Welcome to This Month’s Update!
As the year wraps up, the Senate has cleared 32 Bills in its final sitting, setting the stage for the upcoming election. In this edition, we highlight key changes, including simplified compliance guidance for non-resident trust benefits under section 99B and updated ATO rules on family trust elections—a common source of complexity. Stay informed with the latest insights to help you stay ahead.
From the Government: Community Charity Guidelines
Treasury has released the draft Taxation Administration (Community Charity) Guidelines 2024, with submissions due by 3 December 2024. These guidelines introduce requirements for deductible gift recipients (DGRs) under the new community charity category, covering governance, record-keeping, and permitted activities.
To gain or maintain DGR status, a community charity must be declared by a minister, and initially, this framework applies to 28 organisations affiliated with Community Foundations Australia. Treasury has also provided a fact sheet to explain the framework, which is set to commence once registered on the Federal Register of Legislation.
Beneficial Ownership Reforms
Treasury has released draft legislation to establish a public beneficial ownership register, revealing who truly owns and controls entities listed on Australia’s financial markets. The initial focus is on listed companies.
The proposed amendments to the Corporations Act aim to strengthen disclosure requirements for beneficial ownership, including for overseas entities listed in Australia. The reforms also grant ASIC greater powers to enforce compliance with the new rules. Submissions are open until 13 December 2024.
Improving the Retirement Phase of Superannuation
The Government has outlined plans to enhance the retirement phase of superannuation, aiming to provide retirees with better options, clearer information, and increased transparency. Key areas of focus include:
- Independent Guidance: Updates to the Moneysmart website and an ASIC-led education campaign will offer retirees trusted, accessible information.
- Better Products: From 1 July 2026, new income stream regulations will allow features like money-back guarantees and instalment payments, expanding retirement product choices.
- Best Practice Principles: Voluntary guidelines for the superannuation industry will ensure high-quality retirement products, with consultation on draft principles in 2025.
- Increased Transparency: Starting in 2027, APRA will annually publish data on retirement outcomes under a new Retirement Reporting Framework, shaped by Treasury consultations.
These reforms aim to help retirees maximise their superannuation benefits and secure better financial outcomes in retirement.
Crypto Asset Reporting Framework
Treasury has opened consultations on implementing the OECD’s Crypto Asset Reporting Framework (CARF) in Australia, with submissions due by 24 January 2025. CARF aims to create a global standard for the automatic exchange of crypto-related account information between tax authorities, building on the existing Common Reporting Standard (CRS) for traditional financial accounts.
The framework has three key components:
- Model Rules for domestic laws requiring crypto service providers to report relevant information.
- Agreements enabling information exchange between participating countries.
- Electronic Format (XML Schema) for reporting and data exchange.
The proposed measures would require crypto intermediaries, like exchanges and wallet providers, to report transactions such as disposals (gross proceeds) and acquisitions (market value).
Treasury is considering two approaches:
- Adopting the CARF Model for consistency with global standards and reduced compliance costs.
- A Bespoke Approach tailored to target specific service providers for optimal ATO compliance outcomes.
This initiative reflects efforts to align Australia with global standards in monitoring crypto markets.
From the Regulators: Reminder on Family Trust Elections and Concessions
The ATO has reminded trustees and practitioners to carefully navigate the complexities of Family Trust Elections (FTE) and Interposed Entity Elections (IEE) to avoid unintended tax liabilities.
Key highlights include:
- FTE Overview: A valid FTE designates a trust as a “family trust” for tax purposes, requiring it to pass the family control test. The election ties the trust to a single “test individual” whose family group defines the scope of tax concessions and rules.
- Key Tax Concessions: Benefits include access to trust loss measures, franking credit concessions, exclusions from trustee beneficiary reporting (TBR) rules, and eligibility for small business restructure rollovers.
- FTDT Risks: Family Trust Distribution Tax (FTDT) at 47% applies to distributions outside the designated family group. Similarly, circular trust distributions can trigger non-disclosure tax liabilities.
IEEs allow non-automatic entities, like partnerships and companies, to join a family group, enabling them to receive distributions without FTDT. However, distributions outside the family group by these entities still risk FTDT.
The ATO emphasises vigilance when handling multi-generational groups or complex trust structures, as missteps can lead to substantial FTDT liabilities. Practitioners and trustees are urged to carefully review elections to prevent avoidable tax outcomes.
