March 2026 Essential Tax Summary

ATO small business focus areas and superannuation changes

This month, the ATO published details of its current small business focus areas, including poor compliance, cash income and payments, the property and construction industry, and the private use of business assets.

Bills have also been introduced to implement the new Division 296 tax. This reduces the tax concessions available to individuals with total superannuation balances (TSBs) exceeding $3 million and $10 million, and increases the threshold for the low-income superannuation tax offset (LISTO).

The Government has also published the regulations to support the implementation of the Payday Super reforms, which are due to commence on 1 July 2026.

There is one point to check in the second paragraph. The reference to TSBs exceeding both $3 million and $10 million may need clarification, depending on the source material.

As change occurs, we’ll keep you posted through Fortis Accounting Partners’ social media accounts.

From the Government

Payday Super Regulations

The Government has published the Regulations supporting the Payday Super reforms, which will commence on 1 July 2026.

These Regulations set out how the new rules will work in practice and include changes that affect employers, super funds, and the broader legislative framework.

Key points

• Payday Super starts on 1 July 2026
  Employers will need to align with the new Payday Super rules from this date.
• Administrative uplift reductions may apply
  The Regulations outline how an employer’s administrative uplift amount can be reduced. This amount is generally calculated as 60% of the total of an employer’s final individual super guarantee (SG) shortfalls and notional earnings for a qualifying earnings day.
• Employers may receive reductions in some cases
  Reductions may apply where:
  • there has been no Commissioner-initiated assessment in the previous 24 months, and/or
  • the employer lodges a voluntary disclosure statement before an assessment is made.
• All employers start with a clean slate
  From 1 July 2026, all employers will begin with a clean slate for Commissioner-initiated assessments under the new Payday Super rules.
• Exclusions have been consolidated
  The Regulations bring together exclusions from qualifying earnings to make the legislation easier to read and apply.
• Some employees and payments remain excluded
  These exclusions include:
  • certain employees, such as specified temporary visa holders in senior executive roles and part-time employees under 18
  • certain payments, including parental leave payments, some community service and Defence Force absences, and payments treated as fringe benefits
• Exceptional circumstances are defined
  The Regulations outline exceptional circumstances where the Commissioner may exercise discretion. These include events such as:
  • natural disasters
  • widespread outages of relevant technology or services
• Defined benefit settings have been updated
  The rules have been revised to clarify when a person is treated as a defined benefit member and to align terminology with the updated SG framework.
• Trustee processing timeframes are being streamlined
  For regulated super funds other than SMSFs:
  • a uniform deadline of three business days will apply for allocating or returning contributions
  • some validation request timeframes will reduce from three business days to two business days
• SMSF treatment remains unchanged
  SMSFs will continue to follow the existing rule requiring contributions to be allocated within 28 days after the end of the month, or longer where reasonable in the circumstances.
• Related regulations have also been updated
  Consequential amendments have been made to the Bankruptcy Regulations, including updated definitions such as charge percentage and qualifying earnings, as well as transitional rules for contribution assessment periods that begin before 1 July 2026 and end on or after that date.
• Commonwealth scheme settings have been preserved
  Amendments to the CS SG Regulations ensure that employer benefits provided under the Commonwealth Superannuation Scheme continue to meet Superannuation Guarantee requirements after the reforms begin.

Commencement date

The Regulations commence on 1 July 2026.

Review of Thin Capitalisation Reforms

The Australian Government has commissioned an independent review of its thin capitalisation reforms.

These reforms are designed to limit the excessive use of debt deductions by multinational corporations to artificially reduce their Australian tax liabilities. They align with OECD best practice guidelines and aim to ensure multinationals pay a fairer share of tax in Australia.

Key points

• The Government has commissioned an independent review of the thin capitalisation reforms.
• The reforms are intended to reduce the excessive use of debt deductions by multinational corporations.
• Their purpose is to stop arrangements that may artificially lower Australian tax liabilities.
• The changes are aligned with OECD best practice guidelines.
• The review has been assigned to the Board of Taxation.
• The process will include public consultation.
• A final report is expected within 12 months.

Global and Domestic Minimum Tax Amendments

The Government has released Exposure Draft legislation and an explanatory statement covering further minor amendments to the 15% minimum tax for large companies, introduced under the OECD Inclusive Framework.

These changes are technical in nature and are intended to improve consistency with the OECD rules.

Key points

• The amendments relate to the 15% minimum tax for large companies.
• The changes are described as minor and technical.
• Their main purpose is to ensure Australia’s rules remain consistent with the OECD framework.

At a high level, the amendments will

• clarify how Australia’s domestic minimum tax applies to stateless entities with an Australian nexus
• refine how the domestic minimum tax interacts with existing tax consolidation rules
• ensure covered taxes are allocated consistently with the allocation of GloBE income for certain entities
• help ensure Australia’s domestic minimum tax operates as intended
• Ad aforeign currency translation rule.

