Author Archive
Tax Newsletter – April 2025
April 24, 2025 | 
Author Upskilling? You may be able to claim your self-education expenses
If you’ve thought about upskilling or undertaking professional development this year, you may be able to claim some of your self-education expenses in your 2024–2025 income tax return.
You incur self-education expenses when you:
- take courses at an educational institution (even if you don’t gain a formal qualification);
- undertake training provided by an industry or professional organisation;
- attend work-related conferences or seminars; or
- do self-paced learning and study tours in Australia or overseas.
Your self-education expenses need to have a sufficient connection to your current employment income in order to make a claim. This means that your study must eithermaintain or improve the specific skills or knowledge you use in your current role, or be likely to result in increased income in your current role.
Keep in mind that sometimes only certain subjects or components of your study are sufficiently connected to your work – in these cases, you’ll need to apportion your expenses.
If you meet the eligibility criteria you may be able to claim a deduction for:
- tuition, course or seminar fees incurred in enrolling in a full fee paying place;
- general course expenses (eg stationery, internet usage);
- depreciation on assets like laptops;
- transport costs between home or work and your place of study;
- accommodation and meals when your course requires you be away from home for one or more nights; or
- interest on loans where you use the funds to pay for deductible self-education expenses.
Beyond the booking: tax implications for short-term rentals of your home
In today’s sharing economy, platforms like Airbnb have made it easier than ever to earn extra income by renting out a spare room or your entire home – but many Australians are unaware of the tax implications that come with these arrangements.
When you rent out all or part of your residential property through digital platforms, the ATO requires you to declare this income on your tax return. Keeping meticulous records of all rental income earned is essential, as is maintaining documentation of expenses you intend to claim as deductions. Most property rental arrangements don’t constitute a business in the eyes of the ATO, even if you provide additional services like breakfast or cleaning.
One area where many property owners get caught out is capital gains tax (CGT). While your main residence is typically exempt from CGT, this exemption can be partially lost when you rent out portions of your home. The reduction in your exemption is calculated based on the floor area rented and the duration of the rental arrangement. This is a crucial consideration if you’re thinking of selling your property in the future, as it could significantly impact your tax position.
When it comes to deductions, you can claim a portion of expenses related to the rented space, including council rates, loan interest, utilities, property insurance and cleaning costs. The deductible amount depends on both the percentage of the property being rented and the duration of the rental period throughout the financial year. Platform fees or commissions charged by services like Airbnb are often 100% deductible, providing some relief against your rental income.
You’ll need to maintain statements from rental platforms showing your income, along with receipts for any expenses you plan to claim. Without proper documentation, you risk having legitimate deductions disallowed during an ATO review or audit, potentially leading to additional tax liabilities.
The ATO has intensified its focus on all aspects of the sharing economy, particularly short-term rental arrangements, and has sophisticated data-matching capabilities with third-party platforms like Airbnb. This means they can identify discrepancies between what’s reported on your tax return and what the platforms’ records show.
Sole trader or company: what are the tax differences?
You may be starting out in business and trying to decide whether to become a sole trader or to set up a company. Alternatively, you may already be an established sole trader and considering switching to become a company. Tax considerations are vital in deciding which of the two business structures is most suitable for you.
The first practical difference is in relation to your tax return. As a sole trader, you simply add your business income and expenses to a separate Business and professional items schedule in your individual tax return that you lodge each year.
For a company, there’s a separate annual tax return, and tax to pay on the company’s income. Companies are subject to annual reviews by the Australian Securities and Investments Commission (ASIC), so financial records must clearly show transactions and the company’s financial position, and allow clear statements to be created and audited if necessary. A number of strict legal and other obligations need to be met.
Tax returns for a company must clearly list the income, deductions and the liable income tax of the company. Also, directors and any employees of a company must lodge their own individual tax returns.
There’s no tax-free threshold for companies – they simply pay tax on the amount they earn. However, for sole traders, whose tax is assessed as part of the individual’s personal income, $18,200 is the tax-free threshold.
For all companies that are not eligible for the lower company tax rate, the full company tax rate of 30% will apply.
To be eligible for the lower company tax rate of 25%, the company needs to meet strict requirements to be a base rate entity. One of the tests is that your company’s aggregated turnover for the relevant income year must be less than the aggregated threshold for that year – which since 1 July 2018 has been $50 million a year.
Both sole traders and companies can:
- register for goods and services tax (GST) if your GST turnover is $75,000 or more, or you’d like to claim fuel tax credits; and regardless of your turnover, you must register for GST if you provide taxi, limousine or ride-sourcing services; and
- employ people, and if the business’s gross wages exceed the threshold set by your state or territory, then you will have to pay payroll tax.
Both types of business also need to pay capital gains tax (CGT) if a capital gain has been made, but sole traders may be able to reduce this gain by what are known as the discount and indexation methods. The latter may also be used by some companies.
If your employees in either business structure receive a fringe benefit then you may also need to pay fringe benefits tax (FBT).
Keeping your super account secure
In the wake of recent cyber-attacks on several large Australian super funds, you might be wondering how to protect your retirement savings.
The past few years have seen significant data breaches from well-known Australian companies outside of the superannuation sector, exposing a huge amount of consumer personal identity information. The cyber-attacks on superannuation funds reportedly used a technique called “credential stuffing” where cybercriminals used personal information stolen in previous data breaches (like email addresses and passwords) to attempt to access member accounts.
The attacks were timed for the early hours of the morning when most account holders would be asleep and unlikely to notice suspicious login attempts or account changes, and targeted members in the pension drawdown phase who are able to request lump sum withdrawals.
