The Australian government is planning to ban life insurers from using predictive genetic test results to discriminate against people. Predictive genetic tests can identify gene variants linked to diseases that might appear later in life but are not yet visible when the test is done.
Right now, some people are worried that life insurers might deny them coverage or charge higher premiums if they take these tests, so they avoid genetic testing altogether. To address this, the government has proposed a total ban on the use of these genetic test results by life insurers.
How Life Insurance Works
Life insurance is a type of voluntary insurance that’s based on individual risk. Insurers consider factors like your family’s medical history and your personal habits to set your premiums. Once you have life insurance, it’s guaranteed renewable, meaning the insurer can’t cancel or change your policy as long as you keep paying the premiums, even if your health changes. This is why people need to think carefully before switching life insurance policies, especially if they’ve developed health issues since their first policy was issued.
The Current Moratorium on Genetic Testing
In 2019, Australia introduced a partial moratorium on disclosing genetic test results for certain life insurance applications. This moratorium, effective from 1 July 2019, prevents the use of genetic test results for some types of coverage below specific thresholds. However, based on APRA data, these thresholds are considerably lower than the average sum insured:
Policy cover
Moratorium limit
APRA average
Death
$500,000
$713,959
Total permanent disability
$500,000
$849,128
Trauma and/or critical illness
$200,000
$207,414
Disability income insurance
$4,000* a month
$7,706 a month
* any combination of income protection, salary continuance or business expenses cover.
Ongoing Discrimination Concerns
Even with this moratorium, many people still worry that taking a genetic test could hurt their chances of getting affordable life insurance. Research from Monash University found that 35% of people who had taken a genetic test faced difficulties getting life insurance. Some had their applications rejected, while others were advised by financial professionals that they wouldn’t qualify for coverage. Insurers sometimes placed restrictions on policies or charged higher premiums based on test results. In one case, a 43-year-old woman with a BRCA2 gene variant, who had taken preventative measures like surgery, was denied life insurance, even though she had no personal history of cancer.
The Government’s Response
The Australian government has now announced a full ban on the use of predictive genetic tests in life insurance underwriting. This ban is meant to stop the discrimination that still exists. However, the government has not yet introduced the legislation for these reforms or announced when the ban will take effect. The ban will be reviewed after five years, and it only applies to predictive genetic tests, not to diagnostic tests done to confirm an existing condition based on symptoms.
Global Examples
Australia isn’t the only country facing this issue. In the UK, insurers can’t use genetic test results unless the information benefits the person applying for insurance, or the person voluntarily provides the results. There’s one exception: insurers can use genetic test results for Huntington’s disease for life insurance policies worth over £500,000.
In Canada, the Genetic Non-Discrimination Act makes it illegal for insurers or any other entity to ask for or use genetic test results, except when the individual voluntarily discloses a negative result (meaning they don’t have the genetic condition that runs in their family).
In the United States, the Genetic Information Nondiscrimination Act (GINA) prevents genetic test results from being used in health insurance and employment, but not in life insurance. However, Florida has a state law that bans the use of predictive genetic test results in life insurance underwriting.
Conclusion
While genetic testing has the potential to improve health outcomes, it has also created concerns about discrimination, especially in life insurance. Australia’s move to ban the use of predictive genetic tests in life insurance underwriting aims to protect consumers and encourage participation in genetic testing and research without fear of losing access to affordable life insurance.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
The Reserve Bank of Australia (RBA) has been at the center of debate, with politicians and the public questioning its policies on interest rates. There’s increasing frustration that the RBA has not reduced interest rates, despite community pressure. Let’s take a look at what’s really happening and why the RBA is maintaining its current course.
Political Criticism of the RBA
Treasurer Jim Chalmers has openly blamed rising global uncertainty and interest rates for “smashing the economy.” Former Treasurer Wayne Swan also voiced his frustration, accusing the RBA of following outdated economic principles instead of making sensible decisions. He argues that their policies are hurting families, causing less spending, and pulling the economy backward.