The Consultation closes on 13 March 2026.

From the Regulators

$20,000 Instant Asset Write-Off for 2025–26

The ATO is reminding eligible small businesses about the instant asset write-off, which allows them to immediately deduct the business portion of the cost of eligible assets costing less than $20,000.

This applies to businesses with an aggregated annual turnover of less than $10 million.

Key points

• Eligible small businesses can immediately deduct the business portion of eligible assets costing less than $20,000.
• The business must have an aggregated annual turnover of less than $10 million.
• To qualify, the asset must be first installed or ready for use for a taxable purpose between 1 July 2025 and 30 June 2026.
• The $20,000 limit applies per asset, not as a total cap across all purchases.
• The instant asset write-off can also apply to second-hand assets, although some exclusions and limits apply.

Improvement costs

• If a business has already claimed a deduction for an asset under the simplified depreciation rules in an earlier income year, it may also be able to immediately deduct the first improvement cost for that asset.
• To qualify, the improvement cost must be:
  • incurred between 1 July 2025 and 30 June 2026, and
  • less than $20,000.

Assets over $20,000

• Assets costing more than $20,000 can still be added to the general small business pool.
• These assets are then depreciated at:
  • 15% in the first income year
  • 30% in each following income year

ATO Small Business Focus Area

The ATO has published its current small business focus areas and risk areas on its website. These are the issues it is watching most closely across small business compliance.

Focus areas	Risks
Omitted income	Using business money and assets for personal benefitContractors omitting incomeBusinesses using cash to avoid obligations
Deductions and concessions	Non-commercial business lossesSmall business capital gains tax concessionsSmall business boost measures
Operating outside the system	Overlooking and misreporting FBT on the private use of work vehiclesGST registration and income reporting for taxi, limousine and ride-sourcing servicesProperty and construction industry, key tax and super risksTax risks in property, construction and professional services
Building good habits	Quarterly to monthly GST reportingGet ready for business

Further guidance on each of these risk areas is available on the ATO website.

Poor Compliance for Small Businesses

The ATO is warning small businesses that it is continuing to focus on poor compliance behaviours.

For ATO purposes, small businesses include sole traders, companies, trusts and partnerships that operate a business for all or part of the financial year and have an aggregated annual turnover of less than $10 million.

The ATO is paying close attention to small businesses that

• knowingly operate outside the system, such as not declaring all income and over-claiming expenses
• deliberately fail to report or register correctly, or do not lodge and pay in full and on time
• do not understand their tax and super obligations, including employer responsibilities
• pay employees in cash and fail to declare income to avoid tax and super obligations
• use business funds and assets to support a personal lifestyle, tax-free
• have poor record-keeping and cash flow management practices

Steps small businesses can take to reduce compliance risk

• keep separate bank accounts for business and personal obligations
• maintain good records and make sure all income is reported correctly
• pay close attention to cash payments, as the ATO continues to see omitted income in businesses with poor or inconsistent record-keeping
• prepare for the upcoming Payday Super changes

Misreporting FBT on Personal Use of Work Vehicles

The ATO is focusing on employers that may be incorrectly reporting fringe benefits tax (FBT) on the private use of work vehicles.

If a vehicle is made available to an employee, or to their family members or associates, for private use, it may give rise to an FBT liability. This means the employer may need to lodge an FBT return and pay FBT.

Common areas where employers get it wrong

The ATO has identified several common mistakes, including:

• failing to lodge an FBT return when required
• assuming the private use of a dual cab ute is automatically exempt from FBT
• incorrectly claiming vehicle exemptions
• not keeping adequate records, such as valid logbooks, to support exemption claims
• incorrectly treating private use as business use, or failing to properly apportion private use
• failing to keep accurate and valid records to support their overall FBT position

The ATO says that failing to report, or incorrectly reporting, fringe benefits undermines the integrity of the system and creates an uneven playing field for employers.

What employers should do first

Employers that provide work vehicles available for private use should first determine whether a fringe benefit arises by:

• identifying the type of motor vehicle provided
• understanding how the vehicle is used for business and private purposes, and accurately apportioning that use
• correctly assessing whether any exemptions apply to the vehicle or its private use
• keeping adequate records, including logbooks, odometer readings, and documentation supporting exemption claims and calculations

If a fringe benefit does arise

If the private use of a work vehicle results in a fringe benefit, employers should then:

• determine the taxable value of the car fringe benefit and calculate the FBT payable
• lodge the FBT return and pay any FBT liability by 21 May, or by 25 June if lodging through a tax agent
• check whether the fringe benefit must also be reported through Single Touch Payroll on the employee’s income statement or payment summary

ATO Focus on Cash Income and Payments

The ATO is actively targeting businesses that misuse cash income and cash payments, including under-reporting cash income and paying workers off the books.

