March 2025 Essential Tax Summary

Tax Insights & Updates: What You Need to Know This Month

Change is in the air, and the accounting profession is abuzz. The ATO’s failed appeal in the Bendel case has sparked plenty of discussion, but as we explore in this edition, it’s still too soon to take definitive action.

Also on the radar this month: fresh ATO guidance on land sales, including small-scale subdivisions, plus new insights into Part IVA and early-stage innovation companies. And with an election on the horizon, we’ll be keeping a close watch on policy promises that could impact taxpayers.

At Fortis, we stay ahead of the curve so you don’t have to. Stay informed as developments unfold—connect with us on Twitter, Facebook, and LinkedIn for real-time updates and insights.

Government Moves to Restrict Foreign Property Purchases

The Australian Government is taking action to curb foreign “land banking” and prioritise housing availability for Australians. From 1 April 2025 to 31 March 2027, foreign investors—including temporary residents and foreign-owned companies—will be banned from purchasing established homes, with only limited exemptions in place.

Exceptions will apply to investments that increase housing supply or support affordable housing, as well as those linked to the Pacific Australia Labour Mobility (PALM) scheme.

Additionally, foreign investors acquiring vacant land must meet strict development conditions, ensuring the land is actively used rather than held for profit. The ATO will ramp up compliance efforts to enforce these rules and prevent speculative land banking.

With housing affordability under the spotlight, this move signals a firm stance on protecting local buyers. If you’re navigating property investments, We are here to help—reach out for expert guidance.

BNPL Regulation Overhaul: What’s Changing?

The Government is tightening regulations on the Buy Now, Pay Later (BNPL) sector, aiming to enhance consumer protections and industry accountability. A new exposure draft has been released for consultation, outlining key reforms that could reshape the BNPL landscape.

Here’s what’s on the table:

• Stronger consumer protections – BNPL providers must conduct affordability checks and ensure responsible lending, with safeguards in place for vulnerable consumers.
• Greater transparency – Clearer disclosure of fees and charges, along with fee caps, will help Australians understand the true cost of BNPL products.
• Industry-wide standards – A level playing field will ensure all BNPL providers adhere to consistent regulations, fostering both innovation and accountability.

With BNPL use on the rise, these reforms could have significant implications for both consumers and businesses.

ATO Updates Guidance on Land Sales and Subdivision Projects

The ATO has expanded its Examples of Tax Consequences of Sales of Land, adding new case studies to clarify how income tax and GST apply to different property transactions. This update provides clearer insights into property flipping, subdivision, and development, helping taxpayers understand their obligations.

Key takeaways:

• Business vs. Personal Intent – The ATO distinguishes between profit-driven property activities (taxed as business income) and personal transactions (eligible for CGT concessions).
• Example 3: A taxpayer who repeatedly renovates and sells properties is considered to be running a business, meaning profits are taxed as ordinary income rather than under CGT rules.
• Example 4: A taxpayer who sells their home due to unforeseen circumstances (such as job loss) is not treated as running a business and can access CGT concessions.
• Subdivisions Matter – Example 5 shows a homeowner subdividing their land due to financial hardship, with profits treated as capital gains. In contrast, Example 6 involves an investor subdividing for profit, which is taxed as business income.

These updates reinforce the ATO’s focus on intent and activity level when assessing tax obligations. If you’re considering a property sale or subdivision, it’s crucial to get the tax treatment right. We can help—reach out for expert guidance.

Reminders for NFP Self-Review Returns

The 31 March 2025 deadline is fast approaching for non-charitable not-for-profits (NFPs) that need to self-assess as income tax exempt for the 2023-24 income year. This is the first time NFPs must formally notify the ATO of their eligibility, even though exemption criteria remain unchanged.