FBT and Holiday Celebrations
As the festive season begins, the ATO has issued a reminder about Fringe Benefits Tax (FBT) implications for end-of-year staff celebrations. Providing food, drinks, recreation, or gifts can be classified as “entertainment,” which is usually subject to FBT unless specific exemptions apply.
Key factors determining FBT liability include:
- The amount spent per employee.
- The time and location of the celebration.
- Attendees, such as employees, partners, clients, or suppliers.
- The value and type of gifts provided.
Employers should maintain detailed records of entertainment-related expenses to assess exemptions and calculate taxable values. Additionally, expenses tied to entertainment are generally non-deductible and ineligible for GST credits, unless subject to FBT.
Proper planning and record-keeping can help employers manage their tax obligations while celebrating responsibly.
NFP Self-Review Returns
The ATO has introduced NFP self-review returns for non-charitable not-for-profits (NFPs) with an active ABN to confirm income tax exemption eligibility.
- First Deadline: Lodge by 31 March 2025 for the 2023–24 income year.
- What’s Required: Choose an exempt category, confirm activities meet eligibility, and estimate revenue size (small, medium, or large).
- If Taxable: Support like payment plans and penalty relief is available.
Arts, Music, and Cultural Organisations
NFPs in these sectors can self-assess as tax-exempt if their main purpose is encouraging art, literature, or music. Social forums or cultural heritage promotion are not eligible.
This streamlined process supports NFPs in maintaining compliance.
2024–25 ATO Focus Areas
The ATO has outlined its key priorities for privately owned and wealthy groups for the 2024–25 income year, split into foundational issues, emerging risks, and targeted areas:
- Foundational Issues:
- Registration, lodgment, and payment compliance.
- Incorrect reporting (CGT, Division 7A, property, international transactions).
- Professional firms’ profit allocation and personal return compliance.
- Emerging Risks:
- Misreporting of trust deductions, R&D claims, and GST credits.
- CGT issues with Division 149 and pre-CGT assets.
- Risks like trust loss trafficking, misuse of private funds, share buybacks, and crypto business models.
- Targeted Focus Areas:
- Succession planning, private equity, retirement villages, and GST compliance in retail and construction industries.
The ATO’s focus highlights areas requiring careful attention to ensure compliance and minimise risks.
Study and Training Loan Repayment Changes
The ATO has outlined recent updates to study and training loans:
- Retrospective Indexation Reduction: From 2023 and 2024, the HELP indexation rate will use the lower of CPI or WPI, applied automatically once legislation receives Royal Assent.
- Proposed Repayment Thresholds: The minimum repayment threshold is set to increase from $54,435 in 2024–25 to $67,000 in 2025–26, with repayments calculated only on income above the threshold.
- Proposed 20% Debt Reduction: A 20% reduction in study and training loan balances is planned before 1 June 2025, pending legislation.
- Rural Doctors and Nurses Debt Relief: Doctors and nurse practitioners working in remote areas can reduce HELP debts by meeting eligible work requirements.
For 2024–25, the ATO has also updated its website with the latest repayment thresholds. These changes aim to provide greater financial relief for borrowers.
Retirement Village Tax Guidance
The ATO has updated its comprehensive guidance on income tax and GST for retirement village operators. Key areas covered include:
- Occupancy Arrangements: Tax treatment for different resident agreements.
- Acquiring or Constructing: Tax implications for building or purchasing villages, including shares or units.
- Operations: Managing retirement villages, including independent living units.
- Sales: Tax considerations when selling a retirement village.
These updates provide operators with clear insights into managing tax obligations across all stages of their operations.
ATO Tougher on Small Business Compliance
The ATO is intensifying its scrutiny of small businesses deliberately avoiding tax obligations. For this quarter, the focus is on:
- Personal vs Business Income: Misuse of business funds for personal benefit.
- Deductions and Concessions: Incorrect claims for non-commercial business losses or small business CGT concessions.
- Operating Outside the System: Non-compliance with GST registration and income reporting for taxi, limousine, and ride-sourcing services.
Small businesses (sole traders, companies, trusts, or partnerships with turnover under $10m) found to be non-compliant could face reviews, audits, penalties, or, in severe cases, civil or criminal sanctions.
The ATO aims to ensure fair competition by targeting deliberate misconduct.
