the Government has opted for modest, targeted measures over structural change — a clear signal that it’s budgeting with the ballot box in mind.
While households may welcome the immediate support, those waiting for bold tax system updates will need to keep waiting — tax reform, it seems, has been politely excused from the table… for now.
Individuals
I get a tax cut… You get a tax cut… Everyone gets a tax cut!
As mentioned in Dr Chalmers’s speech to Parliament, “the additional tax cuts are modest but will make a difference.”
The change to individual tax will occur in the first marginal tax bracket after the tax-free threshold. The tax rate will be lowered from its current rate of 16% to 15% in 2026/27 and 14% in 2027/28. The changes in tax rates are as follows:
The tax saving will be $268 for the 2026/27 income year and $536 for the 2027/28 income year, both compared to the current 2024/25 tax rates.
The changes have passed Parliament and are expected to receive royal assent prior to the May 3 election.
🛑The Coalition has pledged to repeal these cuts if elected.
No changes were made to the low-income tax offset.
Additional cost-of-living measures
$150 in electricity bill credits for very household and around one million small businesses.
Ban on non-compete clauses for earners under $175,000.
20% reduction in all HELP debts owed by Australian students and former students.
HELP repayment threshold lifted from $54,435 in 2024/25 to $67,000 in 2025/26.
Superannuation
The Budget itself was quite silent on any measures relating specifically to superannuation, which was expected coming into a federal election. By not announcing any specific new measures, the current Labor Government will not have to spend their campaign defending policies which are yet to see any legislative light of day.
However, where was the $3 million tax?
Conspicuously absent from the Budget papers themselves was any mention of the Government’s current Bill intending to levy a tax on superannuation accounts greater than $3 million.
Currently, this Bill is sitting in the Parliament and not likely to be legislated with the election now only weeks away. By not removing or postponing this proposed revenue item from the Budget, the Government is taking this measure into the election, signalling its intention to re-introduce the Division 296 tax if re-elected this May.
Funding for Pay Day Super
Under ‘Pay Day Super’, all employers will be required to pay superannuation at the same time as salary and wages. Treasury released for consultation an exposure draft on the proposed Pay Day Super measures on 14 March 2025.
The ATO’s Tax Integrity Program has been allocated an additional $50 million over 3 years beginning on 1 July 2026. These additional resources are in line with the proposed measure to introduce ‘Pay Day Super’ from the same date. These reforms and supporting compliance programs reflect broader policy efforts to address the non-payment and late payment of superannuation and taxes by some employers and improving transparency for employees.
Family Trusts / Private Companies / Small Business
Coming into the election cycle, the Labor Government has decided not to put major tax reform on the table for debate. This includes no mention on previously announced reforms former leaders have flagged, such as capital gains tax, negative gearing and franking credits.
Speaking of things missing from the Budget, one main item that will affect small businesses going forward is the silence on the ongoing instant asset write off.
The instant asset write off has been a staple of small business allowable deductions since 1 July 2012 and has had many different levels throughout its time including an unlimited amount under the COVID Temporary Full Expensing regime. The law as it currently stands provides that the instant asset write off is permitted for expenditure incurred up to $20,000 on assets installed ready for use by 30 June 2025, with the threshold reverting to $1,000 at 1 July 2025.
However, there was no mention of further extending the instant asset write off this time, whether temporarily or permanently as has been lobbied by industry. Therefore, unless there is a change announced in the mid-year economic and fiscal outlook later in the year, the $20,000 instant asset write off for small businesses will end on 30 June 2025.
Continuing energy efficiency incentives
In the 2023/24 Budget, the Labor Government announced and enacted the Small Business Energy Incentive, allowing small businesses an additional 20% deduction for expenditure that supported electrification and more efficient use of energy.
Riding on those coattails, this year’s Budget announced the Energy Efficiency Grants for Small and Medium Sized Enterprises program. Grants of up to $25,000 will be available to over 2,400 businesses, funding a range of energy upgrades, such as replacing inefficient appliances and improving heating systems, with the program extended to 30 June 2026. More details on this will be announced most likely after the election.
Division 7A – ghosted again
Despite a landmark Full Federal Court decision and years of consultation, Division 7A has once again been left off the Budget agenda.
Following the Bendel decision — which concerns family trusts allocating income to corporate beneficiaries who then leave that entitlement unpaid — there had been anticipation of legislative response or clarification. This case may significantly impact how the ATO administers Division 7A and trust distributions.
Yet the Government has remained silent, choosing neither to reverse the court’s position nor codify it in legislation.
We explored the implications of the Bendel decision in detail in our previous newsletter here.
More broadly, while Division 7A reforms have appeared in Budgets dating back to 2016/17 and featured in 2018 Treasury consultation papers, this year’s Budget continues the trend of silence — with no movement on proposed changes to the treatment of loans to shareholders and associates.
General Interest Charge
Along with recently enacted legislation surrounding the instant asset write off to 30 June 2025, taxpayers who have an ATO debt will no longer be able to claim a tax deduction for the general interest charge.
This previously announced measure will deny deductions incurred after 1 July 2025.
Winemakers and beer manufacturers get relief
Producers of wine will get an additional rebate of $50,000 on Wine Equalisation Tax Producer rebate from 1 July 2026. Currently, the WET rebate sits at $350,000 pa.
To be eligible for this rebate, you must produce the wine, you are liable for WET on the sale to the wholesaler and your source product makes up at least 85% of the total volume of wine throughout the wine making process.
Brewers of beer will benefit from a 2 year pause in indexation on draught beer excise and excise equivalent customs duty. The proposed increases in August 2025, February 2026, August 2026 and February 2027 will not occur.
Multinational / Large Business / Industry
Thin capitalisation
While no further changes were announced in the Budget, the Government has flagged that additional clarification is expected around the new interest limitation rules — particularly the operation of the fixed ratio (EBITDA) test and third-party debt conditions. This will help businesses and advisers navigate the complex new regime, which took effect from 1 July 2023.
Housing and the construction industry
The Budget is using both the carrot and stick to attempt to address the housing shortage across the country. The measures announced as are follows:
Ban on Foreign Buyers
From 1 April 2025, foreign investors will be banned from purchasing existing residential dwellings for two years. The ATO will receive $5.7 million to enforce the restriction.