Key reminders:

• Eligibility Requirements – NFPs must fit into one of eight categories under Division 50 of the ITAA 1997 to qualify for income tax exemption.
• Governing Documents Matter – NFPs must maintain proper rules, constitutions, or trust deeds, ensuring that profits and assets cannot be distributed to members for personal gain. If updates are needed, organisations have until 30 June 2025 to amend documents.
• Common Misconceptions – The ATO has clarified that not all NFPs are tax-exempt, there are multiple ways to lodge, and entities must complete the self-review return even if unsure about their charitable status.

The ATO has also updated its guidance on education, employment, and resource development NFPs, providing further clarity on eligibility and compliance requirements. Organisations should review these updates to ensure they meet the necessary criteria ahead of the deadline.

ATO Impersonation Scams on the Rise

As scammers become more sophisticated, the ATO is warning businesses to stay vigilant against impersonation scams designed to steal personal information and payments.

Key red flags to watch for in suspicious messages:

• Hyperlinks – The ATO never includes links in unsolicited emails or SMS.
• Urgency or fear tactics – Scammers create pressure to act quickly.
• Requests for personal details or payments – The ATO will never ask for sensitive information this way.
• Spelling or grammar errors – A common giveaway of fraudulent messages.
• Unofficial email addresses or phone numbers – Always double-check the source, as scammers often mimic legitimate addresses.

The ATO recommends using Digital ID (myID) to securely access official correspondence and verifying any unexpected messages through official ATO channels before responding. Stay alert and take precautions to protect your business.

Claiming Fuel Tax Credits: What You Need to Know

The ATO is reminding taxpayers that fuel tax credit rates changed on 3 February 2025. To ensure accurate claims, businesses should use the ATO’s eligibility tool to determine whether they qualify for fuel tax credits.

To simplify the process, the ATO’s fuel tax credit calculator automatically applies the correct rates based on when the fuel was acquired, helping taxpayers work out their claims with confidence.

With changing rates, staying up to date is essential—make sure you’re using the correct figures when lodging your claim.

Key Employer Obligations for 2025

The ATO has outlined important tax obligations for employers in 2025. Super guarantee (SG) payments are due quarterly on 28 January, 28 April, 28 July, and 28 October, with the SG rate increasing to 12% from 1 July 2025.

For fringe benefits tax (FBT), the tax year ends on 31 March 2025, and returns must be lodged by 21 May 2025, or 25 June 2025 if submitted electronically through a tax agent.

Employers must also finalise Single Touch Payroll (STP) data by 14 July 2025 for the 2024-25 income year. PAYG withholding payment summaries need to be issued to employees by the same date, while the annual PAYG withholding report must be lodged by 14 August 2025.

With multiple deadlines throughout the year, it’s essential for businesses to stay on top of their obligations to ensure compliance.

Online Tax Schemes on the Rise

The ATO is warning taxpayers to be cautious of unlawful tax schemes being promoted online, particularly on social media. These schemes often promise to reduce or eliminate tax obligations, but those who participate risk facing heavy penalties.

Recent examples include:

• Fake not-for-profit foundations – Individuals structure their finances to make it appear that their income belongs to an NFP to avoid tax.
• Misleading investment opportunities – Some schemes falsely promote start-up companies as early-stage innovation companies to claim tax benefits.

Taxpayers are encouraged to stay vigilant and verify any tax-saving strategies through legitimate sources before getting involved.

Tips to Stay on Top of Your BAS

The ATO has shared key tips to help small businesses correctly lodge their business activity statements (BAS) for the October–December quarter.

• Report correctly – Enter figures in the right labels and only complete relevant fields.
• Use whole dollars – Exclude cents and do not round up.
• Lodging a nil BAS – If there’s nothing to report, select ‘Prepare as nil’ online or call the ATO.
• Fixing mistakes – Some errors from a previous BAS can be corrected in the current BAS. Use label 1A for GST on sales, 1B for GST on purchases, and 7C for fuel tax credit adjustments.
• Adjusting instalments – Your BAS can also be used to vary an instalment amount.
• Extended lodgment time – Lodging online or through a registered tax or BAS agent may provide an extra 2–4 weeks to lodge and pay.
• Go paperless – Businesses still receiving paper BAS can switch to online statements, which are usually available one week after generation (compared to up to three weeks by post).

