A proposed $1,000 instant tax deduction and the ATO’s response to the fuel crisis
The Government has released an exposure draft Bill for the previously announced $1,000 standard deduction for work-related expenses, which is expected to apply from 1 July 2026, if passed in its current form.
There are also flow-on impacts to other areas of the tax system, including FBT exemptions and tax depreciation rules.
The ATO has also announced that it will provide targeted support to businesses that are unable to meet their normal tax obligations due to higher fuel costs.
Clients who are affected may be able to apply for a payment plan by 30 June 2026.
As change occurs, we’ll keep you posted through Fortis Accounting Partners’ social media accounts.
From the Government
$1,000 Instant Tax Deduction – Exposure Draft
The Government has now released the exposure draft regulations to support the super reforms for Division 296 under the Treasury Laws Ame The Government has released a draft Bill for a proposed new $1,000 standard tax deduction for work-related expenses.
If passed, the change is expected to apply from the 2026–27 income year.
The aim is to make claiming work-related expenses simpler for eligible Australian tax residents who earn income from work.
Under the proposal, eligible individuals may be able to claim a standard deduction of up to $1,000 for work-related expenses, without needing to calculate every eligible item separately.
The deduction would be capped at the lower of:
• $1,000, or
• the person’s total assessable income from work.
The standard deduction would also be reduced by any work-related expenses already claimed, such as car expenses, travel, repairs or depreciation. This is designed to prevent taxpayers from claiming twice for the same type of expense.
If a person’s actual eligible work-related deductions are more than $1,000, they would claim their actual expenses instead of using the standard deduction.
Some deductions would still sit outside the new standard deduction and could continue to be claimed separately. These include expenses such as interest deductions, gifts or donations, tax agent fees, income protection insurance premiums, and union or professional association fees.
The proposal also includes changes to other areas of the tax system, including depreciation rules, capital gains tax provisions, and fringe benefits tax rules.
For employers, one important change relates to salary packaged benefits. Where an expense payment fringe benefit falls within the scope of the new standard deduction and is provided through salary packaging, the otherwise deductible rule would not apply. This means the employer may be liable for FBT on the full taxable value.
The new standard deduction would replace the current $300 no-receipts threshold and the $150 laundry concession, with those rules proposed to be removed.
Strengthening The Foreign Resident Capital Gains Tax Regime – Draft Legislation
The Government has released draft legislation to tighten the capital gains tax rules for foreign residents.
These rules generally apply when a foreign resident sells certain Australian assets, particularly assets connected to Australian land, natural resources, or companies that hold these types of assets.
Under the proposed changes, the definition of taxable Australian real property would be clarified and expanded. In simple terms, more assets with a close connection to Australian land or natural resources may be captured by Australia’s CGT rules.
This would include water entitlements over Australian water resources, as well as options or rights to acquire taxable Australian real property.
The definition of “real property” would also be clarified. It would include interests in land, things attached to land, and leases and licences. The rules would apply consistently across Australia, even where state and territory laws treat these interests differently.
Some of these changes are proposed to apply retrospectively from 2006, when the relevant foreign resident CGT rules were first introduced.
Another key change is the way indirect Australian property interests are tested. These can include shares in a company where the company’s value is mainly linked to Australian land or natural resources.
Instead of testing this only at the time of sale, the proposed rules would apply a 365-day look-back period. This means the interest may be caught if the test is met at any time during the 365 days before the sale.
The draft legislation also proposes a new ATO notification process for larger transactions. If a foreign resident vendor sells certain membership interests worth $50 million or more, they may need to notify the ATO before the transaction is completed.
For transactions below $50 million, the existing vendor declaration process would continue to apply.
The ATO has indicated that if the retrospective changes become law, it does not expect to change its current compliance approach for past disposals or matters already under review. It also does not expect to reopen finalised settlements, except in very rare cases.
The ATO has said it does not expect these retrospective changes to affect many taxpayers.
From the Regulators
Fuel Tax Credit Rate Changes From 1 April 2026
The ATO has updated its website with the latest fuel tax credit rates that apply from 1 April 2026, following the temporary 60.9% reduction in fuel excise.
From 1 April to 30 June 2026, the heavy vehicle road user charge is set to zero.
This means that if your business uses fuel in heavy vehicles for travel on public roads, you may be able to claim fuel tax credits equal to the excise duty paid on that fuel.