Help to Buy program
The shared equity Help to Buy scheme will expand, allowing eligible individuals to access lower deposits and smaller mortgages. The Government may contribute up to 40% of a home’s purchase price. For example, a couple buying an $800,000 property with a $50,000 deposit and $510,000 loan could receive a $240,000 equity contribution from the scheme. The Government share is repaid upon sale or when the owner is in a position to refinance.
Housing Supply & Skills Boost
The National Housing Accord continues as a cornerstone of the Government’s housing strategy. Key measures include:
$1.5 billion for the Housing Support Program to improve planning capability and infrastructure delivery.
$174 million to accelerate modern construction methods, with incentives for states and territories to reduce red tape.
Ongoing funding for the Housing Australia Future Fund and Social Housing Accelerator.
To support workforce capacity, as from 1 July 2025, a new Housing Construction Apprenticeship stream will offer:
Up to $10,000 in financial incentives for eligible apprentices.
Up to $5,000 for employers under the Priority Hiring Incentive.
These incentives are now extended to 31 December 2025.
The extension of the cleaning building management investment trust (MIT) withholding tax concession was due to commence from 1 July 2025. This has now been delayed until after any legislation receives Royal Assent.
The Government will also amend the tax laws to clarify arrangements for MITs to ensure that legitimate investors can continue to access concessional withholding rates. The changes will apply to fund payments from 13 March 2025 and will complement the ATO’s increased focus in this area to prevent misuse – see Taxpayer Alert 2025/1.
Building a Future Made in Australia
This Budget expands the Government’s industry policy with substantial co-investment into key sectors via the Green Iron Investment Fund and related initiatives. Measures include:
$1 billion for steelmakers to transition to low-emissions green iron production.
$750 million for green metals.
$250 million for low-carbon liquid fuels.
Infrastructure Boost
The Budget also confirms joint federal and state funding for the $700 million Kwinana Freeway upgrade, with the federal Government covering 50% of the project.
Australia-India Trade Accelerator
A $16 million fund will support Australian-Indian business partnerships by reducing trade barriers and enabling technical cooperation.
Residency Tax Reforms – Still No Clarity
In the 2020/21 Budget, the former Government announced proposed changes to the corporate tax residency rules, following the release by the ATO of a controversial tax ruling in 2018 that redefined their application of the central management and control tests to foreign subsidiaries, to legislate to effectively revert back to the position prior to the release of the ruling. A transitional period on the application of the tax ruling ended on 30 June 2023, however corporate taxpayers remain left in the dark as to whether any reforms will be undertaken in this area, with no further mentions in the current Budget.
Similarly, there has been no further updates from Treasury regarding previous consultations to modernise the individual tax residency framework, or relax some of the stringent rules around SMSF trustees and temporary relocations.
In this modern era of global mobility and remote technology capabilities, reforms in these areas are a high priority to provide taxpayers whether individuals or corporates alike certainty when considering movements and establishing corporate governance protocols.
Coalition Contrast: What the Opposition Said
Peter Dutton’s Budget reply delivered a sharp contrast in approach — focussing less on tax cuts and more on energy and migration levers for cost relief:
Fuel Excise Halved: A temporary 25c/L saving for motorists.
National Gas Plan: Reserve up to 20% of east coast gas for domestic use to bring prices below $10/GJ.
Migration Cuts: 25% reduction in permanent migration; 2-year ban on foreign purchases of existing dwellings.
Public Service: Reduction of ~41,000 roles, with savings redirected to fund healthcare.
Tax Cuts Repealed: Dutton confirmed the Coalition will repeal the newly legislated individual tax rate cuts.
Summary
The 2025/26 Budget delivers targeted relief and strategic investment — but leaves deeper reform and long-standing technical issues on the table. With an election now set for May 3, many measures remain promises, not law.
From a tax perspective, while households and select industries may welcome immediate support, unresolved areas such as Division 7A, tax residency, and small business incentives continue to build uncertainty.
As always, we’ll keep you informed as the legislative landscape evolves — and what it means for your structuring, planning, and compliance obligations.
If you have questions about how these announcements may impact you or your business, please get in touch with your Cooper Partners engagement team.
This newsletter is current as of 28 March 2025, however, please note that announcements and changes are being made by the Government and the ATO regularly. Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.
The Full Federal Court (FFC) has ruled that unpaid present entitlements (UPEs) to corporate beneficiaries are not loans under Division 7A.
This landmark decision challenges the longstanding ATO view that UPEs should be treated as loans and can trigger deemed unfranked dividends for tax purposes.
However, in a move that surprises no one, the ATO has now applied for special leave to appeal the decision to the High Court.
At the same time, the ATO has issued a Decision Impact Statement (DIS), reaffirming its administrative position as outlined in Taxation Determination TD 2022/11 Income tax: Division 7A: ‘when will an unpaid present entitlement or amount held on sub-trust become the provision of ‘financial accommodation’? —meaning it will continue treating UPEs as Division 7A loans until the appeal process is finalised.
What Arrangement is Under Debate?
Key Differences Between ATO’s View and Court Decision
How Did We Get Here?
Since 16 December 2009, the vast majority of taxpayers have adhered to the ATO’s stance that UPEs to corporate beneficiaries constitute loans to the trust.
AAT decision
This view was first challenged in September 2023 by the Administrative Appeals Tribunal (AAT) finding on the Bendel case. A detailed summary of the facts and ruling was provided in a newsletter we published in October 2023.
Following its loss at the AAT, the ATO lodged a notice of appeal. The ATO also released an interim DIS which outlined that the ATO would continue to administer its views on UPEs to corporate beneficiaries in accordance with TD 2022/11, and ominously made specific mention of the fact that section 100A may also apply to UPEs to corporate beneficiaries.
FFC decision
In dismissing the ATO appeal to the AAT decision, the FFC found that under section 109D(3), a ‘loan’ refers to a transaction that creates an express or implied obligation to repay an amount. While a beneficiary has a present legal right to demand and receive payment of a UPE from the trustee, which creates a debtor-creditor relationship, there is no obligation to repay the UPE.
The Court reiterated that Division 7A makes specific distinction between a ‘loan’ (section 109D) and a ‘debt’ (debt forgiveness in section 109F), and that section 109D(3) cannot be read as extending to any form of debtor-creditor relationship.
Further to the AAT’s focus on the statutory context of Subdivision EA, the FFC made the comment that there must be a ‘harmonious operation to the language of the division in its entirety’. That the government introduced Subdivision EA shows that there was no ‘mischief’ in respect of UPEs in the way that the Commissioner now perceives.