For Australians with mortgages or paying rent, the last 13 consecutive interest rate hikes have been hard to bear. The first increase happened in May 2022, and there has been no relief since. This has had a ripple effect on households, leaving many feeling the squeeze.
The RBA’s Decision on Interest Rates
In its September meeting, the RBA Board chose to keep the official cash rate at 4.35%. The main reason for this decision is the ongoing problem of high inflation, which has been a challenge for the past 11 quarters. In the year leading up to June 2024, the consumer price index (CPI) rose by 3.9%, staying above the RBA’s target range of 2-3%.
Despite this high inflation, the RBA has been clear that it’s too early to think about lowering interest rates. RBA Governor Michele Bullock has warned that rate cuts are unlikely anytime soon.
Economic Data Paints a Gloomy Picture
According to the Australian Bureau of Statistics (ABS), the June 2024 National Accounts show that the economy is struggling. Per capita GDP declined for the sixth consecutive quarter, falling by 0.4% to -1.5%. This marked the longest period of continuous economic weakness on record.
Household spending, which is a major part of the economy, has also slowed down. In the June quarter, spending decreased by 0.2%, the weakest since the COVID Delta-variant lockdown in September 2021.
Less Spending on Discretionary Items
One of the biggest areas hit by the downturn is discretionary spending—money people spend on non-essential items like travel, events, and dining out. This type of spending fell by 1.1%, with the hardest-hit sectors being hotels, cafes, and restaurants, which saw a 1.5% decrease. Even spending on groceries dropped slightly by 0.1%, showing how households are cutting back to save money.
Household Savings Hit a 17-Year Low
Adding to the financial stress, household savings are at their lowest level since 2006. Households are now saving just 0.9% of their income. When household spending grows faster than income, it becomes harder for people to save, making it tougher to build financial security.
Where is Economic Growth Coming From?
While household spending is down, the Australian economy still managed to grow by 0.2% in the June quarter. However, this growth was mainly driven by government spending, not consumer demand. Government consumption added 0.3 percentage points to GDP growth, with social assistance programs and state government expenditures boosting the economy.
The RBA’s Difficult Balancing Act
The RBA is trying to balance two major goals: bringing inflation back to its target range while protecting the job market gains made in recent years. The RBA expects to reach its inflation target of 2-3% by the end of 2025.
Over the past 18 months, most items in the consumer price index (CPI) basket have been rising faster than normal. However, prices for goods have started to come down as supply issues caused by the COVID-19 pandemic and the war in Ukraine have begun to ease. But two problem areas remain: housing and services.
The Cost of Housing and Services
Housing costs are rising because of increased construction costs and higher rent. Meanwhile, inflation for services remains high at 5.3% in the June quarter, even though spending on things like travel and dining out is down. The high cost of services is driven by several factors: wage increases, lower productivity, and rising business expenses such as electricity, insurance, logistics, and rent.
Who’s Hurting the Most?
Inflation tends to hit lower-income households the hardest, as they spend more of their income on necessities like food, utilities, and rent. In contrast, wealthier households tend to spend more on housing and non-essential items. As a result, younger and lower-income households are feeling the brunt of rising costs.
Conclusion
The RBA’s decision to keep interest rates high, despite political pressure and public dissatisfaction, reflects the complex challenge it faces. The RBA is trying to curb inflation while preventing the economy from falling into deeper trouble. While the pain is real for many Australians, especially those with lower incomes, the RBA remains focused on its long-term goal of stabilizing prices by 2025. Until then, the economic strain is likely to continue.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
Divorce and separation are difficult life events, bringing not just emotional stress but also financial complications. One of the key issues that arise during a relationship breakdown is how assets are divided between the partners. Among these assets, those that have appreciated in value, like real estate, shares, or investments, may be subject to Capital Gains Tax (CGT) when they are sold or transferred.