Staying on top of your BAS obligations can help avoid errors and ensure compliance with tax requirements.

Thin Capitalisation Test Choices – Approved Form Update

The ATO has updated its guidance on the approved form required when choosing to apply the group ratio test or third-party debt test for an income year under thin capitalisation rules.

Entities should use the form only if:

• They intend to make a thin capitalisation test choice for the income year.
• They are classified as a general class investor, outward investing financial entity (non-ADI), or inward investing financial entity (non-ADI).
• They do not meet the 90% Australian asset threshold exemption under section 820-37 of the ITAA 1997.

Key deadlines: The choice must be made using the approved form before the earlier of the entity’s tax return lodgment date or any later date allowed by the Commissioner.

For the 2024 income year, the ATO acknowledges that the due date for making a third-party debt test choice was before the finalisation of TR 2024/D3 and draft PCG 2024/D3 (Schedules 3 and 4), which may impact affected entities.

Effective Record-Keeping for the Next 5,000 Program

The ATO is reminding taxpayers in the Next 5,000 privately owned and wealthy groups program to maintain accurate and up-to-date records for tax returns and business activity statements (BAS).

Failure to keep proper records could lead to denied deductions and input tax credits, or even ATO audits, especially for transactions involving related parties.

To assist taxpayers, the ATO provides detailed guidance in its ‘Record Keeping for Business’ resource, outlining best practices and compliance expectations. Ensuring proper documentation is key to avoiding compliance risks.

New Incentives for Critical Minerals and Hydrogen Production

The ATO has updated its guidance on two key tax incentives aimed at supporting critical minerals processing and hydrogen production in Australia.

• Critical Minerals Production Tax Incentive – Eligible companies can claim a refundable tax offset of 10% on eligible processing costs for certain critical minerals. This incentive is available for up to 10 years between 1 July 2027 and 30 June 2040.
• Hydrogen Production Tax Incentive – Provides a refundable tax offset of $2 per kilogram of eligible hydrogen produced by qualifying companies. This incentive also applies for up to 10 years, starting 1 July 2027.

These incentives aim to boost investment in Australia’s clean energy and resource sectors, supporting the country’s transition to a low-emission future.

ATO Enforcing Monthly GST Reporting for Some Businesses

From 1 April 2025, the ATO will require certain small businesses to switch from quarterly to monthly GST reporting if they have a history of non-compliance, such as late BAS lodgments, missed payments, or incorrect GST reporting. Affected businesses will be notified in writing.

Small businesses also have the option to voluntarily move to monthly GST reporting, which can provide benefits such as:

• Better alignment with business processes and reconciliations
• Improved cash flow management
• Smaller, more manageable payments

For businesses struggling with compliance, this shift could help maintain more structured tax reporting and reduce the risk of penalties.

ATO Cracking Down on Businesses Operating Outside the Tax System

The ATO is increasing its focus on small businesses and contractors that deliberately operate outside the tax, super, and registry system. In particular, it is targeting contractors who fail to report income correctly and taxi and ride-sourcing providers who are not registered for GST.

Contractors providing services in building and construction, courier, cleaning, IT, road freight, security, and surveillance must ensure they report all income in their tax return.

The ATO collects data through Taxable Payments Annual Reports (TPAR), which detail payments made to contractors in these industries. If there are discrepancies between reported income and TPAR data, the ATO may take action, including applying penalties and interest.

To assist sole traders, contractor payment information is often pre-filled in tax returns and available through the ATO’s online platform. Ensuring accurate reporting can help businesses avoid compliance issues.

ATO Flags Common Errors in Small Business Deductions and Concessions

The ATO is increasing its focus on small businesses incorrectly claiming deductions and concessions, highlighting risks in non-commercial losses, small business boost measures, and capital gains tax (CGT) concessions.