Where Does This Leave Taxpayers?
Although the FFC decision that UPEs are not loans under Division 7A was unanimous, the ATO is clearly determined to fight and will doggedly pursue through the appeal process.
In its updated DIS, the ATO reiterates that regardless of the Division 7A position, the reimbursement agreement rules in section 100A must also be considered.
While the ATO accepts corporate beneficiary structures, it expects UPEs to be paid within two years from the year of distribution or otherwise put on a complying Division 7A loan agreement (usually 7 years, with interest). If a UPE is not on terms at least as commercial as a Division 7A loan agreement, the arrangement would fall outside the ATO’s “green zone” under PCG 2022/2, increasing the risk of the ATO applying section 100A.
For some taxpayers, a Division 7A loan agreement may be a preferable alternative to the risk of section 100A being applied by the ATO.
Trusts as investment vehicles are back in favour. The ATO’s strict administration of UPEs has made it increasingly difficult to use trusts as long-term wealth creation vehicles, given the requirement to pay out UPEs within specific timeframes—which may not always align with a trust’s investment strategy. If the FFC decision is upheld, this will remove the Division 7A imposed restrictions for payment of UPEs. This is particularly beneficial for trustees making long-term investments, such as property acquisitions or seed capital investments, where retaining funds in the trust is a key part of the strategy.
Subject to the ATO’s success in appealing the FFC decision, we expect that the ATO will engage in discussions with the Government to finally push through the long-awaited legislative amendments to Division 7A. Given the upcoming Federal election, legislative reforms will be impeded.
While media reports suggest that hundreds of thousands of taxpayers may now be entitled to refunds, this primarily applies to trusts that distributed income to a corporate beneficiary and were subsequently assessed by the ATO on a deemed Division 7A dividend following an audit or review. These trusts may have grounds to object to their assessment and seek a refund of taxes paid, provided the amendment period remains open (typically four years). However, trusts that have complied with the ATO’s practice guidelines are unlikely to be eligible for refunds. The ATO has confirmed that it will not process any refund requests until the appeal process is finalised.
Next Steps
The impact of the Bendel decision on your UPE arrangements depends on your specific facts and circumstances.
Your Cooper Partners engagement team will be reaching out to you imminently to discuss your specific UPE arrangements, which will include discussion of the following:
Looking towards 2025 year-end tax planning and any intentions to distribute to corporate beneficiaries in light of the FFC decision.
The payment of UPEs should not be overlooked from a commercial and investment strategy perspective. A distribution to a corporate beneficiary should not occur unless there is an intention for cash or assets to be transferred to and be retained at the company level; otherwise it would constitute an invalid distribution.
For any UPEs that have already been placed on complying Division 7A loan agreements and therefore converted to loans, it is unlikely that amendments can be made to these arrangements.
It’s important to consider not only the Bendel decision but also the ATO’s administration of section 100A (PCG 2022/2).
In the meantime, we will monitor developments regarding:
Whether the High Court grants special leave for the appeal.
Any further updates to the ATO’s section 100A guidance.
Whether David or Goliath prevails, the implications will be significant.
We will keep you informed for whatever comes next!
This newsletter is current as of 21 March 2025, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve. Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.
This information is general advice only and neither purports, nor is intended to be advice on any particular matter. No responsibility can be accepted for those who act on the contents of this publication without first contacting us and obtaining specific advice. Liability limited by a scheme approved under Professional Standards Legislation. For further information please refer to our privacy policy
Being classified as a wholesale investor opens doors to exclusive investment opportunities that retail clients cannot access. For many Self-Managed Superannuation Fund (SMSF) trustees, this classification has allowed participation in placements and other high-net-worth investment opportunities. However, recent AFCA rulings and regulatory scrutiny may impact how SMSFs qualify as wholesale investors, potentially challenging long-standing industry practices.
Understanding Wholesale Client Classification
A wholesale investor benefits from fewer compliance obligations and broader investment opportunities but also faces reduced consumer protections.
Wholesale clients:
Are not subject to the same disclosure requirements as retail clients.
Have limited access to compensation claims under the Australian Financial Complaints Authority (AFCA).
Must meet financial thresholds as outlined in the Corporations Act 2001.
Financial Thresholds for Wholesale Status
Under the Corporations Act 2001, an entity may qualify as a wholesale client if it meets one of the following financial criteria:
Net assets of $2.5 million or more,
Gross income of at least $250,000 per year for the last two years,
Investment of $500,000 or more in a single transaction.
Special Considerations for SMSFs
A key point of contention has been whether SMSFs should be classified based on these general tests or if stricter rules apply due to their superannuation status.
According to the Corporations Act, an entity accessing a financial service related to a superannuation product is automatically classified as a retail client unless it holds net assets of at least $10 million at the time of service.
In 2014, ASIC provided industry guidance (14-191MR), suggesting it would not enforce the $10 million threshold strictly. This led many SMSF trustees to rely on the $2.5 million net asset test to obtain wholesale status.
Is AFCA’s Recent Ruling A Game Changer?
A recent AFCA determination has challenged this long-standing interpretation, stating that SMSFs accessing financial services related to superannuation should be subject to the $10 million asset test, not the general $2.5 million test.
This ruling has significant implications:
The industry’s reliance on the $2.5 million net asset test is now in question.
Accountants certifying SMSFs under the $2.5M test should exercise caution, as incorrect certification could expose professionals to regulatory scrutiny.
SMSFs that previously qualified as wholesale investors under the lower threshold may need to reassess their classification and potentially unwind investments if found non-compliant.
Trustees who invested under the wholesale classification may now have access to AFCA’s dispute resolution process as retail clients.
What This Means for SMSF Trustees
Accountants and advisers are often asked to certify SMSF Trustees as wholesale investors through Statements of Independent Certification (SICs). However, with increased regulatory focus, professionals must be cautious about relying solely on the $2.5 million net asset test.
Trustees should also weigh the benefits and risks of being classified as a wholesale client, considering:
Their level of financial literacy and investment experience.
The reduced consumer protections available to wholesale investors.
The risk that wholesale classification decisions may be challenged in the future.
Next Steps
With conflicting guidance from AFCA and ASIC, there is growing industry pressure for regulatory reform to establish clearer wholesale investor classifications. The Government must act swiftly to preserve investment choice for SMSFs and ensure that the wholesale investor framework operates as originally intended. Until then, SMSF Trustees and their advisers should stay informed and give appropriate consideration before proceeding with wholesale investor certifications.