Most funds indicated that their member accounts and retirement savings were secure and that members had not lost any money following the attacks. One super fund revealed a small number of members had lost a combined $500,000 during the cyber-attack, but said it would make remediations out of fund reserves.
Here are some practical steps you can take to help keep your super safe:
- Keep track of your super account: The best defence is regular monitoring. Check your balance periodically, verify employer contributions are coming through, review your insurance cover, examine your annual statement, and ensure your contact details are current.
- Upgrade your passwords to passphrases:Never reuse passwords across different accounts. Instead, create a passphrase, which is a sentence or mix of four or more words that’s easy for you to remember but difficult for others to guess. Include a combination of upper and lowercase letters, symbols and numbers, and aim for at least 14 characters.
- Enable Multi-Factor Authentication (MFA):MFA adds an extra layer of protection by requiring two or more verification methods to access your account. This typically combines something you know (password/PIN), something you have (mobile device/security token), or something you are (fingerprint/facial recognition). Check if your super fund offers MFA and enable it if available.
- Protect your devices:Secure all devices you use to access your super account. Use strong passwords or passcodes, set up biometrics where possible, enable auto-lock when not in use, and activate “find your device” services so you can lock or wipe your device if it’s stolen.
- Be wary of unsolicited communications:Take your time to verify the identity of anyone contacting you unexpectedly. Don’t click links in suspicious emails or texts. Contact your fund directly using the official contact details from their website.
- Report suspicious activity:Alert your super fund immediately if something doesn’t seem right with your account or if you receive suspicious communications.
What payday super could mean for you
The way superannuation is paid may be about to undergo a significant transformation. The Labor government’s proposed “payday super” reforms would require employers to pay employees’ superannuation contributions within seven calendar days of every payday. Draft laws have been released for comment, and payday super is intended to apply from 1 July 2026, it’s important to understand what this could mean for you.
According to the ATO, while most employers do the right thing by their employees, an estimated $5.2 billion in super went unpaid in 2021–2022. The change to payday super is designed to improve the management of super payments and simplify payroll arrangements, reduce unpaid super incidents, and ultimately enhance retirement savings for Australians.
For employers, transitioning to payday super represents a shift in administrative processes. Some key considerations:
- From 1 July 2026, you’d need to ensure super contributions reach your employees’ funds within seven calendar days of their payday, regardless of whether you pay weekly, fortnightly or monthly.
- The draft legislation introduces “qualifying earnings” (QE) which equates to the current “ordinary time earnings base”. QE will be used to calculate both super contributions and any shortfall charges. Any shortfall charges are currently calculated using the larger salary and wages figure.
- The ATO’s Small Business Superannuation Clearing House (SBSCH) would close from 1 July 2026, so employers who use it would need to transition to suitable payroll software.
- The legislation includes some flexibility for paying super to new employees, out-of-cycle payments and exceptional circumstances like natural disasters.
- The superannuation guarantee charge (SGC) would be redesigned to include components such as notional earnings (interest on unpaid super), administrative uplifts, and choice loadings for non-compliance with fund choice rules. Importantly, both on-time and late contributions would be tax-deductible, potentially offering some financial relief to employers.
For employees, payday super offers several potential benefits:
- Your super would be paid with each pay cycle rather than as infrequently as quarterly. This means your retirement savings may benefit from compound interest sooner.
- The alignment of super payments with your regular pay should make it easier to track whether your employer’s meeting their obligations.
- The new system includes stronger mechanisms to detect and address unpaid super, with employers facing increasing penalties for non-compliance.
- Super funds would have stricter timeframes for processing contributions, with allocation deadlines reduced from 20 business days to just three business days.
The draft legislation was open for public comment until 11 April 2025, with introduction of final legislation dependent on the 3 May 2025 federal election outcome.
Posted in 
Tax Newsletter – March 2025
ASIC warns of scammers impersonating Bunnings with fake investment bonds
If you’ve spotted what looks like an amazing investment opportunity from Bunnings recently, beware! The Australian Securities and Investments Commission (ASIC) has issued an urgent warning about scammers impersonating the retailer to promote fake “sustainability investment bonds”. These scammers claim that the investments will have suspiciously high returns (up to 9%) and are protected by the government, but this is entirely false.
The scam targets people through fake websites and direct spam emails, posing as a responsible entity or broker. The website features Bunnings branding and hyperlinks that direct back to the retailer’s genuine webpage. However, Bunnings does not offer bonds or any other investment products. Legitimate bonds are traded through licensed financial institutions, not retailers.
To avoid falling victim to scams like this one, remember the three key steps: stop, check and protect:
- Stop and think before acting.
- Check if the investment is legitimate and if the person or entity offering it is licensed or authorised to do so.
- Protect yourself by acting quickly if something feels wrong: contact your bank to stop any transactions and report any suspicious activity to Scamwatch.
Broadly speaking, bonds are generally considered a safer investment compared to stocks, offering regular interest payments. They are issued by governments or corporations, and when held to maturity, they return the face value of the bond.
If you’re interested in investing in bonds, visit the Moneysmart website to learn more about the different types, including government bonds and corporate bonds. You can also check the investor alert list there to see if the company or entity offering the investment is legitimate.
To report a scam or find more information about scams, visit the National Anti-Scam Centre’s Scamwatch website at www.scamwatch.gov.au.
Claiming tax deductions for vacant land
Hoping to claim tax deductions on your vacant land? You need to meet a number of strict conditions to claim for costs such as interest payments on relevant loans, land taxes, council rates and maintenance costs.