Businesses that use cash to hide their activities may fail to meet a range of tax, super and workplace obligations, which can create serious risks for both employers and workers.

Risks for businesses

Businesses using cash to conceal activities may:

• fail to report all sales transactions and provide receipts
• fail to pay GST, income tax, PAYG withholding, super guarantee, insurance and WorkCover
• report income below the $75,000 threshold to avoid GST registration
• exploit staff by ignoring award conditions and WorkCover protections
• undercut honest businesses by offering cheaper cash prices

Businesses that pay workers in cash and do not declare it may face significant penalties.

Risks for workers

Workers who are paid cash in hand or work off the books are often left worse off. They may:

• miss out on entitlements such as paid annual leave and sick leave
• be paid less than the applicable award wage
• face an end-of-year tax liability if no tax has been withheld
• miss out on super contributions, affecting their retirement savings
• have no WorkCover protection if they are injured at work

What the ATO expects businesses to do

The ATO reminds businesses to:

• report all income, including cash income
• pay workers correctly and meet employer tax and super obligations
• keep accurate records and use digital tools where possible
• register for GST when GST turnover reaches $75,000 or more

Quarterly to Monthly GST Reporting

The ATO is focusing on small businesses that may need to move from quarterly to monthly GST reporting.

Since March 2025, some small businesses with a history of non-compliance may have received notice from the ATO advising that their GST reporting cycle changed to monthly from 1 April 2025.

This may apply where a business has:

• paid late or not paid the full amount
• lodged late or failed to lodge
• reported tax obligations incorrectly

After 12 months, a small business can ask to move back to quarterly reporting.

Why some businesses may choose monthly reporting voluntarily

Some small businesses may decide to move to monthly GST reporting even if they are not required to. This may help with:

• aligning GST reporting more closely with regular business processes, such as monthly bills and invoices
• improving cash flow visibility
• supporting better-informed business decisions

Property and Construction Industry, Key Tax and Super Risks

The ATO is continuing to focus on the property and construction industry, where it still sees ongoing issues with paying the correct amount of tax and meeting GST obligations.

The ATO says some small businesses in this sector continue to make mistakes or fail to meet their obligations, particularly in relation to income reporting, expenses and GST.

Key risk areas

The ATO is concerned about businesses that:

• omit income, including:
  • not reporting all income, whether received in cash or deposited into bank accounts
  • incorrectly classifying income from property development
  • contractors omitting income already reported to the ATO through the taxable payments reporting system
• overclaim expenses and GST credits, including:
  • claiming private expenses as business expenses
  • failing to correctly apportion expenses between business and personal use
• do not register for GST when required
• use business funds and assets for personal lifestyle expenses, tax-free

What can happen if the ATO identifies an issue

If the ATO suspects that a taxpayer has omitted income or overclaimed expenses in a tax return or BAS, it may:

• contact the taxpayer or their tax agent to correct the error or amend the return
• seek further information to understand the circumstances
• conduct a review or audit of the business

New Businesses

The ATO is reminding new business owners to understand their tax, super and registration obligations so they can get things right from the start.

Starting well can make it easier to manage cash flow, avoid mistakes and build good compliance habits early.

Key points for new business owners

• Use digital tools and keep accurate records
  Good record-keeping can help you manage day-to-day business activities, track cash flow and stay on top of your obligations.
• Complete the right registrations early
  When starting a business, you may need to register for things such as:
  • an ABN
  • a business name
• Only claim eligible business expenses
  You can usually claim a tax deduction for business expenses that are directly related to earning your income. Keep records and only claim the business portion of any mixed-use expenses.
• Choose the right business structure
  The business structure you choose will affect your tax and registration requirements. It’s important to understand your obligations from the beginning.
• Know your responsibilities if you employ staff
  If you are an employer, you will have extra responsibilities, including tax and super obligations.
• Lodge and pay on time
  Meeting your lodgment and payment deadlines helps reduce the risk of penalties and interest.
• Consider PAYG instalments
  You can prepay your estimated income tax through pay as you go (PAYG) instalments. Some businesses choose to do this voluntarily to smooth cash flow and avoid a large tax bill at the end of the year.
• Good habits strengthen your business
  Businesses that keep accurate records, lodge and pay on time, and avoid common errors are more likely to avoid penalties and general interest charges, and are often better placed to handle business challenges.

Contractors Omitting Income

The ATO is focusing on contractors who incorrectly report, or fail to report, contractor income.

Under the taxable payments reporting system (TPRS), certain businesses must lodge a Taxable payments annual report (TPAR) to report payments made to contractors for specific services.

Services covered by the reporting rules

The reporting requirement applies to payments for the following services:

• building and construction
• courier
• cleaning
• information technology (IT)
• road freight
• security, investigation or surveillance

If an individual works as a contractor in one of these areas, the business engaging them may report those payments to the ATO through the TPAR.