This newsletter is current as of 28 February 2025, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve. Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.
Cooper Partners Financial Services Pty Ltd AFSL 000 327 033
The Festive Season is here – It is time for employers to consider the Fringe Benefits Tax (FBT) and other tax consequences of Christmas functions and gifts.
Many employers are celebrating by providing Christmas functions and gifts to their employees and clients.
Putting on a Christmas function is classified as an entertainment benefit for tax purposes, and the location of the function as well as the method used to value the benefit are key considerations in determining the FBT implications of the event. The FBT treatment also affects the income tax and GST implications.
This is a timely reminder of the FBT, income tax and GST implications associated with these benefits and some tips to assist in recording the benefits and reducing the FBT cost.
Tips
In order to reduce FBT costs in relation to Christmas functions, employers should consider:
Using the ‘actual method’ for determining the taxable benefits for FBT purposes, as the minor benefits exemption and property on a work day exemption are available under this method.
If the function is to be held on business premises and associates of employees will also attend, capping the cost per head of the event to less than $300 (including GST). Otherwise, FBT will be payable on the cost per head for each associate.
If the function is to be held off business premises, capping the cost per head to less than $300 (including GST).
Factoring estimated taxi (and Uber) costs for employees into the overall event costs where it is the intention to pay or reimburse the cost of taxi travel to and from the event if the taxi travel does not start or end at the workplace.
Providing gifts to employees with a cost of less than $300 (including GST) per person.
Where an employee does not meet the minor benefits exemption as entertainment benefits are provided to them frequently, it may be reasonable to treat the Christmas function as a separate benefit which is not counted towards the other frequent benefits (such as lunches and dinners throughout the year).
The classification of benefits provided to employees can be complicated and ensuring amounts are coded to the correct account at the time of data entry is important. Trying to determine overall cost of benefits and who attended events six months down the track can be difficult if not impossible.
Summary of FBT, Income tax and GST Implications
Next steps
If you would like further information on FBT, employment taxes or assistance with your FBT obligations, please contact our FBT Team.
This newsletter is current as of 09 December 2024, however, please note that announcements and changes are being made by the Government and the ATO regularly. Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.
As Australia edges closer to a federal election, the likelihood of the proposed changes to tax superannuation on balances exceeding $3 million being passed in the current Parliament has significantly diminished. However, the possibility of the legislation resurfacing early next year cannot be ruled out entirely, keeping the industry and affected individuals in a state of uncertainty.
The Government’s plan to increase the tax rate from 15% to up to 30% on earnings related to super balances above $3 million has faced strong resistance. Since the Bill was introduced 12 months ago, key objections have come from the Senate crossbench, industry representatives, and concerned Australians. The proposal to tax unrealised capital gains has been particularly contentious, with critics labelling it unfair and impractical—especially for farmers and retirees who might lack the liquidity in their super to pay such taxes.
For now, the Bill has been left out of this year’s legislative priorities, reflecting the Government’s struggles to secure enough support in the Senate. While this delay offers temporary relief, the Government’s commitment to the policy suggests it could feature prominently in the upcoming election campaign or be tabled when Parliament reconvenes next year, potentially up for it to be debated in Parliament’s February sitting. The political and practical implications of this proposal remain significant and unresolved. Even a delayed implementation could strain superannuation funds and individuals trying to adapt to the complex changes, as well as the Regulator scrambling to implement within the required timeframes.
Election Implications
If the Government chooses to take this measure to the next election, it could become a critical issue. The tax has already drawn parallels to controversial policies of the past, such as the franking credits proposal, which played a role in Labor’s 2019 election defeat. Critics argue that the perceived inequities from the proposed change to the superannuation tax could lead to a similar political fallout.
Responding to the Key Concerns
The opposition to the legislation stems from two primary areas:
Unrealised Gains: Taxing paper profits poses challenges for funds without liquidity to meet its tax obligations.
Threshold Indexing: The refusal to index the $3 million threshold means more members could be affected over time due to inflation.
Next Steps
Treasury’s approach to these concerns will be closely monitored. The delay potentially will now see the proposed changes remain as an election battleground. With various political players and stakeholders weighing in, it’s clear this issue is still unresolved.
In the meantime, it would be sensible to table a deferral of the tax start date from 1 July 2025 to at least 1 July 2026 to allow superannuation funds and the Regulator sufficient preparation time.
We will keep you informed of any future developments in the New Year, but for now, with the uncertainty surrounding this proposal, there is no immediate need to make changes to your superannuation arrangements.
This newsletter is current as of 28 November 2024, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve. Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.
Cooper Partners Financial Services Pty Ltd AFSL 000 327 033
The information and opinions in this presentation were prepared by Cooper Partners Financial Services (“CPFS”) for general information purposes only. Case studies and examples are included for illustrative purposes only.
In preparing this newsletter CPFS has not taken into account the investment objectives, financial situation and particular needs of any particular investor. The information contained herein does not constitute advice nor the promotion of any particular course of action or strategy and you should not rely on any material in this presentation to make (or refrain from making) any decision or take (or refrain from making) any action. The financial instruments, services or strategies discussed in this publication may not be suitable for all investors and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives.
This information is general advice only and neither purports, nor is intended to be advice on any particular matter. No responsibility can be accepted for those who act on the contents of this publication without first contacting us and obtaining specific advice. Liability limited by a scheme approved under Professional Standards Legislation. For further information please refer to our privacy policy
The House of Representatives have today passed the Bill (Better Targeted Superannuation Concessions and Other Measures) that will introduce the Division 296 provisions.
Since the concept of Division 296 was developed, industry bodies have been lobbying for significant changes to the proposed legislation, with some of the requested amendments being:
that the $3 million total superannuation balance threshold be indexed
an alternative way to calculate earnings may be more appropriate so as to remove the taxation of unrealised gains / losses.
Despite the lobbying, the House of Representatives passed the Bill on 9 October 2024 with no amendments. It has been some delay in this outcome, and it remains uncertain whether the Bill in its current form will ultimately become law. As an example, given no amendments were made to the original Bill, the industry bodies have been advocating for the Senate to reject the Bill, which could gain traction.
It is noted however that for the Government to put the Bill forward on the 9th and have it passed through the House, they would be expecting to have the relevant support in the Senate for the Bill to pass through Parliament.