However, in Australia, the law provides some relief through what is known as a relationship breakdown rollover. This means that, under certain conditions, you can transfer assets between separating spouses without triggering an immediate CGT liability. This article explains how the CGT rollover works, when it applies, and how it interacts with other aspects of divorce, like superannuation and family businesses.
What is Capital Gains Tax (CGT)?
CGT is a tax on the profit you make when you sell or transfer an asset, such as property or shares, for more than what you paid for it. The gain is considered part of your taxable income and is taxed at your marginal tax rate. For many people, the largest assets subject to CGT are their home (if it’s not exempt), investment properties, or shares.
What is a Relationship Breakdown Rollover?
A relationship breakdown rollover is a special provision in Australian tax law that allows the transfer of assets between spouses during a divorce or separation without immediately paying CGT. Instead, the tax is deferred until the person who receives the asset sells it in the future.
This rollover is meant to ease the financial burden during a relationship breakdown, as paying a large tax bill right away could add to the stress and financial strain of divorce.
When Does the Relationship Breakdown Rollover Apply?
The CGT rollover applies in specific situations:
Court Orders and Formal Agreements: The rollover can be applied if the transfer of assets occurs due to a court order, an agreement made under the Family Law Act, or a binding financial agreement (BFA).
Eligible Assets: The rollover can only be applied to certain types of assets, like real estate, shares, or units in a managed fund. It generally doesn’t apply to assets that are not subject to CGT, such as your primary residence (if exempt) or depreciating assets like cars.
Spouse Transfers: The transfer must occur between spouses or former spouses as a result of a relationship breakdown. This includes de facto couples as well.
Asset Held at the Time of Relationship Breakdown: The asset must have been held by one of the spouses at the time of the relationship breakdown for the rollover to be applicable.
If all these conditions are met, the asset can be transferred without triggering CGT. Instead, the spouse who receives the asset takes on the original cost base of the asset, and the CGT is deferred until they sell it.
How Does CGT Rollover Work with Superannuation?
Superannuation is treated differently in divorce, but it’s also a significant financial asset. When superannuation interests are split between spouses as part of a property settlement, the transaction is usually exempt from CGT under Australian law.
For example, if one spouse’s superannuation fund owns an investment property, transferring a portion of that property to the other spouse’s super fund as part of a divorce settlement won’t trigger CGT. The superannuation splitting process requires a court order or a superannuation agreement.
It’s important to note that superannuation cannot be paid out directly unless the receiving spouse is eligible to access their super (for instance, they’ve reached the retirement age). Instead, the amount is rolled over into the receiving spouse’s super fund, and no immediate CGT is triggered.
Managing Family Businesses During a Divorce
Divorce can complicate the management of a family business, especially when both spouses have ownership interests. The relationship breakdown rollover can apply here as well, allowing one spouse to transfer their shares or interest in the business to the other without an immediate CGT bill. On the other hand, payments made by a corporation as settlements may be classified as taxable dividends and could be taxed at the applicable marginal tax rate of the spouse receiving them. It’s crucial to get proper advice to ensure the business continues to run smoothly and that the tax implications are fully understood.
When managing a family business during a divorce, it’s also important to think about the long-term health of the business. Beyond the tax issues, keeping the business operations stable is vital, especially if one or both spouses rely on the business for their income.
Planning Ahead: Protecting Both Parties from Financial Stress
One way to minimize the financial stress of divorce is through careful planning. Couples should consider how assets, including superannuation and business interests, are owned and managed during the marriage. Even before a relationship breaks down, strategies like income splitting or topping up the lower-earning spouse’s super can help balance the financial benefits and tax burdens.
For instance, if one partner earns significantly less, increasing their super contributions can be tax-efficient because super contributions are taxed at a lower rate. Additionally, balancing the income flow between spouses can reduce the overall tax burden on the household.
In the event of a divorce, having a well-planned tax and financial strategy can make the division of assets more straightforward and less contentious.
