Aug 2025 Essential Tax Summary

The Australian Taxation Office (ATO) has now completed its pre-fill data for 2025 individual tax returns, drawing information from employers, banks, government agencies, and private health insurers. If you have a straightforward tax situation, you can now lodge your return with confidence.

This month also brings fresh ATO guidance: two new GST rulings (GSTR 2025/1 and GSTR 2025/2) update older advice on cross-border transactions, clarifying when supplies may be GST-free under export rules.

The ATO has also flagged a compliance focus on private groups incorrectly applying Controlled Foreign Company (CFC) rules or omitting required CFC disclosures. If your business is expanding overseas—or if you’ve recently moved to Australia—this is an area to review with your adviser.

At Fortis, we keep a close watch on these developments so you can focus on running your business with clarity and compliance. As change occurs, we’ll keep you posted our social media accounts.

From the Regulators

ATO Tips for Small Businesses at Year-End

The ATO has shared practical reminders to help small businesses prepare for tax time:

1. Get set up online
   Register for Online Services for Business using the myGovID app, then link it to your ABN in the Relationship Authorisation Manager (RAM).
2. Report all income
   Include not just cash payments, but also non-monetary benefits like goods or services you’ve received in exchange for your work.
3. Understand your losses
   Sole traders and partners in a partnership need to check the non-commercial loss rules.
4. Separate business and personal expenses
   Good record-keeping makes this easier—and protects your claims.
5. Nominate your tax agent
   Add your agent in Online Services for Business so they can act on your behalf.
6. Know the three golden rules for deductions:
   • It must be for your business (not personal use).
   • For mixed-use items, only claim the business portion.
   • Keep receipts or records as proof.
7. Choose your reporting method:
   • Cash basis: declare income when you receive it.
   • Accruals basis: declare income when it’s earned, even if not yet paid.
8. Check for deductions and concessions:
   • Simplified depreciation rules
   • Immediate deduction for prepaid expenses
   • Instant asset write-off where eligible

Common CFC Errors for Private Groups — ATO Puts Wealthy Groups on Notice

The Australian Taxation Office (ATO) has identified a high error rate in Controlled Foreign Company (CFC) disclosures among privately owned and wealthy groups. With the CFC rules remaining a key focus of the Tax Avoidance Taskforce, the message is clear: compliance in this area is not optional.

If you’re an Australian resident with a controlling interest in a foreign company, you may need to include part—or all—of that company’s income in your Australian tax return, even if no dividends have been paid. This income must also be disclosed in your tax return and the International Dealings Schedule (IDS).

The Most Common CFC Errors

The ATO’s recent review highlights recurring mistakes, including:

• Under-reporting CFC income — often due to misapplying the active income test or overlooking “tainted” income.
• Omitting deemed dividends from unlisted country CFCs from assessable income.
• Incorrect IDS disclosures, including missing CFCs where control exists through associates.
• Inaccurate reporting of CFC gross revenue or failing to report acquisitions and disposals.

ATO Recommendations for Staying Compliant

1. Stay informed — review the ATO’s Controlled Foreign Company guidance under the Private Wealth International Program.
2. Keep communication open — tell your adviser about all business developments, even small ones.
3. Watch for rapid growth — complexity increases compliance risks.
4. Fix past mistakes — amend previously lodged tax returns if errors are found to reduce penalties and interest.

Rulings, Determinations, & Guidance

GST and Supplies to Non-Residents — Updated ATO Guidance

The ATO has released GSTR 2025/1, replacing the older GSTR 2005/6, to clarify how GST applies when services or other non-goods are supplied to non-residents, but the benefit is provided to another entity within Australia.

This update stems from legislative changes in the Tax and Superannuation Laws Amendment (2016 Measures No 1) Act 2016 and aims to give clearer guidance on when a supply can be treated as GST-free under section 38-190 of the GST Act.

When Can a Supply Be GST-Free?

Under item 2 of section 38-190, a supply (other than goods or real property) can generally be GST-free if:

• It is made to a non-resident who is not in Australia at the time; and
• It is not performed on goods located in Australia and is not directly connected to real property in Australia; or
• The non-resident acquires the supply while running an enterprise and is not registered or required to be registered for GST in Australia.

When GST-Free Treatment Doesn’t Apply

Even if the above conditions are met, GST-free treatment can be lost if:

• The arrangement requires the supplier to make the supply to an entity in Australia — unless certain exceptions apply.

