Tax Round-up: Key Changes and Developments for October
The latest tax updates bring significant reforms and changes that will impact both employers and individuals. The following blog highlights some of the most important updates from the recent tax round-up, focusing on changes to superannuation payments, luxury car tax, tax exemptions for not-for-profit organisations, and record-keeping requirements for wealthy groups. Here’s a closer look at these key developments:
Payday Super: A New Approach to Superannuation Payments
Announced in the 2023-24 Federal Budget, the “Payday Super” reform will transform the way employers make superannuation guarantee (SG) contributions. Under this proposed legislation, employers will need to pay SG contributions on the same day they pay wages, replacing the current quarterly payment system. This reform, slated to take effect from 1 July 2026, aims to address the common issue of underpayment and non-payment of superannuation.
The Treasury has released a fact sheet detailing the new mechanism, which requires SG contributions to be transferred to employees’ super funds within seven days of the Ordinary Time Earnings (OTE) payment. Non-compliance will lead to a revised SG charge, consisting of the outstanding shortfall, daily interest on the shortfall, and an additional administrative uplift of up to 60%. Furthermore, employers who persistently fail to comply will face severe penalties, including a 50% penalty on unpaid SG charges.
Luxury Car Tax Reform: Encouraging Electric Vehicle Adoption
In line with the government’s environmental objectives, new amendments to the Luxury Car Tax (LCT) regime are set to take effect on 1 July 2025. The proposed changes aim to support the transition to electric vehicles (EVs) by tightening the definition of fuel-efficient vehicles eligible for higher LCT thresholds.
Currently, a broader range of fuel-efficient vehicles benefits from a higher threshold. However, from July 2025, only electric and partially electric vehicles will qualify, with the fuel consumption requirement halved from 7 litres per 100km to 3.5 litres. These amendments are part of the government’s effort to reduce greenhouse gas emissions and promote the adoption of cleaner vehicle technology.
Denying Deductions for GIC and SIC
The Treasury has proposed draft legislation that will prevent deductions for General Interest Charges (GIC) and Shortfall Interest Charges (SIC) starting from 1 July 2025. Currently, businesses can claim deductions for both GIC, which applies to late tax payments, and SIC, which occurs when incorrect self-assessments result in a tax shortfall.
While taxpayers will still have the option to request remission of GIC and SIC amounts from the ATO, the proposed changes mean that deductions will no longer be available for these interest charges. If passed, this will mark a significant change from the current treatment under the Income Tax Assessment Act 1997.
Taxing Social Clubs and Associations
The ATO is increasing its focus on social clubs and associations that, although they may operate as not-for-profit (NFP) organisations, do not qualify as tax-exempt entities. To be exempt from income tax, these organisations must either be registered charities with the Australian Charities and Not-for-profits Commission (ACNC) and endorsed by the ATO or fall under one of the eight specific categories eligible for self-assessment under Division 50 of the Income Tax Assessment Act 1997.
These categories include community service, cultural, educational, health, employment, resource development, scientific, and sporting organisations. Social and recreational clubs, or those established for members’ common interests, generally do not qualify and are considered taxable entities.
Record-Keeping and Tax Management for the Wealthy
The ATO’s “Next 5,000” program targets Australian individuals and groups with wealth exceeding $50 million. The program seeks to improve compliance with record-keeping and tax management practices, especially for groups with complex structures or rapid growth.
Despite their resources, many high-net-worth groups have failed to meet tax management obligations, particularly when dealing with intra-group transactions or cross-border wealth transfers. The ATO continues to streamline assurance reviews to assess compliance and detect tax avoidance within these groups. Advisors are encouraged to review the ATO’s findings and ensure their clients are adequately managing their tax affairs.
ATO Phoenix Taskforce
The ATO is intensifying its efforts against illegal phoenix activity, bolstered by additional funding for the Phoenix Taskforce. This taskforce utilizes data-matching and information sharing across government agencies to detect cases where company directors abandon or liquidate businesses to avoid paying debts and taxes, then transfer operations to a new company entity—a practice known as illegal phoenixing. In suspected cases, the taskforce can hold directors personally liable for company liabilities, withhold refunds for non-compliant businesses, and pursue civil or criminal charges against those involved or promoting such illegal activities.