So, what is vacant land? To satisfy the ATO, there are two basic tests:
- the land doesn’t contain a substantial and permanent structure; or
- if it does, then the structure needs to be a residence that was constructed or substantially renovated while the owner held the land, but that residence either can’t lawfully be occupied, or hasn’t yet been rented or made available for rent.
Examples of a substantial and permanent structure include a homestead on a farm, a commercial garage, fencing, a silo or a woolshed. Conversely, a residential garage or shed, pipes and powerlines, residential landscaping or a letterbox are not seen as substantial and permanent structures.
A big shift in the tax approach to vacant land came with new rules introduced on 1 July 2019. These rules deny tax deductions claimed for costs incurred while owning vacant land, except in quite specific cases. Before the change of rules, owners of vacant land could claim a deduction for the costs of holding the land, if it were held for income-producing purposes or for carrying on a business to produce income.
There are three situations that will allow you to claim deductions on vacant land. You will be able to claim if:
- you are a particular type of entity (eg a corporate tax entity, a superannuation plan or a managed investment trust);
- the land is used in business or leased to another entity for their business – but in this case the land must not contain an existing residence or one under construction; or
- the land is used by you, an affiliated entity or your spouse in the business of primary production, as long as there’s no residence in existence or being constructed on the land.
If your land is considered vacant land but these particular situations don’t apply, then you will not have the opportunity to claim any deductions.
Importantly, the ATO recognises that exceptional circumstances outside your control may occur (eg a natural disaster or major building fire) resulting in the loss of the structure on your land, or that structure being disregarded. Under those circumstances, an exemption may apply, allowing deductions for holding costs of vacant land to be claimed for a limited period.
Made a mistake charging GST? Don’t panic
As a small business owner, you know how important it is to get your GST right. If you’ve realised you’ve incorrectly charged GST on a sale, don’t panic – there are steps you can take to rectify the situation.
First, let’s look at how this might have occurred:
- You treated something that’s not actually a sale as a taxable sale.
- You treated a GST-free or input taxed sale as a taxable sale.
- You miscalculated your GST liability, resulting in a higher amount reported on your business activity statement (BAS).
So what happens now? The key factor is whether you’ve passed on the excess GST to your customer.
In most cases, if you’ve charged GST and issued a tax invoice, it’s considered to have been passed on to the customer. In this situation, the excess GST is treated as correctly payable under the law, and the ATO cannot refund it to you directly.
Your options are to:
- Reimburse your customer: If you choose to reimburse the customer for the excess GST, you can make a decreasing adjustment on your next BAS to recover the amount. Your customer, if GST-registered, will need to make a corresponding increasing adjustment.
- Request a discretionary refund: In limited circumstances, you can apply to the ATO for a discretionary refund of excess GST that hasn’t been reimbursed to the customer. However, this is only granted in very specific situations where it wouldn’t result in a “windfall gain” for your business.
If you have clear evidence that you didn’t pass on the excess GST to your customer (which is rare), you can treat this as a GST error. You have two options: to correct it on a later BAS, or to revise the earlier BAS where the error was made.
Correcting GST errors on a later BAS is often simpler than revising an earlier period. However, this option’s only available if the later BAS is lodged within the review period for the earlier period when the error was made. For most small businesses (GST turnover under $20 million), you can correct debit errors up to $12,500 within 18 months of the due date of the original BAS. Remember too that you can’t correct an error to claim additional GST credits if the four-year time limit for claiming those credits has expired.
If you’re ever in doubt about your GST obligations or how to handle a specific situation, it’s best to consult a qualified tax professional or contact the ATO directly for guidance.
Making smart super investment choices
Choosing the right investment option for your superannuation is important for your retirement savings. It’s essential to understand the different types of investment options and their associated risks to ensure you choose the one that’s right for you.
Super funds typically offer a range of premixed investment options that usually have different asset allocations:
- Growth: These options primarily invest in shares or property and aim for high returns over the long term. They come with higher probability of short-term losses, so they’re generally suited to people with a longer investment horizon.
- Balanced: With about 70% in shares and property, balanced options strive for moderate returns with less risk than growth options. They offer a middle ground for investors who seek growth but prefer less volatility.
- Conservative: Investing primarily in fixed interest and cash, these options focus on preserving capital with lower returns.
- Cash: With 100% investment in cash or equivalent, these options offer stability and capital preservation, suitable for very risk-averse individuals or those close to accessing their funds.
- Ethical: These investments exclude companies that don’t meet certain ethical standards and vary in market risk, allowing you to align your investments with your personal values.
Some super funds offer single asset class investments (eg Australian shares or international shares) and you can choose what percentage you invest in each asset class yourself. Some “platform” style funds also let you pick direct investments. This can include investing in individual shares, exchange-traded funds (ETFs) or term deposits. Direct investing like this is not restricted to just self-managed superannuation funds.
Many super funds also offer lifecycle investment options, which automatically reduce your exposure to higher-risk growth assets as you age. These can be a good choice if you want to take a hands-off approach to your investments.
It’s important to consider your risk profile – essentially, your comfort level with potential investment losses in pursuit of returns. Here are some considerations:
- Risk tolerance: Determine how much market risk you’re willing to take. Are you comfortable with the possibility of short-term losses for higher long-term gains, or do you prefer stability?
- Investment horizon: The amount of time before you access your super can influence your risk tolerance. Longer horizons may allow for more aggressive investments, while shorter ones might necessitate a conservative approach.
- Standard market risk measure: Super funds provide a standardised risk rating that predicts how often an investment might deliver a negative return over 20 years. This measure helps compare the risk levels of different investment options.