The ruling explores these exceptions and provides practical examples to help determine when GST-free status remains available.

This updated ruling largely aligns with the old one but improves the structure and examples, making it easier to apply in practice. Businesses involved in cross-border services should review their contracts and supply chains to ensure GST is being applied (or not applied) correctly.

GST and “Effective Use or Enjoyment” Outside Australia — New ATO Guidance

The ATO has issued GSTR 2025/2, replacing the previous GSTR 2007/2, to clarify when a supply is considered to be effectively used or enjoyed outside Australia for GST purposes.

This ruling follows updates from the Tax and Superannuation Laws Amendment (2016 Measures No 1) Act 2016 and is especially relevant for businesses providing services or intangibles to overseas clients where part of the benefit may be experienced offshore.

When a Supply Can Be GST-Free

Under item 3 of section 38-190, a supply (other than goods or real property) can be GST-free if:

• It is made to a recipient not in Australia when the supply is provided;
• The effective use and enjoyment of the supply happens outside Australia; and
• The supply is not performed on goods in Australia and is not directly linked to Australian real property.

Key Areas Covered in the Ruling

• Determining location of use or enjoyment — How to work out whether a supply is used or enjoyed outside Australia.
• Partial offshore use — Rules for apportioning GST when only part of the supply is used outside Australia.
• Special rule in subsection 38-190(4) — Some supplies are treated as if made to a non-resident even if certain connections with Australia exist.
• Specific connected supplies — Guidance on supplies only connected to Australia because of paragraph 9-25(5)(d) (i.e., services provided to an Australian consumer while they are temporarily overseas).

GST on Prepared Meals — ATO Clarifies with New Determination

The ATO has finalised GSTD 2025/1, providing updated guidance on when certain food products are considered “prepared meals” for GST purposes. This follows the Federal Court decision in Simplot Australia Pty Limited v Commissioner of Taxation [2023] FCA 1115, which examined how frozen and packaged foods should be treated under the GST Act 1999.

Why It Matters

Under section 38-3(1) of the GST Act, most food is GST-free — but there are exceptions, including certain prepared foods listed in Schedule 1. If your product falls into the category of “prepared meals,” it will generally be taxable, regardless of whether it’s supplied hot, cold, frozen, or requires cooking before eating.

The Court confirmed that whether something is a “prepared meal” should be assessed using common sense and everyday experience.

Attributes of a Prepared Meal

According to the ruling, a prepared meal typically:

• Quantity — Is enough to be eaten as a meal (even if small).
• Composition — Contains multiple ingredients or elements.
• Presentation — Appears complete, often including seasoning, sauces, or flavouring.

Importantly, the classification depends on whether the product belongs to a class of foods marketed as prepared meals — not just on how the specific product is advertised.

Examples from the Ruling

Likely taxable (prepared meals):

• Frozen lasagna or pasta dishes
• Microwavable dumplings
• Pots of bircher muesli
• Ready-to-eat salads with balanced ingredients and sufficient quantity

Likely GST-free (not prepared meals):

• Frozen mashed potato
• Meal kits that require cooking
• Simple meatballs in sauce
• Salads lacking variety or balance of ingredients

Special Guidance for Salads

The ruling provides a 4-step method to determine if a salad is a prepared meal, considering:

• Variety and balance of ingredients
• Proportion of key ingredients (e.g., 10% meat or seafood by weight)
• Packaging and marketing
• Whether the salad is intended to be eaten on its own

A transitional compliance approach applies until 31 December 2025 for:

• Certain salad products
• Prepared meals requiring assembly
• Uncooked chicken wraps

ATO Warning: Crackdown on Improper GST Refund Claims

The ATO has issued Taxpayer Alert TA 2025/2, targeting artificial or contrived arrangements designed to obtain immediate GST refunds that taxpayers are not entitled to. These schemes often rely on false invoicing and inflated transactions to generate large GST credit claims.

How the Schemes Work

At a high level, these arrangements may involve:

• Fake or inflated purchases of goods or services at excessive prices, resulting in large GST refund claims.
• Claims for acquisitions that never occurred — or were much smaller than reported.
• Vague service descriptions such as “project management” or “consultancy services” to make verification harder.

Red Flags for the ATO

The ATO will be looking closely at arrangements that involve:

• Related-party transactions — including false invoicing between associated entities.
• Manipulation of GST accounting methods — deliberately using cash vs accrual methods inconsistently across group entities.
• Double claiming of GST credits — where multiple entities in a group claim credits for the same acquisition.
• Lack of payment evidence — where no real money changes hands for the claimed transactions.