Section 99B Guidance: Non-Resident Trust Benefits
The ATO has clarified section 99B rules, taxing payments from trusts to Australian resident beneficiaries unless specific exceptions apply, focusing on non-resident trusts.
Key points:
- Exemptions: Distributions from trust corpus are exempt unless linked to untaxed income or gains taxable under Australian rules.
- No CGT Discount: Hypothetical taxpayer rules exclude CGT discounts.
Low-Risk Scenarios:
- Deceased Estates: Low risk if the deceased was a non-resident, distributions occur within 24 months, and don’t exceed $2m.
- Trust Property Use: Agreements must follow market rates, and beneficiaries must make payments as agreed.
Compliance: Beneficiaries must provide documentation (e.g., trust deeds, financial accounts) to claim exemptions. Without proof, full distributions may be taxed.
This guidance helps beneficiaries and trustees navigate section 99B obligations.
Value of Goods Taken from Stock for Private Use
The ATO has released TD 2024/8, updating accepted estimates for the value of goods taken from trading stock for private use in specific industries for the 2024–25 income year.
Industries covered include:
- Bakeries
- Butchers
- Licensed and unlicensed restaurants or cafés
- Caterers
- Delicatessens
- Fruiterers or greengrocers
- Takeaway food shops
- Mixed businesses (e.g., milk bars, general stores).
The previous guidance, TD 2019/2, for the 2018–19 income year, has been withdrawn. This update ensures businesses use current estimates for compliance.
GST and the Meaning of ‘ATM’
The ATO has updated GSTR 2014/2 and GSTR 2002/2 following the decision in Banktech Group Pty Ltd v Commissioner of Taxation [2023] AATA 3850 regarding the definition of ‘ATM’ and ‘ATM services.’
Key findings:
- The AAT ruled that the ordinary meaning of ATM applies.
- Equipment requiring staff intervention, consisting of separate components, or not marketed as an ATM does not qualify as an ‘ATM service’ and therefore is not input-taxed as a financial supply.
These updates provide clarity on GST treatment for businesses operating cash dispensing equipment.
NALI Amendments and Draft Updates
The ATO has released draft updates to rulings on Non-Arm’s Length Income (NALI) rules under section 295-550 of the ITAA 1997:
- LCR 2021/2DC: Explains how NALI rules apply when superannuation fund trustees engage in non-arm’s length dealings, including cases of non-arm’s length expenditure or failure to incur expenses when producing income.
- TR 2010/1DC2: Revises the ATO’s interpretation of ‘contribution’ in relation to superannuation funds under the ITAA 1997, replacing the earlier draft and removing the proposed compliance approach.
These updates aim to clarify compliance requirements for superannuation funds under the amended NALI rules.
Case: Unsuccessful R&D Claim for Basketball Shoe
The Federal Court dismissed an appeal by Active Sports Management Pty Ltd, affirming the AAT’s decision that its development of a customised basketball shoe, Delly1, did not qualify as eligible R&D activities for the R&D tax incentive.
Key findings:
- Core R&D Activities under section 355-25(1) require:
- Unknown outcomes that can only be determined through systematic work based on scientific principles.
- A process involving hypothesis, experimentation, observation, evaluation, and logical conclusions.
- A purpose of generating new knowledge.
- The AAT and Federal Court found the activities lacked a systematic progression of work based on established science and were not conducted to generate new knowledge. Instead, the activities applied existing knowledge to meet individual preferences, specifically for a professional basketball player.
This decision underscores the importance of meeting strict criteria to qualify for R&D tax incentives.
Legislation: Objective of Superannuation
The Superannuation (Objective) Bill 2023 has passed Parliament and awaits Royal Assent. The Bill establishes the objective of superannuation as:
“To preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”
By enshrining this objective in law, future superannuation policy changes must align with these principles, ensuring long-term consistency and focus on equitable retirement outcomes.
Foreign Resident Capital Gains Withholding and Single Touch Payroll Updates
The Treasury Laws Amendment (2024 Tax and Other Measures No. 1) Bill 2024 has passed Parliament, introducing key tax-related changes:
- Foreign Resident Capital Gains Withholding:
- Withholding rate increased from 12.5% to 15%.
- Removal of the threshold before withholding applies.
- Single Touch Payroll (STP):
- Employers can make STP declarations for extended periods.