The next steps in the process through Parliament are as follows:
The Bill is now sitting with the Senate for the second time, where the Senate must pass the Bill in its current state, being the exact Bill that has moved through the House of Representatives.
Where the Senate requires amendments to the Bill, the Senate must request that the House of Representatives amend the Bill.
Where the House of Representatives disagrees with the amendments requested by the Senate, the Senate must then decide whether or not to agree with the original Bill (with no amendments).
Where no agreement between the Senate and the House can be reached, the Bill then needs to be reintroduced in a different form (back to the drawing board).
Therefore, there could still be further wrangling and changes before there is the full passage of this legislation.
What is Division 296?
The proposed Division 296 of the Income Tax Assessment Act 1997, to take effect on 1 July 2025 will impose a new tax on individuals who have a total superannuation balance of more than $3 million.
An individual’s total superannuation balance (TSB) is a summation of all the superannuation interests an individual has, including:
all accumulation accounts
all retirement phase accounts
an outstanding limited recourse borrowing arrangements (where entered into after 1 July 2018) – although for Division 296 purposes, these will not be included.
less any structured settlement / personal injury contributions.
Your total superannuation balance is the entirety of your super in all funds in Australia, and not on a per fund basis.
The Division 296 tax will be calculated based on the proportion of earnings pertaining to the amount of your total superannuation balance in excess of the $3 million threshold. A common misconception is that Division 296 imposes an absolute 15% tax on the amount exceeding $3 million. Instead, the tax is applied to the proportion of the relevant earnings above the threshold, allowing for a more balanced approach.
Division 296 Tax is calculated through a three-step process
1. Determine Division 296 Earnings by:
2. Determine the Proportion of Earnings over $3 million (to which the tax will be applied):
3. Application of the tax rate:
Where a negative earnings amount is calculated for the year, no tax is calculated, and the loss is carried forward to the following financial year to be offset against that year’s earnings.
How it Actually Works
The below example demonstrates the workings of the Division 296 tax.
An individual with total superannuation balances as listed in the table below, who withdraws a pension of $100,000 and makes concessional contributions of $30,000 in the 2026 financial year.
Note, the only cash inflows for the fund in the 2026 financial year are the contributions made. The increase in the value of the account is due to an increase in the value of existing investments in the fund.
Based on the above, this individual would expect to receive a Division 296 assessment of $43,088.
Key Takeaways
These rules do not impose a cap on the amount you can accumulate within superannuation.
These rules do not change the way that superannuation funds themselves are taxed, with 15% tax on earnings in accumulation phase (10% on long-term realised capital gains) and 0% tax on earnings in retirement pension phase.
Negative Division 296 earnings can be carried forward to offset future earnings, reducing future tax implications.
The ATO will assess and calculate Division 296 tax annually, with payment due 84 days after assessment.
Individual taxpayers can use personal funds to pay the liability, or release money from superannuation (excluding defined benefit funds) to settle the additional Division 296 tax.
Division 296 tax doesn’t apply to unrealised capital gains from the purchase date of the asset within a fund. Instead, it’s calculated on a year by year basis on any increase (or decrease) in value. Therefore, no reset of any cost base within superannuation will be required.
Individuals who wish to use superannuation sources to pay the tax will need to review the liquidity of their superannuation where the tax will apply to ensure sufficient cashflows to meet the additional requirements. In this regard, the first assessments won’t be expected to be issued until November 2026, depending on the lodgement of superannuation funds’ 2025/2026 annual returns.
The additional tax doesn’t double your tax rate (as has been implied); it applies only to calculate earnings on assets exceeding the $3 million threshold, with the effective rate varying based on your circumstances.
Where an individual has a defined benefit accumulation account, the payment of the calculated tax with respect to that account can be deferred, to be paid when the individual moves to retirement phase (with interest accruing).
Concerns with the introduction of Division 296
The most contentious issue through the introduction of Division 296 is that unrealised capital gains are captured, and the potential liquidity issues a tax liability creates for superannuation members holding illiquid assets. Unlike the operation of the capital gains tax provisions where this tax is only payable upon the sale of an asset and realisation of a gain, Division 296 introduces taxation on the annual increase in value of superannuation assets, regardless of whether the gains have been realised. Investors may be forced to sell such assets prematurely to meet their tax obligations. This disrupts the intended purpose of superannuation to provide retirement by way of the long-term growth of their retirement savings.
Next Steps
Notwithstanding this tax, most calculations that we have undertaken on the impact of these provisions has still resulted in superannuation remaining as the most tax effective investment vehicle in Australia. However, as each individual will be impacted differently based on their personal circumstances, there will not be a one size fits all solution.
As previously outlined, the industry bodies have not given up hope and are urging the Senate to strongly consider the major issues of indexation and taxation of unrealised gains and reject the Bill. As the Government do not have a majority position within the Senate, they will be relying on the Greens and Crossbenches to move the Bill over the line.
We will be monitoring the passage of this Bill in the Senate and will keep you informed.
In the meantime, where this legislation is likely to affect you, and you would like further clarification please reach out to our superannuation team who can assist you.
This newsletter is current as of 10 October 2024, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve. Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.
Cooper Partners Financial Services Pty Ltd AFSL 000 327 033
The information and opinions in this presentation were prepared by Cooper Partners Financial Services (“CPFS”) for general information purposes only. Case studies and examples are included for illustrative purposes only.
In preparing this newsletter CPFS has not taken into account the investment objectives, financial situation and particular needs of any particular investor. The information contained herein does not constitute advice nor the promotion of any particular course of action or strategy and you should not rely on any material in this presentation to make (or refrain from making) any decision or take (or refrain from making) any action. The financial instruments, services or strategies discussed in this publication may not be suitable for all investors and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives.This information is general advice only and neither purports, nor is intended to be advice on any particular matter. No responsibility can be accepted for those who act on the contents of this publication without first contacting us and obtaining specific advice. Liability limited by a scheme approved under Professional Standards Legislation. For further information please refer to our privacy policy
The Export Market Development Grants (EMDG) program has been a critical driver for Australian SMEs seeking to enter or expand in global markets.
To reinvigorate the program, Austrade, the agency responsible for administering the EMDG, is launching Round 4 in November 2024, following a strategic overhaul. This new round introduces key updates to improve the program’s focus and impact.
What’s Changed in Round 4?
Round 4 includes several important revisions that aim to better allocate funds and ensure more impactful outcomes.
Here are the highlights:
Revised Grant Tiers
New funding tiers provide a clearer structure, with higher maximum grants available depending on your business’s export stage, offering increased opportunities for qualifying SMEs.