What contractors need to do

Contractors must include all contractor income in their tax returns, including payments received for contracting work.

Through its data-matching programs, the ATO has identified cases where contractors have incorrectly reported or omitted income.

What the ATO may do if income is missing

Where the ATO suspects TPRS income has been omitted from a tax return, it may:

• contact the contractor or their tax professional by email and request an amendment to the tax return
• contact the contractor or their tax professional by phone to better understand the circumstances and potentially request an amendment
• proceed to a review or audit if no action is taken

If issues are confirmed, penalties and interest may apply.

Tools available to help contractors

The ATO says contractors can use the following tools to help ensure all income is reported:

• pre-filling services, which help sole traders include reported payments in their tax return
• the reported transactions service in ATO online services, which provides visibility over the data reported about a business’s transactions

Property, Construction and Professional Services

The ATO is focusing on small businesses in the following sectors:

• property and construction, including builders, contractors and tradies
• professional, scientific and technical services, such as engineering, design, IT, management and consulting

The ATO says it continues to see recurring issues in these industries, often caused by mistakes, misunderstandings or deliberate non-compliance.

Common risk areas

The ATO has identified the following common issues:

• incorrect claims for the R&D tax incentive (R&DTI), especially where activities do not meet the eligibility requirements
• omitted sales and income in BAS and tax returns, including income from related entities
• overclaiming expenses and GST credits
• claiming private expenses as business-related, or failing to properly apportion costs between business and personal use
• failing to register for GST when required
• not seeking independent advice from a registered tax agent, particularly in head contractor and subcontractor arrangements

Home-Based Businesses and CGT Implications

The ATO is reminding taxpayers with home-based businesses that using part of their home for business can affect access to the main residence exemption and, in some cases, the small business CGT concessions.

If part of a home is used as a genuine place of business, and the taxpayer can claim occupancy expenses such as interest, this may reduce the capital gains tax exemption available when the property is sold.

When the main residence exemption may be affected

A taxpayer may only be eligible for a partial main residence exemption if:

• part of the home is set aside and used exclusively as a place of business
• they are able to claim occupancy expenses
• they otherwise meet the usual conditions for the main residence exemption

What this means on sale of the property

• the main residence exemption does not apply to the part of the capital gain or capital loss that relates to the area used for the home-based business
• the non-exempt portion is generally based on the percentage of the home that could have been claimed for mortgage interest, usually apportioned according to the floor area set aside for business use

Small business CGT concessions

The ATO says that even if a taxpayer cannot claim the full main residence exemption, this does not automatically mean the property will qualify as an active asset for the purposes of the small business CGT concessions.

In most cases, simply running a home-based business from the property will not be enough to satisfy the eligibility rules for those concessions when the home is sold.

Why this matters

• the active asset test is applied to the property as a whole, not only the part used for business
• even where part of the home is used for business, the property may still not qualify as an active asset if that business use is only incidental to the overall private use of the home

2026 Super Changes

The ATO is reminding taxpayers and employers that significant changes to the superannuation system will take effect from 1 July 2026.

These reforms will change how and when super is paid, and businesses should start preparing now.

Key changes from 1 July 2026

• Payday Super begins
  Employers will need to pay super contributions for eligible employees on payday, instead of paying quarterly.
• The Small Business Superannuation Clearing House will close
  The Small Business Superannuation Clearing House (SBSCH) will close permanently on 1 July 2026.
• Employers need to prepare before the start date
  Before 1 July 2026, employers will need to:
  • choose an alternative super payment method
  • switch across to the new payment process
  • download their existing super records from the SBSCH
• Super will move from OTE to qualifying earnings
  At present, employers calculate super based on an employee’s ordinary time earnings (OTE).
  From 1 July 2026, super will instead be based on qualifying earnings (QE).
• ATO guidance is available
  The ATO has released a factsheet explaining how qualifying earnings will work under the new rules.

Transfer Balance Cap Indexation

The general transfer balance cap (TBC) will increase on 1 July 2026, rising by $100,000 from $2 million to $2.1 million. The defined benefit income cap (DBIC) will also increase for the 2026–27 income year, from $125,000 to $131,250.

These changes will affect how much can be transferred into the retirement phase and may also flow through to other superannuation thresholds.

Key points

• The general transfer balance cap will increase
  From 1 July 2026, the general TBC will rise from $2 million to $2.1 million.
• The defined benefit income cap will also rise
  The DBIC will increase from $125,000 to $131,250 for the 2026–27 income year.
• Not everyone will receive the full increase
  Taxpayers who already have retirement phase pensions will not automatically receive the full $100,000 increase.
• Existing pension holders may receive a pro-rated increase
  If an individual has not previously reached or exceeded their cap, they may receive a partial increase based on their unused cap space.
• New pension starters may access the full cap
  Individuals starting a pension for the first time on or after 1 July 2026 may have a personal TBC of $2.1 million.
• Personal cap details can be checked online
  Individuals can view their personal TBC through ATO online services via myGov.
• Early reporting matters
  The ATO calculates a person’s personal TBC based on information that has been reported and processed. Funds and advisers are encouraged to report all relevant TBC events as they occur, and as early as possible before 1 July 2026, so individuals have a clearer view of their position.