- Tax Refunds:
- The Commissioner of Taxation can retain refunds for up to 90 days to collect financial institution details for payment.
- Amended Tax Assessments:
- Small and medium businesses now have 4 years (up from 2 years) to apply for tax assessment amendments.
These changes aim to enhance compliance and provide greater flexibility for taxpayers.
Accountants and AML Requirements
The Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 has passed Parliament, expanding the AML/CTF regime to cover higher-risk services provided by:
- Real estate professionals
- Lawyers
- Accountants
- Trust and company service providers
Under the amendments, these professionals must comply with AML/CTF regulations. The definition of “qualified accountant” now includes members of the Institute of Public Accountants, broadening the scope of regulated professionals.
This change strengthens efforts to combat financial crime across professional services.
Aged Care Reform
The Aged Care Bill 2024 and the Aged Care (Consequential and Transitional Provisions) Bill 2024 have passed Parliament, introducing major reforms to how aged care is funded in Australia. These changes include a new funding model and revised contribution requirements for care recipients, aiming to create a more equitable and sustainable system.
Build-to-Rent Incentives and Instant Asset Write-Off Changes
The Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 has passed Parliament, introducing:
- Build-to-Rent Incentives:
- Capital works deduction rate increased to 4% per year.
- Withholding tax on eligible fund payments reduced to 15% for managed investment trusts.
- New Reporting Obligations:
- Certain large multinational enterprises now face additional reporting requirements under the TAA 1953
The Senate removed the proposed extension of the $20,000 instant asset write-off to 30 June 2025 before passing the Bill. The Government’s plans for this measure remain unclear.
BEPS Pillar 2 Package: 15% Global Minimum Tax
The legislative package to implement the 15% global minimum tax rate in Australia has passed Parliament and awaits Royal Assent. It includes three key Bills:
- Taxation (Multinational-Global and Domestic Minimum Tax) Imposition Bill 2024
- Taxation (Multinational-Global and Domestic Minimum Tax) Bill 2024
- Treasury Laws Amendment (Multinational-Global and Domestic Minimum Tax) Consequential Bill 2024
These measures aim to align Australia with global efforts to combat tax avoidance by multinational enterprises.
HELP Student Loan Indexation Changes
The Universities Accord (Student Support and Other Measures) Bill 2024, which amends the indexation of Higher Education Loan Program (HELP) loans, has passed Parliament and awaits Royal Assent.
These changes aim to provide more equitable adjustments to student loan balances.
Douglas Case: Transitional Arrangements Extended
The Income Tax (Transitional Provisions) (Permanent Incapacity Benefits) Amendment Rules 2024 extend transitional arrangements related to the Douglas decision for an additional 12 months, covering the 2023–24 income year.
The Douglas decision determined that, from 1 July 2007, certain invalidity pension payments for veterans and their beneficiaries should be treated as superannuation lump sums, not superannuation income stream benefits. This extension provides continued relief and clarity for affected individuals.
Hydrogen and Critical Minerals Tax Offsets
The Future Made in Australia (Production Tax Credits and Other Measures) Bill 2024 introduces new tax incentives to promote renewable hydrogen and critical minerals production:
- Hydrogen Production Tax Incentive: Supports medium to large-scale renewable hydrogen production.
- Critical Minerals Production Tax Incentive: Offers a 10% refundable tax offset on eligible expenditure to encourage downstream refining and processing of critical minerals.
These measures aim to drive growth in sustainable energy and critical minerals industries in Australia.
Fuel Efficient Cars and Tax Amendments
The Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2024 introduces several tax-related changes, including:
- Luxury Car Tax: Tightening the definition of a fuel-efficient vehicle for luxury car tax purposes.
- Interest Deductions: Denying deductions for general interest charge (GIC) and shortfall interest charge (SIC) amounts.
- Refund Retention: Extending the ATO’s notification period for retaining tax refunds.
These amendments aim to improve tax system integrity and compliance.
Build-to-Rent Integrity Measures
The Capital Works (Build to Rent Misuse Tax) Bill 2024 proposes a 1.5% levy on build-to-rent developments that fail to meet eligibility conditions.
This measure safeguards the integrity of build-to-rent tax concessions, ensuring that entities claiming these benefits comply with the requirements and discouraging improper claims.
If you have any questions regarding the above information, please do not hesitate to contact our office to speak to one of our team.