Overall, choosing the right investment option for your super requires careful consideration of your individual circumstances and goals. Resources such as ASIC’s Moneysmart website can help you make an informed decision, and many super funds offer free guidance. It’s also a good idea to consider getting professional advice, for example from a financial adviser.
General transfer balance cap increases to $2.0 million
The December 2024 Consumer Price Index (CPI) number has been released, confirming that the superannuation general transfer balance cap will increase by $100,000 to $2.0 million for the 2025–2026 income year.
The transfer balance cap was introduced in 2017, and is a lifetime limit on the amount of superannuation that you can transfer into one or more retirement phase income streams. Earnings on superannuation in the retirement phase are currently tax-free and income or withdrawals after age 60 are also generally tax-free. The cap was introduced to more equitably distribute superannuation tax concessions and ensure that the superannuation system is sustainable over the long term.
Unlike other superannuation caps, such as contribution caps, the general transfer balance cap is not indexed in line with Average Weekly Ordinary Time Earnings (AWOTE), but is annually adjusted based on CPI in $100,00 increments.
The cap was $1.6 million from 2017 to 2021; $1.7 million from 2021 to 2023; $1.9 million from 2023 to 2024 and will be $2.0 million from 2025–2026.
A personal transfer balance cap applies to you as an individual when you start a retirement phase income stream for the first time. Your personal transfer balance cap will equal the general transfer balance cap at that point in time. So, if you start your retirement phase income stream on or after 1 July 2025, your personal transfer balance cap will be set at $2.0 million.
If you started an income stream before 1 July 2025, depending on the date, you would have a personal transfer balance cap of between $1.6 million and $1.9 million. If you didn’t use the full amount of your personal transfer balance cap at the time, a proportional increase may potentially apply to your personal transfer balance cap on 1 July 2025.
If you exceed your personal transfer balance cap, the excess must be withdrawn from the income stream and taken in cash or transferred back into your superannuation account, and an excess transfer balance tax would need to be paid. The ATO will generally notify you and send you an excess transfer balance determination to let you know you’ve exceeded your personal transfer balance cap.
Using ATO online services via your MyGov account can help you keep track of your personal transfer balance cap and your transfer balance account (including any excess over your cap), recording all the debits and credits that make up your balance.
Tax Newsletter – February 2025
Recovering from a natural disaster: what you need to know about tax
As Australia experiences another summer of unpredictable weather patterns, it’s essential to be prepared for the unexpected – natural disasters like fires, floods, earthquakes and cyclones can turn your world upside down. While you’re focused on rebuilding and recovery, tax may be the last thing on your mind, but understanding the implications of assistance payments and insurance payouts can help you make informed decisions.
When you receive an insurance payout after a disaster, whether it’s taxable depends on the type of asset involved:
- Your home: If the insurance payout is for your main residence, it’s generally not taxable.
- Personal assets: Payouts for personal items like household goods, furniture and private vehicles are generally not taxable.
- Rental properties and income-producing assets: If the insurance payout relates to a property used to produce income, it may have tax implications. For instance, if part of your home was used for a business, such as a home office, the insurance payout might affect your capital gains tax (CGT) calculations.
- High-value personal assets and collectables: Special rules apply to personal assets over $10,000 and collectables over $500. If the payout exceeds the original cost, it might be taxable.
- Business assets: For business owners, insurance payouts for damaged or destroyed business assets (like equipment or inventory) are usually taxable and need to be reported as income.
If you’re planning to repair or rebuild your home, or if you decide to sell your property after a disaster, here’s what you need to know:
- Main residence CGT exemption: If you rebuild your home, move back in as soon as practicable and live there for at least three months before selling, the property can remain exempt from CGT. This exemption also applies if you sell the land without rebuilding, provided the destroyed property was your main residence before the disaster.
- Engaging contractors: It’s important to ensure that any builders or contractors you hire are licensed and genuine. Check their Australian Business Number (ABN) and request written quotes and contracts to protect your rights.
The Australian and state and territory governments offer various disaster assistance payments, such as the Disaster Recovery Allowance (DRA), which provide temporary income support to those affected by disasters. These payments are generally not taxable, but it’s important to understand the relevant eligibility criteria and application processes, and check with the specific agency providing the assistance or with your tax professional to confirm the tax status of any payments you receive.
Changes coming for buy now pay later services
If you’re one of the millions of Australians who use buy now pay later (BNPL) services, important changes are coming that will give you stronger consumer protections from 10 June 2025. BNPL services will soon be regulated more like traditional credit products such as credit cards. Previously, BNPL services weren’t regulated under the National Consumer Credit Act, leaving a gap in consumer protection. But, under new laws passed in late 2024, all BNPL providers will need to hold an Australian credit licence and comply with consumer protection requirements.
This means your BNPL provider will need to:
- hold a credit licence or have applied for one by 10 June 2025;
- be a member of the Australian Financial Complaints Authority (AFCA);
- follow responsible lending practices; and
- meet other consumer protection requirements.
The new framework recognises that BNPL services are generally lower-risk than traditional credit products. Most BNPL arrangements will be regulated as “low cost credit contracts”, with modified requirements that balance consumer protection with the unique features of BNPL services.
From 10 June 2025, you can verify if your BNPL provider is properly licensed using the Australian Securities and Investments Commission’s (ASIC’s) Professional Registers Search.
These reforms aim to strike a balance between protecting consumers and maintaining the innovation and competition that BNPL services bring to the credit market. Stay informed about these changes to make the most of your BNPL services while keeping your finances healthy.