Deductibility of Financial Advice Fees
The ATO’s final determination TD 2024/7 outlines when financial advice fees are deductible for individuals not in the investment business. Advice fees on regular, ongoing income-producing investments are generally deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). However, fees for advice from a new adviser, particularly at the start of an engagement or for new asset acquisitions, are typically not deductible as they may be capital in nature.
Insurance advice fees are deductible if related to income protection but not for life or trauma insurance. Under section 25-5, financial advice fees may also be deductible if they help manage tax affairs, provided the advice comes from a recognized tax adviser. To claim deductions, individuals need proper documentation, such as an itemized invoice with key details of the expense and advice.
First Home Super Saver Scheme Updates
The ATO has released updated guidance on the First Home Super Saver (FHSS) Scheme following amendments that take effect from 15 September 2024. These updates clarify key aspects of the scheme, including eligibility, how to make voluntary contributions, requesting fund releases, and understanding the tax obligations involved.
Additionally, new transitional rules provide assistance for individuals who previously attempted to use the FHSS Scheme unsuccessfully before purchasing their first home, ensuring a smoother process for future participants.
Insurance Settlement Sums Assessable as Income
In Sladden v FC of T 2024 ATC [2024] FCAFC 122, the Full Federal Court upheld a decision that a $1 million insurance settlement received by a former medical practitioner was assessable as income. The taxpayer, who had an income protection policy, received monthly benefits after being diagnosed with breast cancer in 2013. In 2019, she negotiated a $1 million settlement to commute her benefits.
The taxpayer argued that the payment was a capital amount, but the court determined it was income, as it replaced her ongoing income protection benefits. The court emphasized that the nature of the payment must be based on its true purpose, considering the circumstances and rights surrendered, and agreed with previous rulings that settlement sums related to income protection should be taxed as income.
Unused Concessional Contribution Caps Not Subject to Election
In WTBW v Commissioner of Taxation [2024] AATA 3268, the AAT ruled that the application of carried-forward unused concessional contribution caps is mandatory and not subject to a taxpayer’s election. The taxpayer argued that the use of unused concessional caps from previous years was optional, requiring their election, which they did not make. However, the AAT confirmed that under section 291-20(3) of the ITAA 1997, the carry-forward of unused caps applies automatically by law.
The taxpayer’s objection to a $3,315 tax assessment was dismissed, with the AAT finding that the statutory language provided no discretion for the taxpayer or the Commissioner to choose whether or not to apply the unused cap amounts.
Treasury Laws Amendment (2024 Tax and Other Measures No. 1) Bill 2024
The Treasury Laws Amendment (2024 Tax and Other Measures No. 1) Bill 2024, introduced on 12 September 2024, proposes several key tax changes, including:
- Foreign Resident Capital Gains Withholding (FRCGW): The FRCGW rate will increase from 12.5% to 15%, and the $750,000 property transaction threshold will be removed, subjecting all property disposals to withholding.
- Single Touch Payroll (STP) Declarations: Employers can now make standing declarations valid for 12 months, simplifying STP reporting.
- Amendment Period for Small and Medium Businesses: The amendment window for income tax assessments will extend from two to four years.
- Cheques for Tax Refunds: The ATO will have a discretionary power to hold tax refunds for 90 days until valid bank details are provided, reducing the reliance on cheque payments.
US Entertainers PAYG Withholding Exemption
The ATO has introduced the Taxation Administration (Withholding Variation for Certain Payments to US Resident Entertainers Including Athletes) Legislative Instrument 2024. This ensures that US entertainers, including athletes, remain exempt from PAYG withholding if their gross receipts are below $10,000 USD.
To qualify, the recipient must be a US resident, the payment must be for entertainment activities in Australia, and total payments must not exceed $10,000 USD (or equivalent AUD) in the income year. The instrument, effective from 11 September 2024, replaces the 2014 version and removes the requirement for payers to issue payment summaries if no withholding is applied.