ATO Payment Plans in Response to High Fuel Costs
The ATO is providing targeted support to eligible businesses that are unable to meet their tax payment obligations because of high fuel costs.
This support is available by application until 30 June 2026.
To be eligible, a business generally needs to have an ABN and be able to show that:
• Their increased business costs are directly or indirectly linked to high fuel prices, including transport, logistics or supply chain costs
• They have a new or existing tax debt they cannot currently pay
• Their reduced capacity to pay is specifically caused by high fuel prices, rather than a general business downturn
• Their lodgments are brought up to date within three months of the payment plan starting
If approved, the payment plan may include:
• No upfront payment
• 36 equal monthly instalments over three years
• Remission of general interest charge from the date of application to the third instalment, provided the first three payments are made and lodgments are up to date
Applications can be submitted through Online services for business, or by a registered tax or BAS agent with the client’s written authority.
Businesses in fuel-sensitive industries should review their eligibility and consider applying before the 30 June 2026 deadline.
Payday Super
The ATO has issued further guidance on the Payday Super changes that will apply from 1 July 2026.
From this date, employers will need to make sure super contributions reach employees’ super funds within 7 business days of payday.
The ATO has also explained the concept of “qualifying earnings”. This refers to the qualifying payments made to or for an employee on the relevant payday. These amounts are used to calculate the employer’s super guarantee contributions.
Super funds will also have shorter timeframes to process contributions. From 1 July 2026, funds will have 3 business days to allocate contributions or return any amounts that cannot be allocated.
The ATO has also reminded employers about their obligations around stapled super funds.
Stapling is designed to reduce the number of unnecessary super accounts by ensuring an employee’s existing super fund follows them when they change jobs.
When onboarding a new employee, employers must first offer the employee a choice of super fund.
If the employee does not choose a fund, the employer must request the employee’s stapled fund details from the ATO before making super guarantee contributions.
If the ATO identifies a stapled fund, contributions must be paid into that fund.
If no stapled fund exists, the employer can pay contributions into their nominated default super fund.
Inherited Main Residence – Extensions to Two Year Limit
The ATO has updated its guidance on extensions to the 2-year time limit for the main residence exemption on inherited property.
Generally, a full main residence exemption may be available for an inherited property if it is sold within 2 years of the owner’s death, provided the relevant conditions are met.
Under PCG 2019/5, an automatic extension of up to 18 months may apply without needing to lodge an application, where all safe harbour conditions are satisfied.
This can apply where more than 12 months of the first 2 years was spent dealing with circumstances such as:
• A challenge to the will or ownership of the property
• A life interest or equitable interest delaying the sale
• Complexity in the estate
• Settlement delays
The property must also have been listed for sale as soon as practicable after those circumstances ended, and the sale must have been actively managed through to completion.
The sale must settle within 12 months of listing, and the delay must not have been mainly caused by waiting for the market, renovations, inconvenience, or executor inactivity.
The required extension must also be no more than 18 months.
Where the automatic extension does not apply, a discretionary extension can be requested. This is generally only granted where there are exceptional circumstances outside the taxpayer’s control.
A detailed request will usually be required, including supporting documents and a clear timeline from the date of death through to settlement, explaining why the property was not sold within the 2-year period.
Practitioners should review estate matters where the 2-year window is approaching or has already passed, and assess whether the automatic 18-month extension applies before requesting a discretionary extension.
Late Payment Offset No Longer Available
Employers can currently reduce their super guarantee charge (SGC) liability by amounts paid late to a fund through the late payment offset (LPO).
With Payday Super being introduced, this will no longer be available. The last time an employer can use the LPO is for the quarter ending 31 March 2026. Superannuation for this quarter is due by 28 April 2026, and employers can claim the LPO when lodging an SGC statement for any late payments made up to and including 30 June 2026.
On 1 July 2026, Payday Super starts. If there is an SG shortfall for the quarter ending 30 June 2026, SG payments made between 1 and 28 July 2026 will first be used to reduce this shortfall before being applied to Payday Super amounts.
Under Payday Super, late payments will automatically be applied by law to the oldest outstanding Payday Super amount.
Payday Super
The ATO is reminding taxpayers what they should do before Payday Super comes into effect on 1 July 2026.
The move from quarterly superannuation guarantee payments to paying super at the same time as salary and wages may have a significant impact on business cash flow. This is expected to be particularly relevant in July 2026, when employers may need to manage both their usual April to June quarterly super payment and their first Payday Super payments. This could result in multiple additional payments where employees are paid weekly. The ATO encourages employers to plan ahead to manage this transition.