New Allocation Process
Moving to a ‘first come, first served’ system, Austrade will assess and allocate grants based on the order in which applications are received. Once the available funds are exhausted, no further grants will be awarded, making early application crucial.
Tightened Eligibility
More stringent turnover requirements and a sharpened focus on businesses with viable export plans ensure the program is now more selective in its approach.
Target Market Focus
The program is now closely aligned with Australia’s Southeast Asia Economic Strategy, prioritising exports to Southeast Asia as well as other key regions such as the US, UK, India, and China.
Enhanced Requirements for Representative Bodies
Representative bodies seeking grants must now provide detailed plans of how they’ll support SMEs through export marketing initiatives and training programs.
Stricter Compliance
A more robust compliance framework includes increased probity requirements, and applicants will need to demonstrate they meet ethical standards and are up to date with tax obligations.
Grant Funding by Tier
In Round 4, the maximum amounts available under each tier for FY 2025-26 and FY 2026-27 are as follows:
Tier 1 (Export Ready): $20,000 to $30,000 per FY
Tier 2 (Exporting within Existing Markets): $20,000 to $50,000 per FY
Tier 3 (Expanding into New Markets): $20,000 to $80,000 per FY
Representative Bodies: Up to $50,000 per FY (no minimum amount)
While the funding caps have increased, businesses should be mindful that the eligibility criteria have also become more demanding.
Key Change: First Come, First Served Allocation
In a significant departure from previous rounds, Round 4 introduces a ‘first come, first served’ assessment and allocation model. This means businesses need to be prepared to submit applications as soon as the grant window opens, as funds will be allocated on a rolling basis until they are depleted.
With the high demand expected, many eligible businesses may miss out simply due to the speed at which funds are claimed.
Stricter SME Eligibility Requirements
The eligibility criteria have been updated, requiring SMEs to meet specific annual turnover benchmarks for FY 2023-24. These new thresholds include:
Tier 1: Minimum turnover of $100,000
Tier 2: Minimum turnover of $500,000
Tier 3: Minimum turnover of $1 million
Additionally, businesses must be able to invest at least $20,000 of their own funds into export marketing activities. Tier 3 applicants must show they are expanding into Austrade’s identified ‘key markets’ to qualify.
These tighter rules are likely to reduce the number of eligible businesses, especially smaller exporters.
New Market Focus for Tier 3
A targeted approach to export markets has been introduced for Tier 3 applicants. Austrade has identified specific regions—most notably Southeast Asia—as priority markets, reflecting the government’s broader economic strategy. Other key markets include the US, UK, and India.
While this focus aims to align Australia’s export efforts with strategic international growth areas, it may present challenges for exporters targeting different regions.
Ensuring that applicants are fully compliant with their tax obligations
Demonstrating that export products are of significant Australian origin
Adhering to ethical business practices that safeguard Australia’s trade reputation
Next steps
The updates to the EMDG program bring both opportunities and challenges. On one hand, the clearer structure and potentially larger grant amounts could provide greater financial support for exporters. On the other hand, the tighter eligibility criteria and the new ‘first come, first served’ process may exclude some businesses that previously benefited from the program.
We encourage SMEs to prepare thoroughly and submit applications early to maximise their chances of securing funding. The funding pool remains fixed, so timely action is key to avoiding disappointment.
Cooper Partners can assist you in navigating these updates, assessing your eligibility, and selecting the best tier for your business.
If you have questions about Round 4 or any other government grants, please contact your Cooper Partners engagement team on 08 6311 6900.
This newsletter is current as of 04 October 2024, however, please note that announcements and changes are being made by the Government and the ATO regularly. Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.
information is general advice only and neither purports, nor is intended to be advice on any particular matter. No responsibility can be accepted for those who act on the contents of this publication without first contacting us and obtaining specific advice. Liability limited by a scheme approved under Professional Standards Legislation. For further information please refer to our privacy policy
The ATO recently announced that they will be directing resources towards reviewing rental property related claims for the 2024 year.
With their enhanced data matching capabilities, it has become easier for the ATO to identify when mistakes have been made. Furthermore, changes to the tax rules dealing with rental properties over the last few years have also increased the level of risk in this area.
This article, the first in a series of newsletters covering tax related matters when investing in property, discusses these key risk areas.
The ATO had also indicated that capital gains tax will be an area of focus. One of the specific examples provided by the ATO was properties that have been used as a main residence by the owner, and that have also generated income from short term rental activities.
These factors signal that the ATO will be actively monitoring taxpayers whose returns raise red flags, ensuring any discrepancies are promptly addressed.
Under ATO scrutiny are the following expenses:
Repairs and Maintenance v New Assets
Interest deductions
Double dipping claims
Second-hand depreciating assets
Holiday Homes
Rental properties and travel expenses
Repairs and Maintenance v New assets
Whilst the ATO recognises that landlords need to fix broken items in a rental property, a common misunderstanding is that all expenses are outright deductible.
The ATO is targeting “careless capital expense claims”.
Repairs and Maintenance: These expenses are deductible when they restore an item to its original condition.
New Assets: Items such as dishwashers, ovens, or fridges need to be claimed over their effective life.
If you are replacing an item because it was irreparably broken or chose not to repair it, this expense would not qualify for an outright deduction.
When using a rental agent, it’s common for new asset purchases to be classified as repairs and maintenance, so we will often check these are accurately treated when preparing your tax return.
In general, costs incurred by landlords are considered capital in nature and not deductible if:
The extent of the work carried out represents a replacement, renewal or reconstruction of the entirety of an asset.
The work results in a greater efficiency of function in the property, therefore representing an ‘improvement’ rather than a ‘repair’; or
The work is an initial repair (meaning it addresses damage that existed at the time of property purchase).
Interest Deductions
Be cautious not to mix the purpose of your loans.
The ATO provides an example where taxpayers refinanced or redrew a loan on their rental property, used the funds to upgrade their personal vehicle, and then claimed the full interest charged on the investment loan for the year as a rental interest deduction.
In cases where part of the loan was used for private purposes, the interest must be apportioned and only the portion related to the rental property can be claimed as a deduction.
“Double dipping” Claims
Rental agents often pay expenses directly to suppliers (e.g. plumbers), deducting these costs from the amount remitted to the property owner, while also providing the owner with a copy of the invoice.