Conclusion
Divorce and relationship breakdowns bring many challenges, but understanding the tax implications, especially related to CGT, can help ease the financial burden. The relationship breakdown rollover offers a valuable tool for deferring CGT when transferring assets between spouses. However, it’s essential to seek professional advice to navigate the complexities of tax law, superannuation, and business management during such a difficult time.
By planning ahead and staying informed about your financial situation, you can better protect yourself and your assets during a divorce.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
Exciting news for small businesses! Two significant changes are happening for the 2024 financial year, thanks to new laws passed by Parliament recently.
First, the instant asset write-off threshold has been raised from $1,000 to $20,000 for business annual aggregated turnover less than $10 million. This means that small businesses can now write off purchases of assets costing less than $20,000 in 2024 financial year. This change is a big boost for cash flow, as businesses can claim the tax deduction immediately instead of spreading it out over several years.
To take advantage of this, the asset must be bought and either used or installed and ready to use between 1 July 2023 and 30 June 2024. For example, if you buy an industrial fridge, it needs to be delivered and installed by 30 June 2024 to qualify for the write-off.
If the business is registered for GST, the cost of the asset must be less than $20,000 after deducting GST credits. If the business is not registered for GST, the cost must be $20,000 including GST. If the asset is only partly used for business, to determine the amount you can claim, subtract the portion used for private purposes. The remaining balance, which is the portion used to earn assessable income, is typically considered the taxable purpose portion (or business purpose portion). Although you can only deduct the taxable purpose portion, the total cost of the asset must be below the $20,000 threshold.
This new threshold applies to each asset individually. So, a small business can deduct the full cost of several items as long as each one costs less than $20,000. Additionally, a Bill is currently before Parliament to extend this increased threshold to 30 June 2025.
Another great benefit for small businesses is the new small business energy incentive. This incentive provides an extra tax deduction of 20% for the cost of eligible assets and improvements that make your business more energy-efficient or support electrification, such as purchasing of an air conditioner that replace a gas heater, installing time-shifting devices which allow electrical appliances to operate at off-peak times, etc.
There are some exceptions for the energy efficiency solutions, such as no bonus deduction for electric vehicles, solar panels, capital works, etc. Also, the maximum bonus deduction is $20,000, which means you can spend up to $100,000 on qualifying expenses happened between 1 July 2023 and 30 June 2024. Different from the Instant Asset Write-Off, this incentive is available to businesses with an annual turnover of less than $50 million. However, businesses with an annual turnover less than $10 million may can potentially claim both the Instant Asset Write-Off and Small Business Energy Incentive for the eligible assets and improvements. To read the details about the policy, please refer to our previous article ‘Empowering Your Business with Electrification: Unlocking the $20k Tax Deduction’.
Summary
These changes provide fantastic opportunities for small businesses to improve their cash flow and invest in energy-efficient equipment. With the increased write-off threshold and the energy incentive, make sure to check if your purchases qualify and take full advantage of these new laws.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
A recent tax case of Duncan and Commissioner of Taxation [2024] AATA 974, the Administrative Appeals Tribunal (AAT) looked at a situation where a taxpayer, Mr. Duncan, tried to claim large deductions for meals eaten during his work trips. As the new financial year arrives, the tax return has been started. This case in time has shed some light on the meal expenses deduction claiming for the tax return season.
The Situation
Mr. Duncan is a long-haul truck driver who spent 282 days on the road in the year in question. He claimed a deduction of $100 per day for food and drink, which added up to a total of $28,200 for the year. This amount was just below the Australian Taxation Office’s (ATO) reasonable amounts (See TD 2023/3), so Mr. Duncan believed he did not need to provide detailed evidence for these expenses.
The ATO’s Response
The ATO agreed that Mr. Duncan spent $8,393 on meals at cafes and restaurants because these expenses were supported by his bank statements. However, the ATO did not accept the remaining $20,000 deduction because there was not enough evidence to support it.
The Arguments
Automatic Deductions Claim:
Mr. Duncan argued that he was entitled to automatic deductions up to the ATO’s reasonable amounts without needing to prove he spent the money.