ATO launches its small business focus areas for 2025
Understanding the ATO’s focus areas for 2025 is essential to ensuring your business remains compliant and successful. The ATO has outlined specific areas of concern to help you avoid common pitfalls and manage your tax obligations effectively.
Business income is not personal income
It’s important to understand that your business’s money and assets are not your personal funds. This distinction is vital for maintaining accurate financial records and avoiding penalties. The ATO is particularly vigilant about businesses using company funds for personal expenses without proper documentation. Familiarise yourself with Division 7A rules to prevent common errors, such as failing to declare interest on loans or not meeting repayment deadlines.
Deductions and concessions
Claiming deductions and concessions accurately is another key focus. The ATO sees frequent errors in the application of small business CGT concessions and non-commercial business losses. Ensure you’re eligible for any concessions you claim and that all criteria are met. Misreporting can lead to amended assessments, repayments and potential penalties.
Operating within the system
The ATO is committed to ensuring all businesses operate within the legal tax framework. Risky behaviours such as not declaring all income, over-claiming expenses or using business funds for personal gain are under scrutiny. Poor record-keeping and cash flow management can also attract attention. The ATO encourages businesses to develop strong compliance habits from the outset to avoid these pitfalls.
If the ATO identifies issues within your business, they may contact you or your tax professional for clarification. Depending on the severity, this could involve pre-issue contacts, direct communication or moving your business to more frequent reporting periods. In cases of deliberate noncompliance, firmer actions such as audits, penalties and even legal sanctions may be applied.
ATO warns about GST refund fraud: check your arrangements
The ATO-led Serious Financial Crime Taskforce (SFCT) has issued a warning to businesses against trying to cheat the tax and super system by committing GST fraud. While seeking ways to optimise your tax position is legitimate, it’s important to steer clear of arrangements that could lead you into fraudulent territory. The recent warning highlights the dangers of related-party structuring arrangements that exploit GST rules, noting that getting caught can result in significant penalties.
The schemes of concern involve complex arrangements between related parties, creating artificial transactions to claim high-value GST refunds. This can include false invoicing, misaligned GST accounting methods and duplicating GST credit claims for non-existent transactions.
While some business owners may unknowingly get involved in these practices, believing them to be legitimate tax strategies, the reality is that these arrangements are fraudulent. The SFCT is actively working to identify and prosecute those involved in such schemes.
The ATO has issued several reminders to help businesses avoid involvement in fraudulent activities:
- Registering for an Australian Business Number (ABN) and applying for GST refunds when you’re ineligible is fraud.
- The ATO does not offer loans or administer COVID disaster payments.
- If you’re not operating a business, you don’t need an ABN or to lodge a business activity statement (BAS).
- Backdating business registrations to apply for refunds is a red flag.
- False declarations can affect eligibility for other government payments.
- Sharing your myGov credentials can lead to identity theft.
If you suspect you’ve unintentionally become involved in a GST fraud scheme, it’s vital to act swiftly. The ATO encourages voluntary disclosures, which can lead to reduced penalties. Corrective actions include revising activity statements, cancelling fraudulent ABN registrations and setting up repayment arrangements.
How tax works in Australia’s superannuation system
Australia’s super system plays a vital role in ensuring financial security for individuals in retirement. However, how superannuation is taxed can appear complex.
In Australia, superannuation is taxed at three main points: contributions, investment earnings and withdrawals. This structure is known as a TTE (taxed, taxed, exempt) system: contributions to the superannuation fund are taxed and the investment earnings within the fund are also taxed, but withdrawals made during retirement are generally exempt from tax. That is, in Australia’s system:
- Contributions, including those made by employers under the super guarantee (SG) and voluntary concessional contributions, are taxed at a concessional rate of 15%. This is lower than the rates that apply to most other forms of income, providing a tax advantage.
- Earnings generated from fund investments during the accumulation phase are also taxed at a flat rate of 15%. This is beneficial because it’s lower than the tax rates that typically apply to investment income earned outside of superannuation.
- Withdrawals made during retirement are generally tax-free. This is intended to enhance the appeal of building super savings over your working life, ensuring you have a tax-effective income stream in retirement.
Australia’s approach to taxing superannuation is somewhat unique compared to many other countries, which often use an EET (exempt, exempt, taxed) model: contributions to the retirement fund are exempt from tax and the earnings within the fund are also exempt, but withdrawals made during retirement are taxed.
Taxing only at the point of withdrawal, as in an EET system, means individuals don’t need to worry about tax on contributions or on investment earnings within their super fund during their working life, but must pay the tax once they retire and access their savings.
The Australian model was designed to generate government revenue sooner, with the concessional tax rates on superannuation contributions and earnings intended to encourage people to save consistently throughout their working life. The steady flow of tax revenue from contributions and earnings helps provide a more predictable and stable source of funding for government budgets over time. Australia’s TTE system also offers benefits from immediate tax concessions on your super contributions, which can reduce your current taxable income and provide immediate financial relief.
The tax-free status of withdrawals in retirement makes Australian super an attractive savings vehicle and simplifies financial planning in retirement. This can make it easier for retirees to manage their finances without worrying about tax liabilities on their retirement income.
Super legacy pensions: regulations offer window to exit
For legacy lifetime, life expectancy and market-linked superannuation income stream products that generally commenced prior to 20 September 2007, the shackles have finally been released but care is still required.
Regulations that came into effect on 7 December 2024 allow thousands of self managed super fund (SMSF) members to exit legacy income streams at any stage until 7 December 2029.
Before the introduction of the amending regulations, these legacy products – also known as non-commutable products – couldn’t be converted to a lump sum, effectively trapping pensioners in their SMSF.