The ATO have announced that they will be acquiring property management data for 2018–19 through to 2025–26. This will arm the ATO with information to data-match to taxpayer’s income tax return disclosures and ensure not only that assessable income derived from rental properties and CGT on disposals of properties are correctly reported but also associated rental deductions are correct.
Be careful not to claim expenses that are already included in property agent’s summary reports, as this could lead to double claiming.
However, if you personally pay for any rental property expenses that are not captured in the rental agent’s statement, be sure to include these additional expenses in your tax return.
Second-hand depreciating assets
Second-hand depreciating assets for residential rental properties are depreciating items that have been previously used or installed ready for use by you or another entity. In most cases, they are assets that were existing in either:
a property when you purchased it, or
your private residence that you later rent out.
In these scenarios, depreciation on second-hand assets is not deductible to individual and discretionary trust entities.
Holiday homes
This a reminder that where your rental property is not “genuinely available for rent” to the public, the expenses should be reduced to reflect any private use of the property.
Where your property is only returning minimal income, the Commissioner would be looking for evidence that:
The property was actively being advertised where it was not being rented out, and
The property is being advertised for realistic rates with no unrealistic restrictions that could hinder it’s availability for rent.
Rental properties and travel expenses
Generally, where you are an individual or trust you can’t claim any deductions for the cost of travel you incur relating to your residential rental property.
Travel expenses include the costs you incur on car expenses, airfare, taxi, hire car, public transport, accommodation and meals to:
Inspect, maintain or collect rent for a rental property you own or have an ownership interest in.
Travel to any other place if it is associated with earning rental income from your existing rental property (for example, visiting your real estate agent to discuss your current rental property).
Next Steps
Maintaining thorough and accurate records is essential for managing your rental property’s tax compliance.
Ensure you keep detailed documentation of all income and expenses related to the property, including receipts, invoices, and bank statements. Record the purpose of each expense and retain evidence of any repairs, maintenance, and asset purchases.
If using a rental agent, keep copies of their statements and any additional invoices you receive directly. Proper record-keeping not only supports accurate tax reporting but also provides evidence in case you fall under ATO scrutiny.
Stay tuned for our next two newsletters which will be issues over the coming weeks;
Recent Tax Updates Related to Property Investments
Commercial Property and Tax Considerations
If you would like further information about the contents of this newsletter, please contact your Cooper Partners engagement team on 08 6311 6900.
This newsletter is current as of 20 September 2024, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve. Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.
This information is general advice only and neither purports, nor is intended to be advice on any particular matter. No responsibility can be accepted for those who act on the contents of this publication without first contacting us and obtaining specific advice. Liability limited by a scheme approved under Professional Standards Legislation. For further information please refer to our privacy policy
As the 2024 FBT year has ended, employers will be in the process of reviewing benefits provided during the year and ensuring they obtain and keep the appropriate records to support both the calculation of fringe benefits and the exemptions and reductions that are available.
We provide you with the latest updates and tips to assist you in managing FBT compliance obligations and completing 2024 FBT returns.
2024 FBT Rates and Thresholds
Key Dates
Who needs to lodge an FBT Return?
As a reminder, employers who have an FBT liability must lodge an FBT Return. If FBT instalments were paid during the year and the employer does not have an FBT liability for the year, an FBT return must be lodged to obtain a refund of the FBT instalments.
TIP – If an employer does not have an FBT liability, we still recommend an FBT return is lodged to ensure commencement of the three-year amendment period for which the Commissioner can generally amend FBT returns.
Increased ATO audit activity
Focus on Exempt Vehicles and Calculation of Car Fringe Benefits
The Australian Taxation Office (ATO) has recently seen a significant level of non-compliance in reporting car fringe benefits and has intensified its focus on car fringe benefits.
In particular, the ATO is paying close attention to employers who: – Classify vehicles as an exempteligible vehicle for FBT purposes. – Have not considered if private use of the exempt vehicle during the FBT year was limited to work related travel and other private travel that is ‘minor, infrequent and irregular’. – Allow employees to claim 100% business use of vehicles which are garaged at home. – Do not obtain valid logbooks from employees. – Incorrectly apply employee contributions to reduce the taxable value of car fringe benefits to nil.
The ATO has increased its efforts to identify employers providing utes, dual cabs and similar workhorse vehicles through its extended motor vehicle registries data-matching program with information obtained from states and territories regarding vehicles with a purchase price or market value of at least $10,000 that are transferred or newly registered.
TIP In our view, at a minimum, employers should ensure the following records are retained: – Opening and closing on odometers for each vehicle. – Employee declarations supporting the private use is no more than 1,000kms in total and no return journey exceeds 200 kms. – evidence that the employers policy regarding limited private travel is enforced.
Common Errors The ATO has also reminded taxpayers of the following: – FBT applies regardless of tax deductions or GST credits claimed. – In relation to salary packaging arrangements, employers remain accountable for accuracy and any underpayment of FBT, penalties or interest charges so should not rely solely on estimates provided by a salary packaging provider. – A travel diary (instead of an employee declaration) is required to be obtained from an employee who undertakes extended business travel during the FBT year (i.e. travel for more than five consecutive nights overseas or more than five nights within Australia if there is also a private purpose to the travel).
With increasing ATO activity, careful attention must be given to FBT compliance and lodgement of correct FBT returns, on the same basis as other tax liabilities. Misunderstanding how certain rules apply or inadequate record-keeping can draw ATO attention and trigger compliance action.
Recent Developments
1. Identifying Employees versus Contractors
Employers are well aware that FBT is payable in resect respect of taxable fringe benefits provided to employees (and their associates) and that FBT is not payable in respect of benefits provided to independent contractors. Therefore, the distinction is very important from an FBT perspective.
Further to the two High Court decisions in the Personnel Contracting and Jamsek cases which changed the tests to be applied in determining whether the individuals concerned were employees or contractors, the ATO released the following: – Taxation Ruling TR 2023/4 Income tax: pay as you go withholding – who is an employee? – Practical Compliance Guideline PCG 2023/2 Classifying workers as employees or independent contractors – ATO compliance approach.
The purpose of TR 2023/4 and PCG 2023/2 is to provide guidance regarding the ordinary meaning of the term ‘employee’ and provide guidance to employers to assess the level of risk associated with classifying workers as employees or contractors.
As expected, the Ruling reflects the High Court’s decisions in Personnel Contracting and Jamsek stating that whether a worker is an employee is a question of fact to be determined by reference to an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations which constitute the relationship.