The AAT disagreed, stating that the law requires the expenses to be actually incurred, even if the claim is below the ATO’s reasonable amounts.
Evidence of Grocery Expenses:
Mr. Duncan tried to show some expenses by providing evidence of purchases at supermarkets and stores near his home.
The AAT found it difficult to determine which meals were eaten during his trips and which were not because the purchases were made near his home.
Tribunal’s Decision
The AAT ruled against Mr. Duncan, highlighting that even if the claimed deductions are below the ATO’s reasonable amounts, taxpayers still need to prove that the expenses were actually incurred.
Important Lessons
Substantiation Exceptions: The rules can reduce the need for keeping every receipt and invoice, but taxpayers still need to incur the expenses.
Evidence Requirements: The ATO can ask for evidence on how deductions were calculated and require proof that the expenses were incurred.
Good Practices: Keeping a detailed diary or log of trips and meals, along with bank and credit statements, can help support deductions and reduce the risk of ATO challenges.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
The Australian Taxation Office (ATO) has issued a stern warning to trustees, emphasizing the importance of carefully considering how and to whom trust income is distributed. In recent years, trust distribution arrangements have faced increasing scrutiny, and trustees must meticulously review their practices to ensure compliance with relevant regulations. It is a good time to recapitulate this before the end of financial year distribution.
Understand your Trust Deed
One of the main concerns is that trustees may not be looking at their trust deed before distributing income. The trust deed is a legal document that outlines what the trust can do and who can receive income. It’s crucial to review this document before making any decisions.
Steps for Reviewing Your Trust Deed
Check the Deed and Amendments: Make sure that any actions taken by the trustees are in line with what the trust deed says.
Vesting Date: The trust deed specifies the procedures when the trust vests. Upon vesting, trustees may be required to distribute income and property to designated beneficiaries, losing their discretion in this regard.
Identify Beneficiaries: Determine who the beneficiaries are and understand their entitlements to income and capital.
Resolution Timing and Requirements: Review any conditions for trustee resolutions, including deadlines and the need for written resolutions, eg. it has to be done by 30 June.
Streaming Income: If you plan to allocate capital gains or franked distributions to certain beneficiaries, ensure the trust deed allows this.
Family Trust and Interposed Entity Elections
A family trust election ties the trust’s operations to a specific family group, helping protect losses and franking credits but potentially causing tax issues if misused. An interposed entity election brings an entity into an individual’s family group. Trustees need to understand the consequences of these elections before distributing income, as distributing outside the family group can result in hefty family trust distribution taxes.
Who really benefits?
The ATO is also vigilant about arrangements where income is allocated to beneficiaries who do not actually receive the financial benefit. If such arrangements reduce the overall tax paid, they are likely to draw the ATO’s attention.
Increased Reporting Requirements
Recent changes mean more detailed information is now required on tax returns about trust income distributions. These include:
Trust Tax Return: Four new capital gains tax labels have been added, requiring information that matches what beneficiaries report in their returns.
Beneficiaries: All beneficiaries must now file a new trust income schedule that matches the trust’s distribution statement.
The Importance of Compliance
Trusts offer significant flexibility in income distribution, but this comes with stringent compliance and control requirements. The ATO is closely monitoring how trusts distribute income and the associated tax implications.
Trustees must take these warnings seriously and diligently review their trust deeds and distribution arrangements to align with regulatory expectations. Ensuring proper compliance not only safeguards against potential penalties but also maintains the integrity and intended benefits of the trust structure.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
We take insight here of the mainly tax changes in the Federal Budget 2024-25 announced in May 2024, in relates to the topics of Individual & Families, Superannuation & Investors, and Business & Employers.
Individuals & Families
Personal income tax cuts confirmed
From
1 July 2024
As announced before, the government has made permanent tax cuts for all Australian taxpayers starting 01 July 2024.
Compared to the earlier Stage 3 plan, these new cuts give more benefits to people with taxable incomes below $150,000.