Why this matters

Indexation of the general TBC also affects total super balance (TSB) thresholds. TSB can influence:

• non-concessional contribution caps
• bring-forward contribution arrangements
• carry-forward concessional contributions
• the work test exemption
• eligibility for the spouse tax offset
• eligibility for co-contributions

Rulings, Determinations & Guidance

Child Support Parents Required to Lodge 2026 Tax Return

The ATO has released Draft Instrument LI 2026/D1, which would require most parents involved in child support arrangements to lodge a tax return for the 2026 income year.

The draft instrument applies to individuals who were, for at least one day during the 2026 income year:

• a carer entitled to child support (excluding non-parent carers), or
• a liable parent

Unless an exemption applies, these individuals would need to lodge an income tax return in the approved form.

Exemption criteria

An individual may be exempt from lodging a tax return if both of the following conditions are met:

• their total specified income-related amounts for the year are less than $31,047
• they received one or more specified Australian Government payments for the entire 2026 income year

Specified income-related amounts include

• taxable income
• tax-free pensions and benefits
• target foreign income
• reportable fringe benefits
• net investment losses
• reportable super contributions

Specified government payments may include

• Age Pension
• Disability Support Pension
• Carer Payment
• ABSTUDY Living Allowance
• Austudy
• Youth Allowance
• similar benefits under social security or veterans’ law

Important note

This is currently a draft instrument for consultation, with comments due by 13 March 2026.

2026 Tax Return Lodgment Rules, Who Must File?

The ATO has released Draft Instrument LI 2026/D2, which sets out the general lodgment requirements for the 2026 income year.

The draft covers a range of returns, including:

• income tax returns
• franking returns
• venture capital deficit tax returns
• ancillary fund returns
• community charity returns

Who it applies to

This draft instrument applies broadly to most taxpayers, including:

• individuals
• companies
• trusts
• partnerships
• non-residents with Australian taxable income

Important point for some individuals

The draft instrument notes that some low-income individuals who are exempt under these general lodgment rules may still need to lodge a return if they fall under the separate child support lodgment rule in LI 2026/D1. This relates to parents who are liable for, or entitled to, child support.

Examples of groups that may be exempt

Exemptions may apply to certain groups, including:

• non-profit companies with very low income
• some deceased estate trustees
• working holiday makers below relevant income thresholds
• recipients of specific welfare payments with limited other income

Important note

This is currently a draft instrument open for consultation, and comments are due by 13 March 2026.

GST on Supplies of Formula Products

The ATO has finalised GST Determination GSTD 2026/1, which explains when the supply of a formula product is GST-free under section 38-2 of the GST Act.

Under the GST rules, beverages and ingredients for beverages are generally not GST-free unless they fall within a category specifically listed in Schedule 2 of the GST Act.

One of those categories, item 13, covers:

• beverages, and ingredients for beverages, of a kind marketed principally as food for infants

The Determination focuses on the meaning of “infants” for this purpose and explains which formula products qualify.

Key points

• formula products marketed principally as food for children up to 12 months old are GST-free under item 13
• formula products marketed for children over 12 months old are not GST-free under this item
• the ATO’s view is that only products for children aged up to 12 months are considered to be marketed principally as food for infants

Other GST-free categories do not usually apply

The Determination also makes it clear that formula products are not GST-free under item 1 or item 2 unless they are of a kind specifically listed, such as:

• milk
• powdered milk

It also notes that formula products are not GST-free as beverages unless they consist of at least 95% of those kinds of products.

Additional update

The ATO has also issued an Addendum to the Goods and Services Tax Industry Issues Detailed Food List to make sure it is consistent with GSTD 2026/1.

Cases

GST on Newly Built Residential Units

The Administrative Review Tribunal (ART) has considered whether the sale of three residential units by an individual taxpayer was part of a property investment activity or a property development business, and what that meant for income tax and GST.

The case involved a taxpayer who had been involved in residential property development and renovation for many years and held interests in about 33 properties. He was registered for GST and operated as a sole trader.

Background

• The taxpayer bought land in 2012
• He subdivided the land and built four residential units
• Three of those units, 1C, 1D and 1E, were sold in 2016
• Settlement took place between September and October 2016

Following an audit, the Commissioner challenged how the sales of those three units had been treated for income tax and GST purposes.