Legacy products were originally introduced to offer retirees a guaranteed income for life or for a set term. This was good in some ways, but very restrictive strategically as the products could not respond to changing individual circumstances, market conditions and other legislative reforms.
During the five-year grace period that the amending regulations offer, retirees can exit these income streams without the previous heavy penalties and with the options of fully withdrawing their funds or moving them into a new income stream or an accumulation account.
There is further good news: the new reserve rules last indefinitely – not just for five years. However, it may be prudent to not to jump in yet if a person’s legacy pension was established for social security purposes. A new legislative instrument will ensure these pensions receive the proper treatment under the social security law.
If a person has already made some reserve allocations in 2024–2025 under the “old” rules, both the old and new rules will actually apply this year depending on when they made the allocation. But it’s important not to assume everything allocated in 2024–2025 is covered under the new rules!
Note also that SMSF members with a legacy pension may need to give the amending regulations consideration ahead of the proposed Division 296 rules from 1 July 2025. This is because Division 296 may count certain reserve allocations as part of the member’s superannuation earnings under the proposed additional 15% tax for super account balances above $3 million.
Tax Newsletter – December 2024/January 2025
Do you rent out your holiday home?
If you own a holiday home you might rent it out at times when you’re not using it yourself. Remember, you should seek professional advice if you have any concerns.
If your holiday home is rented out, the rental income you receive is taxable. You can claim expenses for the property to the extent they’re incurred in earning that rental income.
Your expenses will have to be apportioned if:
- your property is genuinely available for rent for only part of the year;
- you used the property yourself for part of the year;
- only part of your property is used to earn rent; or
- you charge less than market rent to family or friends to use the property.
Expenses that relate solely to the renting of your property don’t have to be apportioned.
On the other hand, no deduction can be claimed for expenses that relate solely to periods when the property isn’t genuinely available for rent, is used for a private purpose or relates to the part of the property that isn’t rented out. For example, the cost of cleaning your holiday home after you, your family or friends have used the property for a holiday or a repair for damage you caused while staying there wouldn’t be deductible expenses because they relate to your private use.
Expenses may be deductible for periods when the property isn’t rented out, but only if the property is genuinely available for rent.
Is your business BAS-ready?
Now is a great time to make sure your business is ready to meet upcoming business activity statement (BAS) due dates. The BAS applies if you run a business that’s registered for GST. You’ll need to report and pay using a monthly or quarterly BAS, and may report and pay GST annually, depending on your business turnover and other circumstances.
When you register for an Australian business number (ABN) and GST, the ATO will automatically send you a BAS when it’s time to lodge. This will help you report and pay your business’s GST, pay as you go (PAYG) instalments, PAYG withholding tax and other taxes and credits.
You can lodge your own BAS online using ATO Online Services (which may make you eligible for extra time to lodge), or directly from some business and accounting software. Payment is generally due by the same date as lodgment. Alternatively, you can have your registered tax agent or BAS agent lodge and handle payments on your behalf, which can also mean you get extra time to lodge.
To make your BAS as stress-free as possible, it’s important to:
- keep records of all sales, fees, expenses, wages and other business costs;
- keep appropriate records, such as stocktake records and logbooks to substantiate motor vehicle claims;
- reconcile sales with bank statements;
- use the correct GST accounting method; and
- keep all your tax invoices and other GST records for five years.
Finally, remember that you (or your agent) always need to lodge a BAS by its due date, even if your business has nothing to report for the period. You can lodge a “nil” BAS online or by phoning the ATO’s automated reporting service.
ATO data-matching: “lifestyle” assets and your business
The ATO has announced or extended a number of data-matching programs recently, including the lifestyle asset data-matching program. Data will be acquired from insurance providers for 2023–2024 to 2025–2026 for specified classes of asset where the asset value is equal to or exceeds nominated thresholds.
The assets and thresholds covered are:
- caravans/motorhomes: $65,000;
- motor vehicles including cars, trucks and motorcycles: $65,000;
- thoroughbred horses: $65,000;
- fine art: $100,000 per item;
- marine vessels: $100,000; and
- aircraft: $150,000.
Some of the tax risks relevant to businesses that the ATO is keen to address are the:
- omission or incorrect reporting of income and/or capital gain;
- incorrect claiming of GST credits;
- omitted or incorrect reporting of FBT; and
- use of assets by self-managed super funds (SMSFs) in breach of the law.
The ATO estimates that between 650,000 and 800,000 policy records will be obtained each year, with 250,000 to 350,000 matched records relating to individuals.
Superannuation on paid parental leave from 1 July 2025
In March 2024, the government announced its intention to commence paying superannuation on government paid parental leave (PPL) payments from 1 July 2025. The related law has now been passed.
New parents eligible for the PPL scheme with children born or adopted on or after 1 July 2025 will receive the paid parental leave superannuation contribution (PPLSC). This will be paid as a lump sum superannuation payment following the end of each financial year when the parents received PPL.
Recipients of PPL won’t be required to make a claim –the ATO will calculate the PPLSC based on information from Services Australia about their payments, and the contribution will be automatically deposited into their nominated superannuation fund.
The PPL scheme has also been legislated to expand over time. From 1 July 2024, eligible individuals and families receive two additional weeks of leave, amounting to 22 weeks in total. This increases to 24 weeks from 1 July 2025, and to 26 weeks from 1 July 2026. By 2026, a total of four weeks will be reserved for each parent on a “use it or lose it” basis, to encourage the sharing of care responsibilities. In addition, the number of PPL weeks a family can utilise at the same time increases to four weeks from 1 July 2025, up from the current two weeks.