Personal income tax rates from 1 July 2024
Resident individuals
Tax rate
2023-24
2024-25
0%
$0 – $18,200
$0 – $18,200
16%
$18,201 – $45,000
19%
$18,201 – $45,000
30%
$45,001 – $135,000
32.5%
$45,001 – $120,000
37%
$120,001 – $180,000
$135,001 – $190,000
45%
>$180,000
>$190,000
Non-resident individuals
Tax rate
2023-24
2024-25
30%
$0 – $135,000
32.5%
$0 – $120,000
37%
$120,001 – $180,000
$135,001 – $190,000
45%
>$180,000
>$190,000
Working holiday markers
Tax rate
2023-24
2024-25
15%
0 – $45,000
0 – $45,000
30%
$45,001 – $135,000
32.5%
$45,001 – $120,000
37%
$120,001 – $180,000
$135,001 – $190,000
45%
>$180,000
>$190,000
Medicare levy low-income thresholds increase
From
1 July 2023
Starting from 01 July 2023, the low-income thresholds for the Medicare levy will be raised for singles, families, and seniors and pensioners.
These adjustments reflect recent changes in the CPI, ensuring that low-income taxpayers typically remain exempt from paying the Medicare levy.
$300 energy relief for households
From
1 July 2024
Households will get a $300 credit on their energy bills, spread out in automatic payments every three months throughout 2024-25.
Eligible small businesses will also get energy relief with a $325 rebate.
This plan, costing $3.5 billion over three years starting from 2023-24, continues and grows the Energy Bill Relief Fund.
Capping indexation of HELP debts
From
Loan accounts that existed on 1 June 2023
Starting from 01 June 2023, the Government will set the HELP indexation rate to be either the Consumer Price Index (CPI) or the Wage Price Index (WPI), whichever is lower. This change affects all HELP, VET Student Loans, Australian Apprenticeship Support Loans, and other student loans that were active on 01 June 2023.
By adjusting the HELP indexation from 01 June 2023, the rate will drop from:
– 7.1% to 3.2% in 2023, and
– 4.7% to about 4% in 2024.
This change helps over 3 million Australians with HELP debt after the CPI rate jumped to 7.1% last year.
A person with an average HELP debt of $26,500 will save around $1,200 on their loans this year, depending on the approval of the new law.
Estimated indexation for HELP debts
HELP debt at 30 June 2023
Total estimated credit for 2023 and 2024*
$15,000
$670
$25,000
$1,120
$30,000
$1,345
$35,000
$1,570
$40,000
$1,795
$45,000
$2,020
$50,000
$2,245
$60,000
$2,690
$100,000
$4,485
$130,000
$5,835
Note: The actual credit amount will depend on personal situations, including payments made during the year. All HELP debts that were adjusted in 2023 and are set to be adjusted again on 01 June 2024, will get a credit for the indexation.
Superannuation on paid parental leave
From
1 July 2025
Starting from 01 July 2025, superannuation (retirement savings) will be included with Paid Parental Leave (PPL) payments. Eligible parents will get an extra amount equal to 12% of their PPL payments, which will be added to their superannuation fund. This is on top of the previous change that increased leave to 22 weeks. The leave will further increase to 24 weeks from July 2025 and to 26 weeks from July 2026.
Increasing commonwealth rent assistance
From
20 September 2024
Starting from 20 September 2024, the highest amount of Commonwealth rent assistance will go up by 10%.
People who get payments from Centrelink or the Department of Veterans Affairs, as well as those receiving the family tax benefit, might also get rent assistance if they pay rent or similar payments that are above a set amount every two weeks.
Right now, the highest amount they can get every two weeks is $188.20 for a single person and $177.20 for a couple together.
This change will cost $1.9 billion over five years starting from 2023-24, and $0.5 billion per year from 2028-29. It follows a 15% increase in September 2023, making the maximum rates more than 40% higher than in May 2022.