The key issue

The main question was whether the sales were:

• part of a property investment activity, or
• part of a property development business

This mattered because it would affect:

• whether the sale proceeds were taxable as ordinary income
• whether the units were treated as trading stock
• whether the sales were taxable supplies for GST purposes

The taxpayer’s position

The taxpayer argued that he was mainly an investor who bought properties to generate rental income. He said properties were only sold when necessary, including because of financing pressures and a marital separation in 2014.

He argued that:

• the sales were not part of carrying on a business
• the sales were not part of a profit-making undertaking
• the sales were not made in furtherance of an enterprise for GST purposes

The Commissioner’s position

The Commissioner argued that the taxpayer’s activities had the hallmarks of a business, including:

• repeated property acquisitions
• subdivisions
• construction work
• renovations
• multiple property sales

The Commissioner also noted that the taxpayer had sold 11 properties before the sale of the three units, and 10 more afterwards.

What the ART found

The ART found that the taxpayer was carrying on a business involving:

• acquiring properties
• sometimes subdividing and constructing
• sometimes carrying out basic renovations
• renting out most, but not all, properties

The Tribunal concluded that these activities were carried out with an intention or purpose of making a profit.

Income tax outcome

The ART held that:

• the profits from selling the three units were ordinary income under section 6-5
• the units were trading stock within the meaning of section 70-10

GST outcome

The ART also found that the sales were made in furtherance of the taxpayer’s enterprise and were therefore subject to GST.

BAS period outcome

The Tribunal found that the GST assessment was partly excessive:

• the GST decision for unit 1C in the September 2016 BAS period was affirmed
• the GST decision for unit 1E was set aside, because it had not been properly assessed in that BAS period
• the GST decision for unit 1D was remitted to the Commissioner for further consideration, because there was not enough evidence to determine whether it had been correctly assessed in the September 2016 BAS period

Rates and Land Tax Not Part of Cost Base

The Administrative Review Tribunal (ART) has confirmed that a taxpayer could not include council rates and land tax in the cost base of a property because the land was acquired before 21 August 1991.

Background

• The taxpayer bought a block of land in Port Lincoln, South Australia, in October 1989 for $55,000
• The intention was to build a home, although that did not go ahead
• In early 2019, the land was subdivided into two equal parcels
• One parcel was sold in June 2021 for $310,000
• The other was sold in May 2024 for $400,000

The key issue

The question was whether the taxpayer could include holding costs such as council rates and land tax in the property’s cost base for capital gains tax purposes.

Under section 110-25(4) of the ITAA 1997, certain holding costs can be included in the third element of a CGT asset’s cost base, including:

• council rates
• land tax

But this only applies where the asset was acquired after 20 August 1991.

What the ART decided

The ART confirmed that:

• the land was acquired before the relevant cut-off date
• council rates and land tax paid during the ownership period could not be included in the cost base
• subdividing the land did not change the original acquisition date of the parcels

Why it matters

The Tribunal rejected the taxpayer’s argument that the law should be interpreted more broadly to allow the costs to be included. It confirmed that the legislative cut-off date must be applied as written.

Ferrari Not Exempt from FBT

The Administrative Review Tribunal (ART) has confirmed that a 2010 Ferrari California provided by a company to its director did not qualify for the car benefit exemption under section 8(2) of the FBTAA 1986.

The Tribunal found that the exemption applies only to commercial vehicles, and that the Ferrari was designed to carry passengers.

Background

• A professional services company in Perth bought the second-hand Ferrari in October 2013 under a hire-purchase arrangement
• The car was used by the sole director mainly for commuting, as well as for client visits
• It was garaged at the director’s home
• After an audit, the Commissioner issued default FBT assessments for the years ending 31 March 2014 to 31 March 2022
• The company objected to the assessments, although not to the penalties, and those objections were disallowed

What the taxpayer argued

The taxpayer argued that the Ferrari was exempt under section 8(2) because it was effectively a racing car, not a vehicle designed principally to carry passengers.

This argument relied on expert evidence describing the Ferrari as a highly exclusive sports car that was “born to race”.

What the ART found

The Tribunal rejected that argument and held that:

• the exemption in section 8(2)(a)(ii) applies only to commercial vehicles
• the Ferrari was not a commercial vehicle
• even though it was a sports car, it was still designed to carry passengers

Logbooks were rejected

The ART also rejected the taxpayer’s logbooks, describing them as complete fabrications and giving them no evidentiary weight.

The Tribunal was not satisfied that any private use was minor, infrequent or irregular. It pointed to evidence of private trips, including travel to Margaret River with the director’s girlfriend.

Ownership argument also failed

The taxpayer also argued that the director became the beneficial owner of the Ferrari after making the balloon payment in October 2018, under a resulting trust.