Salary sacrifice and your super
Salary sacrificing to make additional contributions to your super fund can help grow your super balance for a better financial position at retirement. Before making an arrangement, you should explore the potential benefits and your financial goals to ensure it’s the right fit for your circumstances.
Salary sacrificing is an agreement with your employer for you to receive less income before tax in return for benefits of a similar value paid for by your employer. Depending on the industry you work in, benefits could include car or mortgage payments; tools or protective clothing; or super contributions.
Most employers offer salary sacrifice to super for their employees, meaning you could choose to have part of your pre-tax income paid into your super fund in addition to your super guarantee (SG) entitlement (11.5% for 2024–2025). Super contributions made by salary sacrifice are concessional contributions, taxed at 15% instead of at your marginal income tax rate.
Potential benefits
- Your employer will set up and automatically send the contributions to your super fund.
- Regular additional payments, especially if you start early, will accelerate the growth of your super balance and make a big difference at retirement.
- Lower taxable income may help you pay less tax, stay in a lower tax bracket, reduce the Medicare Levy or qualify you for certain concessions.
- Up to $50,000 of salary sacrifice contributions are eligible to be accessed through the First Home Super Saver Scheme.
- Salary sacrificing to super will not reduce the amount of SG contributions your employer provides.
Points to consider
- Less take-home pay may be challenging if you have a tight budget or immediate financial needs like a mortgage.
- If you aren’t using the funds to purchase your first home, you generally won’t be able to access any of the money added to your super fund until you reach 65 or you retire after age 60, so you will need enough funds outside of super to cope with emergencies or other shorter-term financial issues.
- The amount of “concessional” contributions you can add to your super each year is capped ($30,000 for 2024–2025): if you go above the cap, contributions will be taxed at your marginal tax rate (less a 15% tax offset). Concessional contributions include SG and salary sacrifice contributions, as well as contributions you claim a tax deduction for.
- You won’t be able to claim a tax deduction on salary sacrificed super contributions, as you won’t have paid income tax on them.
- If you earn under $45,000 a year, salary sacrificing into super might not be as beneficial due to your lower income tax rate.
Exploring compassionate early release of super
Superannuation is designed to provide for your retirement, but there are limited circumstances where you can access your super early on compassionate grounds. These provisions are in place to help meet urgent expenses for you or your dependants when other options have been exhausted.
The ATO oversees applications for the compassionate release of superannuation. It’s important to understand the specific situations that may qualify and the process involved.
Compassionate grounds cover a range of circumstances, including:
- preventing foreclosure or forced sale of your home;
- medical treatment for you or your dependants;
- medical transport for you or your dependants;
- modifying your home or vehicle to accommodate special needs arising from severe disability;
- palliative care for terminal illness; and
- death, funeral or burial expenses for your dependants.
Generally, applications need to be for unpaid expenses – you can’t claim for costs you’ve already covered. The amount released from your super must be a single lump sum, not exceeding what’s reasonably required.
Before applying to the ATO, it’s crucial to contact your super fund. The fund can confirm if it’ll release your super early on compassionate grounds, check if you have sufficient funds (including for tax withholding), advise on any fees and explain potential impacts on your insurance.
Remember, accessing your super early should be a last resort. It’s your future financial security at stake. However, when faced with genuine hardship, it’s reassuring to know that this option exists to help through difficult times.
Tax Newsletter – November 2024
Do you rent out your holiday home?
If you own a holiday home you might rent it out at times when you’re not using it yourself. Remember, you should seek professional advice if you have any concerns.
If your holiday home is rented out, the rental income you receive is taxable. You can claim expenses for the property to the extent they’re incurred in earning that rental income.
Your expenses will have to be apportioned if:
- your property is genuinely available for rent for only part of the year;
- you used the property yourself for part of the year;
- only part of your property is used to earn rent; or
- you charge less than market rent to family or friends to use the property.
Expenses that relate solely to the renting of your property don’t have to be apportioned.
On the other hand, no deduction can be claimed for expenses that relate solely to periods when the property isn’t genuinely available for rent, is used for a private purpose or relates to the part of the property that isn’t rented out. For example, the cost of cleaning your holiday home after you, your family or friends have used the property for a holiday or a repair for damage you caused while staying there wouldn’t be deductible expenses because they relate to your private use.
Expenses may be deductible for periods when the property isn’t rented out, but only if the property is genuinely available for rent.
Is your business BAS-ready?
Now is a great time to make sure your business is ready to meet upcoming business activity statement (BAS) due dates. The BAS applies if you run a business that’s registered for GST. You’ll need to report and pay using a monthly or quarterly BAS, and may report and pay GST annually, depending on your business turnover and other circumstances.
When you register for an Australian business number (ABN) and GST, the ATO will automatically send you a BAS when it’s time to lodge. This will help you report and pay your business’s GST, pay as you go (PAYG) instalments, PAYG withholding tax and other taxes and credits.
You can lodge your own BAS online using ATO Online Services (which may make you eligible for extra time to lodge), or directly from some business and accounting software. Payment is generally due by the same date as lodgment. Alternatively, you can have your registered tax agent or BAS agent lodge and handle payments on your behalf, which can also mean you get extra time to lodge.
To make your BAS as stress-free as possible, it’s important to:
- keep records of all sales, fees, expenses, wages and other business costs;
- keep appropriate records, such as stock take records and logbooks to substantiate motor vehicle claims;
- reconcile sales with bank statements;
- use the correct GST accounting method; and
- keep all your tax invoices and other GST records for five years.