Improving aged care support
The government will spend $2.2 billion over the next five years to improve aged care and follow the recommendations from the Royal Commission into Aged Care Quality and Safety. This funding includes 24,100 new home care packages in 2024-25. They have also decided to start the new Aged Care Act on 01 July 2025. The government is currently making and considering changes to how aged care is funded based on the 2021 Royal Commission report. This might affect the costs of home care and residential care in the future. Usually, past reforms have allowed current residents and home care recipients to keep their existing benefits.
Increased flexibility for carer payment
Date
20 March 2025
Currently, to get the Centrelink Carer Payment, the caregiver must not be working, studying, or training for more than 25 hours per week. This is because they need to give constant care to the recipient.
From 20 March 2025, this 25-hour limit will change to 100 hours over four weeks. This limit will only apply to employment and won’t include time spent on study, volunteering, or travel.
Additionally:
– Carer Payment recipients who exceed this limit or take more than their allowed temporary break from care days will have their payments paused for up to six months, rather than stopped entirely.
– Recipients will also have the option to take single temporary breaks from care if they exceed the participation limit, instead of the current requirement of at least seven days.
Higher JobSeeker rate for partial capacity to work
Date
20 September 2024
Starting 20 September 2024, the Government will expand the JobSeeker payment to include single recipients who can work a bit (up to 14 hours per week).
Right now, JobSeeker payments give higher rate to people aged 55 or older who’ve been on it for nine months in a row.
Relationship status
Maximum payment per fortnight
Single with no children
$762.70
Single with dependent children
$816.90
Single 55 or older after 9 continuous months of payments
$816.90
Partnered (Each)
$698.30
Freezing social security deeming rates
Date
12 months until 30 June 2025
When Centrelink and the Department of Veterans Affairs calculate payments, instead of looking at the actual income from your investments like bank accounts, term deposits, shares, and managed funds, they assume a fixed rate of return based on the total value of these investments. The Government plans to keep these fixed rates (shown below) unchanged until 1 July 2025.
Deeming rate
Single
Pensioner Couple
0.25%
Up to $60,400
Up to $100,200
2.25%
Amounts over $60,400
Amounts over $100,200
Pharmaceutical Benefits Scheme co-payments
From
1 January 2024
The Government will keep medicine prices low by stopping some price increases:
– The cost you pay for PBS medicines won’t go up from 1st of January 2025 to 31st of December 2025. After that, it will start going up again on 01 January 2026.
– If you have a concession card, the cost you pay for PBS medicines won’t go up from 1st of January 2025 to 31st of December 2029. After that, it will start to increase on 1 January 2030.
Also, the $1 discount on patient co-payments will be reduced each year until it’s gone.
Starting 1 January 2024, you may pay up to $31.60 for most PBS medicines, or $7.70 if you have a concession card. The Australian Government pays the rest, except for brand premiums and certain other charges.
Federal, state and territory governments focus on housing
Housing initiatives focus on three main areas:
1. Private Housing Development: The government aims to build 1.2 million homes by the end of the decade. The 2023-24 Budget introduced new measures to encourage investment in housing projects, especially for affordable rental homes. However, legislation needed to enable these incentives has just been released, which is crucial for certainty and large-scale investment.
2. Support for First Home Buyers: The 2023-24 Budget prioritizes helping first home buyers with a $5.5 billion funding over ten years through the Help to Buy scheme. No new incentives have been announced since then.
3. Crisis and Social Housing Support: The government allocated $1 billion towards crisis and transitional housing for vulnerable groups like women, children fleeing domestic violence, and youth. Additionally, Commonwealth Rent Assistance was increased by 15% in the 2023-24 Budget.
New measures include:
– Providing $1 billion to states and territories for building infrastructure like roads, sewers, and energy for new housing.
– Introducing a new $9.3 billion National Agreement on Social Housing and Homelessness over five years. This includes doubling Commonwealth funding for homelessness to $400 million annually, with matching contributions from states and territories.