The ART rejected this argument and found that:

• the relevant transaction was the original purchase in 2013
• beneficial ownership of the vehicle remained with the company
• transfers made by the director into the company’s bank account were part of a broader pattern of funding the company’s liabilities and did not change ownership of the car

Why it matters

This case is a reminder that the FBT exemption for cars is narrow, and that sports or luxury vehicles will not qualify simply because they are high-performance vehicles. It also highlights the importance of keeping accurate records to support any FBT position

Substantiation of Work-Related Deductions

The Administrative Review Tribunal (ART) has rejected a taxpayer’s claims for a range of work-related deductions, finding that he did not provide accurate, reliable and contemporaneous records to support them.

The taxpayer, Mr Afshari, was employed as an engineer and worked under a hybrid arrangement that allowed him to work from home two days per week.

The ART agreed with the Commissioner that a number of claimed deductions should be denied.

Deductions that were disallowed

• Car expenses
  These were disallowed in full because Mr Afshari did not have accurate, complete or contemporaneous logbooks. The logbooks were reconstructed, inconsistent with objective records, and not prepared at the time.
• Work-related travel expenses
  Taxi and Uber fares were disallowed because there was no evidence showing the purpose of the travel or how it related to his income-earning activities.
• Self-education expenses
  A claim for an Iranian language class was denied because there was no evidence that the course maintained or improved the skills required for his role as an engineer. The Tribunal noted that it is not enough for a course to improve general knowledge or skills.
• Home office expenses
  Claims for utilities, mobile phone, internet, air conditioning and repairs were also denied. Mr Afshari did not provide supporting documents such as invoices for the utility expenses, and although there was some evidence for mobile phone and internet costs, there was not enough information to work out the work-related versus private use.

Why the claim failed

Overall, the Tribunal found that Mr Afshari failed to meet his burden of proof under section 14ZZK(b)(i) of the Taxation Administration Act.

Why it matters

This case is a reminder that work-related deductions need to be supported by clear, accurate and contemporaneous records. Without proper evidence, even expenses that may appear reasonable can be denied.

Input Tax Credits Denied Where No Enterprise Was Being Carried On

The Administrative Review Tribunal (ART) has found that a taxpayer company was not carrying on an enterprise for GST purposes and, as a result, was not entitled to claim input tax credits (ITCs) for legal costs and other expenses incurred between 1 July 2016 and 30 June 2020.

Background

• RQA Accountants Pty Ltd was incorporated in 2010 and operated by its sole director, Mr Surana
• The company said it provided services including:
  • management consulting
  • community health services
  • accounting, tax and administration services, including tax dispute resolution
• The business had no employees and was run solely by its director

The dispute arose in connection with litigation involving the company’s lender. This related to mortgage servicing issues, where loans to the director and his spouse, along with facilities provided to the company, were secured against the family home.

The company sought to claim input tax credits for:

• legal costs from that litigation
• fuel expenses
• other motor vehicle expenses
• other business expenses

Registration history

• the company’s corporate registration was cancelled by ASIC in 2014
• following that, the Commissioner cancelled its ABN and GST registration
• after extended legal action, those registrations were reinstated in 2018
• the company then claimed input tax credits for the relevant periods

What the ART found

The ART upheld the Commissioner’s decision to disallow the claims.

The Tribunal found that the evidence did not support the view that the company was carrying on an enterprise during the relevant period.

Key reasons

• there was no meaningful evidence that services were being provided to clients
• the only activity identified was limited work for the director’s superannuation fund and a very small number of transactions with an associate
• over the four-year period, the company made only seven supplies, totalling about $3,600

The Tribunal also found that dealing with regulators and managing legal disputes did not amount to carrying on a business or an activity in the nature of trade.

According to the ART, the alleged activities lacked:

• significant commercial character
• a clear profit-making purpose
• repetition or regularity

GST outcome

Because the company was not carrying on an enterprise for GST purposes:

• the legal costs and other expenses were not creditable acquisitions under section 11-15 of the GST Act
• no input tax credits were available

The Commissioner’s decision to deny the claims was therefore affirmed.

Why it matters

This case is a reminder that claiming GST credits requires more than simply being registered. There must be evidence that a genuine enterprise is being carried on, with sufficient commercial activity to support the claim.

Expenses on Revenue Account

The Administrative Review Tribunal (ART) has allowed a taxpayer’s objection to an amended assessment, finding that construction costs for temporary display model homes were deductible on revenue account, rather than being capital in nature.

Background

• The taxpayer, Masterton Corporation Holding Company Pty Ltd, is a custom home builder that has operated in New South Wales for more than 60 years
• In addition to fully functional display homes, the company also built temporary display model homes, or mock-ups
• These mock-ups were designed to showcase home designs offered for sale, although they were not capable of being lived in
• They were always intended to be demolished and replaced once the designs became outdated
• The relevant display models were built at Warwick Farm, where the company operated a display village
• Building and demolishing these mock-ups was a regular and repeated part of the business

The tax issue

In earlier years, the Commissioner had treated the mock-ups as plant under Division 40 of the ITAA 1997.