This classification is important from an FBT perspective in order to ensure that employers are correctly considering fringe benefits in respect of individuals who would be considered employees as a result of the High Court decisions, TR 2023/4 and PCG 2023/2.
We will be releasing a separate newsletter covering this important issue in more detail.
2. Electric Cars
Use of the FBT exemption for electric vehicles has increased significantly since the exemption became available during the 2023 FBT year. As a recap, to access the exemption, the following conditions must be met: – The vehicle must meet the definition of a ‘car’ under the FBT rules and therefore, cannot be a motorbike, e-bike or vehicle designed to carry a load greater than one tonne. – The car must be a battery electric, hydrogen fuel cell or plug-in hybrid electric vehicle. – The car must have been first ‘held and used for the first time’ on or after 1 July 2022. – The original retail sale price must be below the luxury car tax threshold which is $89,332 for 2023/24.
Calculating Electricity Cost
The ATO has recently issued Practical Compliance Guideline 2024/2, Electric vehicle home charging rate – calculating electricity costs when a vehicle is charged at an employee’s or individual’s home which offers a shortcut method of 4.2 cents per kilometre for calculating electricity costs incurred when charging electric vehicles at employees’ homes, specifically in relation to zero-emission vehicles.
Home charging costs for plug-in hybrid vehicles must still be calculated using the actual cost.
The ATO has further clarified that providing an employee with an electric vehicle charging station at their home constitutes a property fringe benefit that may be subject to FBT.
TIPS – Electric cars which are exempt from FBT must still be disclosed as a reportable fringe benefit if the taxable value of an employee’s fringe benefits amount for the FBT year (including the exempt car benefit) exceeds $2,000. – Employers can choose between the shortcut method outlined in PCG 2024/2 or the actual cost method for each car when calculating an employee’s electricity costs for charging a zero-emission vehicle at home. – Where a choice is not made or where the vehicle is a plug-in hybrid vehicle, the actual cost method is required to be used to calculate an employee’s electricity costs. – Where an employer chooses to apply the shortcut method, an employer needs to ensure records are still maintained, particularly distance travelled (e.g. odometer records) and an employee declaration for the electricity costs.
3. Car Fringe Benefits
Employee Acquires Leased Car From Employer
The ATO has clarified there are no FBT implications when: – an employee pays the residual value to acquire a car at the end of a novated lease agreement; or – when an employer acquires a car at the end of an operating lease for its residual value and provides the car to an employee for the same value; provided the lease in each scenario is a bona fide lease. This will be the case even if the market value of the car at the end a novated lease or operating lease period is higher than the residual value of the car.
In contrast, an employer will have an FBT liability if a car is acquired under a hire purchase agreement and the market value of the car exceeds the residual value paid by an employee to purchase the car from the employer at the end of the hire purchase agreement. In this scenario, a property fringe benefit will arise and the taxable value of the benefit is equal to the market value of the car minus the residual value paid by the employee (or employee contribution).
Calculation of Car Fringe Benefits
The ATO has also updated its FBT guidance in relation to the following areas: – Employers can elect to use the operating cost method to calculate the taxable value of a car fringe benefit even if a valid log book is not maintained. However, where this choice is made, the business use percentage of the car will be nil and no reasonable estimate of business kilometres can be used in the calculation. This method can sometimes result in a lower taxable value than the statutory method. – A car fringe benefit is not taken to arise where a company car is undergoing extensive repairs, for example following a car accident. This concession does not extend to routine servicing, maintenance or minor repairs.
TIPS – Consider whether the novated lease or operating lease is a bona fide lease for tax purposes. – Exclude the days or period a car was in a mechanic’s workshop for extensive repairs when calculating the taxable value of a car fringe benefit. – When providing a hire car as a replacement, employers can rely on the usual car’s logbook for business use confirmation.
4. ‘Otherwise Deductible’ Travel 2
The recent case of Bechtel Australia Pty Ltd v Commissioner of Taxation [2023] FCA 676 highlighted the critical difference between FIFO employees travelling ‘on’ work versus ‘to’ work. Understanding this distinction is vital for employers when assessing the ‘otherwise deductible’ nature of travel expenses and therefore, whether the expenses are subject to FBT.
The Federal Court distinguished the circumstances in Bechtel against the previous leading case of John Holland Group Pty Ltd v Commissioner of Taxation [2015] FCAFC 82 by concluding that FIFO travel costs were incurred in respect of travel from home to work and were not ‘otherwise deductible’ to the Bechtel employees.
In arriving at this decision, the Court considered the following factors: – Employees were not rostered on duty until they started work at Curtis Island, near Gladstone in central Queensland (which was not a ‘remote area’). – The complicated travel route to get to the project (by sea and air) did not demonstrate the employees were travelling in the course of work. – Adherence to a code of conduct whilst travelling did not mean that the employees were under the ‘direction and control’ of the employer. – A project allowance paid to employees was not a travel allowance and the employees were not paid whilst travelling.
In our experience, many employers take the approach that the employee travel expenses are ‘otherwise deductible’ without reviewing contractual arrangements and considering the factors outlined above.
TIPS – It is important that employers consider existing contractual arrangements with employees, particularly in respect of the point of hire and time at which employees are ‘rostered on’ and paid for travelling time. – Employers should have well-documented working arrangements and policies regarding travel protocols, particularly regarding the direction and control the employer exerts over employees during the travel period.
5. Proposed record keeping concessions for 2025 FBT year
A series of legislative instruments have been released by the ATO to simplify FBT record keeping for 2025 FBT year and reduce compliance costs for employers for certain benefits.
From 1 April 2024 (ie the 2025 FBT year), employers have the option to use alternative records (as determined by the Commissioner) instead of traditional travel diaries or employee declarations.
We will be releasing a separate newsletter providing more details on the alternative record keeping requirements
Next steps
If you would like further information on FBT, employment taxes or assistance with your FBT obligations, please contact our FBT Team.
This newsletter is current as of 09 May 2024, however, please note that announcements and changes are being made by the Government and the ATO regularly. Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.
Contact our FBT Team:
Rachel Pritchard Associate Director Head of Human Capital & Corporate
This information is general advice only and neither purports, nor is intended to be advice on any particular matter. No responsibility can be accepted for those who act on the contents of this publication without first contacting us and obtaining specific advice. Liability limited by a scheme approved under Professional Standards Legislation. For further information please refer to our privacy policy
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