Non-Commercial Losses

To offset business losses against other income, taxpayers must pass the $250,000 adjusted income test and meet at least one of the four commerciality tests. Common errors include:

• Offsetting losses from hobby activities or non-business ventures.
• Misapplying loss offset rules when income exceeds $250,000.
• Failing to apply for the ATO Commissioner’s discretion where required.

Small Business Boost Measures

Businesses should carefully check eligibility criteria before claiming the small business skills and training boost or technology investment boost. Key mistakes the ATO has identified include:

• Claiming training costs when the person is not an employee.
• Sole traders claiming training costs for themselves, which is not allowed.
• Incorrectly applying the 20% additional deduction or exceeding expenditure caps.
• Claiming technology expenses that don’t meet the definition of eligible digital expenditure.

Small Business CGT Concessions

Errors in Small Business CGT (SBCGT) concessions often stem from misunderstandings of eligibility, including:

• Not meeting the $2 million turnover test or $6 million asset threshold.
• Misapplying CGT discount rules or incorrectly using rollover relief.
• Reporting errors, such as using incorrect dates when buying or selling an asset.

With the ATO increasing scrutiny, small businesses should ensure they meet all eligibility requirements before claiming deductions or concessions.

Using Business Money and Assets for Personal Benefit

The ATO is increasing its focus on Division 7A issues, particularly where small business owners use company money or assets for personal purposes without meeting the required tax obligations.

Common mistakes include:

• Failing to recognise that a company is a separate legal entity, leading to misuse of company assets or mixing business and personal expenses in a single bank account.
• Poor record-keeping, making it difficult to track company finances.
• Not complying with Division 7A loan requirements, including proper documentation and repayment management.

The ATO is also targeting errors in loans from private companies to shareholders or associates, such as:

• Missing or incorrect loan agreements, including failing to enter a written complying loan agreement before the company’s lodgment day.
• Charging below-benchmark interest rates or failing to declare interest earned as company income.
• Incorrectly recording repayments, such as using journal entries without actual payments or borrowing money from the company to meet repayment obligations.

To avoid compliance issues, businesses should ensure they follow Division 7A rules when using company funds or assets for personal benefit.

Transfer Balance Cap Increase

The general transfer balance cap will increase to $2 million for the 2025-26 financial year, up from the current $1.9 million. This cap limits the total amount of superannuation that can be transferred into the retirement phase to receive tax-free earnings.

Additionally, the defined benefit income cap will rise to $125,000 (up from $118,750) for the 2025-26 income year.

These adjustments reflect indexation changes and will impact individuals managing their superannuation in retirement.

Extensions of Time to Apply for Director Identification Numbers

The ATO has issued Practice Statement PS LA 2025/1, outlining when individuals may be granted an extension of time to apply for a director identification number (DIN).

Typically, directors must have a DIN before their appointment, but in certain cases, the Registrar may approve an extension. Factors considered include:

• Reason for the delay in applying for a DIN.
• Time required to submit the application (extensions under 90 days are more likely to be granted).
• Past compliance history, including prior extensions.
• Circumstances preventing the application, such as unforeseen delays.
• Potential enforcement actions against the individual.

If an extension request is denied, the individual can request an internal review of the decision.

Part IVA and Early Stage Innovation Companies

The ATO has released a draft determination outlining its position on whether Part IVA (anti-avoidance rules) applies to certain Early Stage Innovation Company (ESIC) schemes, as described in TA 2024/1.

The ATO has raised concerns about circular financing arrangements, where individuals claim the ESIC tax offset on shares acquired through structured financing. These schemes often involve:

• A promoted start-up investment that qualifies as an ESIC under subsection 360-40 of the ITAA 1997.
• A financing arrangement allowing investors to subscribe for shares with minimal upfront costs.
• Funds moving between the start-up, investor, and scheme operators to maximise the tax offset.

The draft determination states that Part IVA is likely to apply to such arrangements, depending on the specific circumstances. If the ATO applies Part IVA, investors may lose their 2-year review limitation period, allowing the Commissioner up to 4 years to amend their assessment.