Later, after the taxpayer sought guidance on temporary full expensing for the 2022 income year, the Commissioner changed that position and instead treated the display models as capital works under Division 43.

On that basis, the Commissioner argued that the construction costs were capital in nature and not deductible under section 8-1.

What the Commissioner argued

The Commissioner said each display home formed part of the company’s profit-yielding structure and provided an enduring advantage as part of its marketing and product offering.

What the ART found

The ART rejected that view and set aside the amended assessment.

The Tribunal found that:

• the expenditure was incurred to advertise and market the taxpayer’s existing home building business
• the purpose of the display models was to help increase sales
• the construction and demolition of the temporary display homes formed part of a continuous and recurring marketing process
• this process had been carried out over a long period as part of the company’s normal business operations

Outcome

The ART concluded that the expenditure was not capital in nature. Instead, it was properly characterised as marketing expenditure on revenue account.

As a result, the construction costs were held to be deductible under section 8-1 of the ITAA 1997.

Why it matters

This case is a useful reminder that not all building-related costs are automatically capital. Where expenditure is part of a recurring business activity and is closely tied to day-to-day marketing and sales, it may be deductible on revenue account.

Legislation

Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026

The Government has introduced legislation to reduce super tax concessions for individuals with total superannuation balances (TSBs) above $3 million and $10 million, and to increase the income threshold for the low income superannuation tax offset (LISTO).

The Bill proposes significant changes from the 2026–27 income year onward.

Key proposed super tax changes

• Additional tax on very high super balances
  Schedules 1 to 3 of the Bill would introduce:
  • an additional 15% tax on earnings attributable to the proportion of a person’s TSB above $3 million
  • a further 10% tax on earnings attributable to the proportion of a person’s TSB above $10 million
• Effective tax rates would increase
  If passed, this would mean:
  • earnings relating to balances between $3 million and $10 million would effectively be taxed at 30%
  • earnings relating to balances above $10 million would effectively be taxed at 40%
• Thresholds would be indexed
  The proposed thresholds would be indexed to CPI in fixed increments:
  • $150,000 for the $3 million threshold
  • $500,000 for the $10 million threshold

How the new tax would work

• the Commissioner would calculate an individual’s Division 296 tax liability
• the ATO would issue a notice of assessment
• individuals could either:
  • pay the liability directly, or
  • elect to release funds from a super account to cover it

Defined benefit interests

• for defined benefit interests not yet in retirement phase, the liability may be deferred until retirement
• interest would continue to accrue on the deferred amount

Refinements from the earlier draft

The introduced Bill includes a number of changes compared with the earlier exposure draft.

These include:

• TSB treated as nil after death for Division 296 purposes
  A person’s TSB would be taken to be nil after death for Division 296 purposes. This means the relevant reference amount for the year of death would be the balance just before the start of that income year.
• Reduced reporting and valuation burden
  This change is intended to provide greater certainty and reduce reporting and valuation requirements for super funds.
• No effect on beneficiaries’ TSB
  The change does not affect the TSB of beneficiaries who receive a super income stream following a death.

Other proposed changes

• Market value reset for existing investments
  Super fund trustees would be able to elect to reset the cost base of existing investments to their market value as at 30 June 2026, although this would apply only for Division 296 purposes and not for fund-level CGT when assets are sold.
• Expanded CGT transitional rules
  Transitional CGT adjustments would be expanded to include pooled superannuation trusts.
• Release authority for some family law split cases
  New rules would allow individuals affected by a deferred associate benefit arising from a family law split during the growth phase to request a release authority lump sum to meet a Division 296 liability.
• Worked examples updated
  The revised materials also correct and clarify several worked examples and highlight the growing complexity of the rules, especially where modified capital gains and ECPI rules apply in calculating Division 296 fund earnings.

LISTO changes

Schedule 4 of the Bill proposes changes to the low income superannuation tax offset (LISTO) that were not included in the earlier exposure draft.

From 1 July 2027, the Bill proposes that:

• the LISTO threshold increase from $37,000 to $45,000
• the fixed dollar threshold be replaced with a reference to the lowest income tax threshold above the tax-free threshold for the relevant income year

Maximum LISTO amount

• the maximum LISTO amount would be calculated using a formula based on:
  • the superannuation guarantee rate
  • the LISTO eligibility threshold
  • the standard 15% tax rate applying to concessional contributions
• for the 2027–28 income year, the maximum LISTO amount is expected to be $810

Why this matters

These proposed changes are intended to better align LISTO settings with personal income tax thresholds and superannuation settings over time, while also reducing tax concessions for people with very large super balances.

Background

This measure follows earlier legislation introduced in November 2023, which lapsed after the 2025 federal election. Revised exposure draft materials were then released in December 2025 following changes announced in October 2025.

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