Finally, remember that you (or your agent) always need to lodge a BAS by its due date, even if your business has nothing to report for the period. You can lodge a “nil” BAS online or by phoning the ATO’s automated reporting service.
ATO data-matching: “lifestyle” assets and your business
The ATO has announced or extended a number of data-matching programs recently, including the lifestyle asset data-matching program. Data will be acquired from insurance providers for 2023–2024 to 2025–2026 for specified classes of asset where the asset value is equal to or exceeds nominated thresholds.
The assets and thresholds covered are:
- caravans/motorhomes: $65,000;
- motor vehicles including cars, trucks and motorcycles: $65,000;
- thoroughbred horses: $65,000;
- fine art: $100,000 per item;
- marine vessels: $100,000; and
- aircraft: $150,000.
Some of the tax risks relevant to businesses that the ATO is keen to address are the:
- omission or incorrect reporting of income and/or capital gain;
- incorrect claiming of GST credits;
- omitted or incorrect reporting of FBT; and
- use of assets by self-managed super funds (SMSFs) in breach of the law.
The ATO estimates that between 650,000 and 800,000 policy records will be obtained each year, with 250,000 to 350,000 matched records relating to individuals.
Superannuation on paid parental leave from 1 July 2025
In March 2024, the government announced its intention to commence paying superannuation on government paid parental leave (PPL) payments from 1 July 2025. The related law has now been passed.
New parents eligible for the PPL scheme with children born or adopted on or after 1 July 2025 will receive the paid parental leave superannuation contribution (PPLSC). This will be paid as a lump sum superannuation payment following the end of each financial year when the parents received PPL.
Recipients of PPL won’t be required to make a claim –the ATO will calculate the PPLSC based on information from Services Australia about their payments, and the contribution will be automatically deposited into their nominated superannuation fund.
The PPL scheme has also been legislated to expand over time. From 1 July 2024, eligible individuals and families receive two additional weeks of leave, amounting to 22 weeks in total. This increases to 24 weeks from 1 July 2025, and to 26 weeks from 1 July 2026. By 2026, a total of four weeks will be reserved for each parent on a “use it or lose it” basis, to encourage the sharing of care responsibilities. In addition, the number of PPL weeks a family can utilise at the same time increases to four weeks from 1 July 2025, up from the current two weeks.
Salary sacrifice and your super
Salary sacrificing to make additional contributions to your super fund can help grow your super balance for a better financial position at retirement. Before making an arrangement, you should explore the potential benefits and your financial goals to ensure it’s the right fit for your circumstances.
Salary sacrificing is an agreement with your employer for you to receive less income before tax in return for benefits of a similar value paid for by your employer. Depending on the industry you work in, benefits could include car or mortgage payments; tools or protective clothing; or super contributions.
Most employers offer salary sacrifice to super for their employees, meaning you could choose to have part of your pre-tax income paid into your super fund in addition to your super guarantee (SG) entitlement (11.5% for 2024–2025). Super contributions made by salary sacrifice are concessional contributions, taxed at 15% instead of at your marginal income tax rate.
Potential benefits
- Your employer will set up and automatically send the contributions to your super fund.
- Regular additional payments, especially if you start early, will accelerate the growth of your super balance and make a big difference at retirement.
- Lower taxable income may help you pay less tax, stay in a lower tax bracket, reduce the Medicare Levy or qualify you for certain concessions.
- Up to $50,000 of salary sacrifice contributions are eligible to be accessed through the First Home Super Saver Scheme.
- Salary sacrificing to super will not reduce the amount of SG contributions your employer provides.
Points to consider
- Less take-home pay may be challenging if you have a tight budget or immediate financial needs like a mortgage.
- If you aren’t using the funds to purchase your first home, you generally won’t be able to access any of the money added to your super fund until you reach 65 or you retire after age 60, so you will need enough funds outside of super to cope with emergencies or other shorter-term financial issues.
- The amount of “concessional” contributions you can add to your super each year is capped ($30,000 for 2024–2025): if you go above the cap, contributions will be taxed at your marginal tax rate (less a 15% tax offset). Concessional contributions include SG and salary sacrifice contributions, as well as contributions you claim a tax deduction for.
- You won’t be able to claim a tax deduction on salary sacrificed super contributions, as you won’t have paid income tax on them.
- If you earn under $45,000 a year, salary sacrificing into super might not be as beneficial due to your lower income tax rate.
Exploring compassionate early release of super
Superannuation is designed to provide for your retirement, but there are limited circumstances where you can access your super early on compassionate grounds. These provisions are in place to help meet urgent expenses for you or your dependants when other options have been exhausted.
The ATO oversees applications for the compassionate release of superannuation. It’s important to understand the specific situations that may qualify and the process involved.
Compassionate grounds cover a range of circumstances, including:
- preventing foreclosure or forced sale of your home;
- medical treatment for you or your dependants;
- medical transport for you or your dependants;
- modifying your home or vehicle to accommodate special needs arising from severe disability;
- palliative care for terminal illness; and
- death, funeral or burial expenses for your dependants.
Generally, applications need to be for unpaid expenses – you can’t claim for costs you’ve already covered. The amount released from your super must be a single lump sum, not exceeding what’s reasonably required.
Before applying to the ATO, it’s crucial to contact your super fund. The fund can confirm if it’ll release your super early on compassionate grounds, check if you have sufficient funds (including for tax withholding), advise on any fees and explain potential impacts on your insurance.
Remember, accessing your super early should be a last resort. It’s your future financial security at stake. However, when faced with genuine hardship, it’s reassuring to know that this option exists to help through difficult times.