ATO’s Stance

The ATO considers these arrangements tax fraud and will respond with:

• Intensive audits and investigations.
• Severe penalties and potential prosecution.

Need assurance your GST claims are legitimate? Fortis can review your BAS and transaction records to protect your business from ATO scrutiny.

Cases

Childcare Fees Assessed as Trust Income

The Administrative Review Tribunal (ART) has upheld the ATO’s position in a significant ruling for family day care operators. The case involved a large-scale family day care business run through a family trust, where hundreds of educators provided childcare services from April 2012 to August 2015.

Following an audit, the ATO found that the trust had omitted the full value of childcare fees charged to parents from its assessable income. This resulted in nearly $9.9 million of additional income being attributed to the trust’s beneficiaries for the 2014–2016 income years.

Key Issue

The operators argued that the educators, not the trust, had direct contractual arrangements with parents, and therefore the fees should be considered the educators’ income.

The ATO —and ultimately the Tribunal — disagreed.

Tribunal Findings

• Contracts were with the trust, not educators – The ART determined that parents entered into agreements with the family day care service operator (the trust) when they signed weekly session timesheets.
• Accrual accounting applied – Since the trust reported on an accrual basis, income was deemed to be derived when parents signed the timesheets, creating a recoverable debt, regardless of when payments were made.
• Full income assessable to the trust – The total childcare fees invoiced to parents had to be included in the trust’s assessable income.

Gambling Proceeds and Unexplained Deposits Deemed Taxable

The Administrative Review Tribunal (ART) has sided with the ATO in a case involving a full-time amateur poker player, ruling that his gambling proceeds — along with unexplained bank deposits — were assessable income.

Background

Mr Tran, a skilled poker player, was audited in 2017 after large sums of money were found moving through his bank accounts despite no tax returns being lodged. The ATO issued income tax assessments for the 2014–2017 income years and imposed administrative penalties.

Mr Tran argued that:

• The deposits were from poker winnings (which he believed were a “hobby” and therefore not taxable).
• Some funds were loan repayments from friends and family.

However, he kept no records of winnings, losses, loans, or repayments.

Tribunal Findings

The ART found:

• Loan repayments not proven – Evidence lacked detail, consistency, and independent corroboration. Witnesses were mostly friends, family, or poker associates whose credibility was diminished.
• Inadequate record keeping – No documented evidence of gambling activities, winnings, or financial transactions.
• Burden of proof not met – In tax disputes, the taxpayer must show the ATO’s figures are wrong. Mr Tran failed to provide convincing evidence.

The Tribunal upheld:

• The original tax assessments.
• A 75% shortfall penalty for intentional disregard.
• No grounds for penalty remission.

Why Evidence Matters in Overturning ATO Assessments

The Administrative Review Tribunal (ART) has upheld the ATO’s amended assessments and penalties against a taxpayer who could not provide enough evidence to prove the assessments were excessive.

Background

Mr Dalby was involved in several business activities, including construction, rental of student accommodation, workplace machinery training, and trading in scrap gold.
For the 2013–2016 income years, he lodged returns showing losses. Following an ATO audit, he was issued with amended assessments and penalties totalling around $3 million.

The audit focused on:

• Withdrawals from Mango Reef Pty Ltd, a company where Mr Dalby was the sole director and shareholder.
• Property sales that led to undeclared capital gains.

The ATO treated the company withdrawals as personal income and included the capital gains in his taxable income.

Tribunal Findings

The case turned heavily on evidence.

• Mr Dalby claimed the company withdrawals funded a related scrap gold business (now in liquidation), not his personal expenses.
• However, he kept poor records, issued no invoices, and could not trace how the funds were actually used.
• He admitted he could not reconstruct his true income and provided no reliable documentary proof.
• Claims of a “frugal lifestyle” were inconsistent with evidence of substantial overseas travel.

Under section 167 of the ITAA 1936, the burden of proof sits with the taxpayer once a default assessment is issued. This means the taxpayer must show the ATO’s assessment is wrong and what the correct income should be.

Mr Dalby failed to meet this requirement. The ART found his record-keeping and compliance approach to be reckless, justifying the penalties.

If you have any questions regarding the above information, please do not hesitate to contact our office to speak to one of our team.