Bendel Case: UPEs Not Loans Under Division 7A

The Full Federal Court has dismissed the ATO’s appeal in Commissioner of Taxation v Bendel [2025] FCAFC 15, ruling that unpaid present entitlements (UPEs) owed to corporate beneficiaries are not loans for Division 7A purposes.

Since December 2009, the ATO has taken the view that when a trust appoints income to a corporate beneficiary but does not pay it, the unpaid amount could be treated as a loan under Division 7A, potentially triggering a deemed unfranked dividend. However, the AAT and now the Federal Court have rejected this interpretation.

The key issue in Bendel was whether UPE balances from 2014 to 2017 should be considered loans under section 109D(3) of the ITAA 1936. The Court ruled that while a UPE creates an obligation to pay the beneficiary, it does not amount to a loan that must be repaid.

It remains to be seen whether the ATO will appeal to the High Court or whether the Government will legislate changes to bring the law in line with the ATO’s long-standing position.

Unexplained Deposits Considered Assessable Income

The Full Federal Court has ruled in Commissioner of Taxation v Liang [2025] FCAFC 4 that unexplained deposits made into a trust’s bank account can be treated as assessable income for tax purposes.

The case involved a husband and wife who controlled multiple businesses through two trading trusts and a property trust. In the 2017 and 2018 income years, the wife deposited $735,825 into the property trust’s bank account, which was later used to buy property. The ATO issued amended assessments including the deposits as trust income, making the couple liable for tax on their share of the trust’s net taxable income.

The taxpayers claimed the deposits were loans or equity contributions from their parents, but the AAT rejected this, stating they failed to provide sufficient evidence. While the Federal Court initially ruled in their favor, the Full Federal Court overturned that decision, confirming that taxpayers must prove what a deposit represents if they claim it is not assessable income.

This case highlights the importance of proper documentation, especially for transactions between related parties. Unexplained deposits can be deemed taxable income if their nature and source cannot be clearly established.

Defined Benefit Schemes and Total Super Balance

A recent AAT decision in XGDM v Commissioner of Taxation [2025] AATA 57 highlights the complexities of calculating total superannuation balance (TSB) for members of defined benefit schemes, such as the Commonwealth Superannuation Scheme (CSS).

Unlike self-managed super funds (SMSFs) and most retail funds, the TSB for defined benefit schemes is calculated using a specific formula rather than a simple account balance. This distinction is critical when determining a taxpayer’s non-concessional contributions (NCC) cap and eligibility for other superannuation concessions.

The case involved a taxpayer who relied on their 30 June 2021 CSS balance, rather than obtaining the official TSB figure reported to the ATO. When the final TSB was calculated, it exceeded $1.7 million, causing the taxpayer to breach their NCC cap in the 2021-22 income year.

This serves as a reminder that defined benefit scheme members should confirm their official TSB figure before making non-concessional contributions, as reported balances may not align with their annual statements.

Future Made in Australia Bill Passed

The Future Made in Australia (Production Tax Credits and Other Measures) Bill 2024 has officially passed both Houses and received Royal Assent.

This legislation establishes the Hydrogen Production Tax Incentive and the Critical Minerals Production Tax Incentive, providing tax offsets to eligible businesses investing in these key industries. These measures aim to boost domestic production, strengthen Australia’s clean energy sector, and support economic growth in critical minerals and hydrogen technology.

Update on the Instant Asset Write-Off Threshold

The proposed extension of the $20,000 instant asset write-off threshold for the 2024-25 income year has not yet become law.

Originally included in the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, the provision was removed at the last minute before the Bill passed in November 2024. The measure has since been reintroduced as Schedule 4 of the Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2024, but this Bill has not yet passed through Parliament.

There are also discussions about making the $20,000 threshold permanent or increasing it further, but for now, the instant asset write-off threshold remains at $1,000 for the 2024-25 income year. Businesses should stay updated on legislative changes before making asset purchases.

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