The ATO has also confirmed that the Small Business Superannuation Clearing House (SBSCH) will permanently close from 1 July 2026. From 11:59 pm AEST on 30 June 2026, employers will no longer be able to access the system, including logging in, submitting payment instructions, or viewing historical records.
The ATO is also reminding taxpayers who use the SBSCH to download their records now. Employers will not be able to log in, submit payment instructions, or view any records after the closure. They should download their records now, as they may need them in future to respond to audits or employee queries.
Base Rate Entity Status
The ATO has flagged that base rate entity status is often being applied incorrectly in company tax returns.
A company will only qualify as a base rate entity if both of the following conditions are met:
• Aggregated turnover is below $50 million, for the 2018–19 income year onwards
• No more than 80% of its assessable income is base rate entity passive income
The ATO has highlighted several common errors to watch for.
Connected and affiliated entities must be included when calculating aggregated turnover. This includes international entities.
Net capital gains also need to be included in passive income calculations, even where the gains relate to active assets. The only exception is where the gain is disregarded when calculating a net capital gain, such as under the small business 15-year exemption.
Passive income types are also commonly missed. These can include rent, royalties, interest and certain dividends.
Base rate entity status must be reassessed each year. Changes in turnover, income mix, group structure, new entities or shareholder changes can affect whether a company qualifies.
The passive income test is still required even where a company’s turnover is clearly below $50 million. Both conditions must be checked before applying the lower company tax rate.
Taxpayers should review their process for determining base rate entity status each year, particularly where group structures have changed. This can help avoid processing delays, errors and the need for later amendments.
Rulings, Determinations & Guidance
Part IVA on Property Development Arrangements With Long-Term Contracts
The ATO has released draft guidance on related party property development arrangements involving long-term construction contracts.
The guidance explains when the ATO may look more closely at these arrangements under the anti-avoidance rules known as Part IVA.
The ATO’s main concern is where related parties split land ownership and development activities across different entities in a way that delays income recognition or uses project losses to reduce tax elsewhere in the group.
In simple terms, the ATO is concerned about arrangements that appear to be one property development project in substance, but are split across related entities to create a tax benefit.
The ATO has made it clear that related party arrangements are not automatically a problem. A property development arrangement will not necessarily attract scrutiny simply because the parties are related or because a particular structure is used.
The draft guidance uses a two-zone risk framework.
Green zone arrangements are considered lower risk. These generally include arrangements where income is recognised progressively during the project, or where increases in land value are properly recognised for tax purposes.
Red zone arrangements are considered higher risk. These may include situations where:
• The landowner and developer are related or not dealing at arm’s length
• A developer is placed between the landowner and builder
• The developer claims construction cost deductions as they arise, but only recognises income at the end of the project
• The landowner does not recognise increases in land value as assessable income
• Project losses are used to offset other income in the wider group
The ATO is particularly concerned where these types of arrangements are repeated across multiple projects, allowing income tax to be continually deferred.
Businesses involved in related party property development projects should review their current and proposed arrangements against the ATO’s green and red zone criteria.
Arrangements with red zone features, especially where development losses are being used to offset other group income, may be at higher risk of ATO review.
The ATO has indicated that it will look beyond the legal structure and consider whether the arrangement has genuine commercial substance and reflects the real economic activity of the group.
Temporary Reduction in Fuel Excise
The ATO has issued a legislative instrument confirming a temporary reduction in fuel excise and excise-equivalent customs duties.
The reduction applies from 1 April 2026 to 30 June 2026.
Under the instrument, the relevant fuel rate has been reduced to 39.1% of the usual CPI-indexed rate. This means fuel excise is reduced by 60.9% during the temporary period.
The instrument commenced on 1 April 2026.
Cases
Development and Sale of Subdivided Lots on Capital Account
The Full Federal Court recently considered whether the subdivision and sale of part of a long-held family farm should be treated as a capital sale, rather than business income.
The case involved Mr Morton, a farmer who owned land near Melbourne that had been in his family for many years. The land had originally been used for farming for more than 35 years.
Over time, farming became less financially viable. Around 2010, the land was rezoned as residential land, which led to higher rates and land tax. Mr Morton and his family later engaged an unrelated developer to subdivide, develop and sell the property.
The development was significant. It involved the creation of vacant residential lots, along with infrastructure such as parks, utilities, footpaths, street lighting and sewerage.
The issue was whether the sale of 50 vacant lots should be treated as the mere realisation of a long-held pre-CGT asset, or whether it should be taxed as income from a property development activity.
The Court found that the sale of the 50 lots was on capital account.
Some of the key reasons included:
• The land was originally acquired and used for farming, not property development
• The decision to sell was driven by the farming business becoming commercially unviable
• Mr Morton did not take on additional financial risk to maximise the sale price
• He did not borrow money or use the property as security to fund the development
• He was not actively involved in managing the development process
The ATO argued that the developer was acting as Mr Morton’s agent, meaning the developer’s activities should be attributed to him.
The Court did not accept this argument in full. It found that the developer’s agency role was limited to specific tasks under the development agreement, such as executing sale contracts. The developer’s broader development activities were not treated as Mr Morton’s own activities.
This decision is relevant for clients who have owned property for a long time and are considering subdivision or development before sale.
The scale of the development is important, but it is not the only factor. The owner’s original purpose for acquiring the land, their reason for selling, their level of involvement, and the amount of financial risk they take on can all affect the tax outcome.
This distinction matters because if a property sale is taxed on revenue account rather than capital account, the tax consequences can be very different. It may affect access to CGT concessions and can also have GST implications.
No FBT on the Use of Luxury Cars Provided in a Family Business
The Full Federal Court recently considered whether luxury cars used by the directors of a trustee company were provided in relation to employment and therefore subject to FBT.
The company acted as corporate trustee for a discretionary trust that operated a family business. It also owned more than 40 luxury motor vehicles, which were made available to three brothers for both private and business use.
The brothers were directors and shareholders of the corporate trustee. They were also potential beneficiaries of the discretionary trust.
Each brother played an active role in the business. However, they did not receive cash salary or wages. Instead, the trust generally made distributions to family trusts controlled by the brothers each year.
The Full Federal Court overturned the earlier Federal Court decision and found that the brothers were not employees of the trust for FBT purposes.
Key reasons included:
• There was no written employment contract
• The brothers did not receive cash salary or wages for the work they performed
• Their conduct was more consistent with being owners of the business
The Court also considered the FBT rule that can treat someone as an employee even if they do not receive cash salary or wages. It found that there still needs to be an employment relationship for this rule to apply.
Even if the brothers had been employees, the Court considered that their access to the luxury cars was better explained by their role as beneficiaries and owners, rather than as employees.
The way the vehicle costs were funded was also relevant. The motor vehicle expenses were debited to the mother’s loan account and later cleared using trust distributions to her.
This decision is relevant for family-owned businesses, especially during FBT preparation season.
Where a benefit is provided to someone involved in a family business, it is important to identify the capacity in which they receive that benefit.
A benefit provided in someone’s capacity as an employee or director may be subject to FBT.
A benefit provided in their capacity as a shareholder or beneficiary may raise different tax issues, including Division 7A.
This can also affect whether deductions and GST credits are available.
Rent and Car Expenses During COVID-19 Denied
In another Full Federal Court decision, FCT v Hall [2026] FCAFC 43 considered whether rent for a second bedroom and car expenses were deductible during a period when the taxpayer was required to work from home due to COVID-19 restrictions.
Mr Hall was employed by the ABC. His role was split between:
• A digital role, which made up around 75% of his time
• A live role, which involved producing live sports broadcasts
During the 2021 income year, Mr Hall was required to perform his digital role from home because of COVID-19 restrictions. He still needed to attend the ABC studios for his live role.
Because he expected to work from home for some time, Mr Hall rented a two-bedroom apartment close to the ABC studios and used the second bedroom only as a home office.
The Full Federal Court overturned the earlier ART decision and found that the rent relating to the second bedroom was private or domestic in nature and not deductible.
The Court found that it was not enough that Mr Hall needed to work from home because of COVID-19 restrictions, or that he chose a two-bedroom apartment because he knew he would need a home office.
Mr Hall also tried to claim car expenses for days when he performed both roles.
The Court found that these car expenses were also not deductible.
This was because the digital role and live role were considered separate and distinct. When Mr Hall travelled from home to the ABC studios, he was travelling from home to start his live role, rather than travelling while performing his employment duties.
The decision is a reminder that not all work-from-home costs will be deductible.
Even where an employee is required to work from home, rent or accommodation costs are generally difficult to claim where they remain private or domestic in nature.
If you have any questions regarding the above information, please do not hesitate to contact our office to speak to one of our team.