Domestic violence
Date
From mid-2025
As mentioned before, the Government has promised nearly $1 billion over 5 years to make the Leaving Violence Program permanent. This program helps people escaping violence by providing them with financial support, safety checks, and referrals to get help. Those who qualify can receive up to $5,000 in financial aid, along with referrals, risk assessments, and safety planning.
Superannuation & Investors
Expanding CGT regime for foreign residents
Date
CGT events commencing on or after 1 July 2025
Here’s a simpler version:
The rules for how foreign residents are taxed on capital gains will be changed to:
– Clearing up and expanding the kinds of assets that foreign residents must pay capital gains tax on.
– Changing the test for the main asset from a single point in time to a period of 365 days.
– Requiring foreign residents to tell the ATO before they sell shares or other ownership rights worth more than $20 million.
Currently, foreign residents must pay capital gains tax when they sell property in Australia that counts as ‘taxable Australian property’ (TAP). These rules make sure that people who don’t live in Australia pay Australian tax when they sell property that’s closely linked to Australian land and used in Australian business.
Shares in a company and parts of a trust can be TAP if the taxpayer and some family members own at least 10% of the business and more than 50% of the gross market value of the assets that the business owns are property in Australia and things like that.
The changes are to make sure Australia can tax foreign residents on their direct and indirect sales of property closely connected to Australian land. Similar to what Australia does with Australian residents.
The new ATO way of telling them what you’re doing will help make sure the rules about withholding tax for foreign residents are followed. You need to check that the thing you’re selling isn’t TAP.
The plan will also make sure Australia’s rules for foreign residents paying capital gains tax are more like what other countries do and what experts think is best.
The government will talk to people about how to make the changes, and they think it will make $600 million more over five years and cost $8 million more.
Business & Employers
$325 energy relief for small business
Date
1 July 2024
About one million small businesses will get a $325 discount on their energy bills from 2024 to 2025. This support will be given as a credit every three months.
Households will also get energy relief with a $300 rebate.
This measure will cost $3.5 billion over three years starting from 2023 to 2024. It expands the Energy Bill Relief Fund.
$20k Small business instant asset write-off extended
Date
1 July 2023 to 30 June 2025
Small businesses that earn less than $10 million can immediately deduct the full cost of certain assets that cost less than $20,000. This applies to assets used or ready to use between July 1, 2023, and June 30, 2025.
“Immediately deductible” means that the business can claim the entire cost of the asset as a tax deduction in the same year it was bought and used or installed.
For businesses registered for GST, the asset’s cost must be under $20,000 after subtracting any GST credits. For those not registered, it must be under $20,000 including GST.
Each asset can be written off individually, allowing a business to deduct the cost of multiple assets.
These rules apply only to assets covered by depreciation rules. Capital improvements to buildings aren’t eligible.
Assets valued at $20,000 or more can’t be immediately deducted. Instead, they can be put into a small business depreciation pool and depreciated at 15% in the first year and 30% each following year, if the business chooses simplified depreciation.
The rule preventing small businesses from re-entering simplified depreciation for 5 years if they opt-out will be suspended until June 30, 2025.
The proposed increase in the instant asset write-off from $20,000 to $30,000, extending it to medium-sized businesses, is not yet law.
The Future Made in Australia initiative
The Government has announced a big plan to make Australia a leader in renewable energy. They will spend $22.7 billion on several projects to encourage private companies to invest in industries that will help Australia move towards net zero emissions. This will secure Australia’s position in the global economy and make sure the country is ready for future challenges. The Future Made in Australia Act will set the rules for this plan, focusing on industries where Australia is strong economically, helps reduce emissions, and improves national security and economic strength in different parts of the country.
Making Australia a renewable energy ‘super power’
Date
From 2027–28 to 2040–41
As part of the Future Made in Australia initiative, the Government plans to invest about $19.7 billion over ten years starting from 2024–25. This money will be used to speed up investment in key Australian industries like renewable hydrogen, green metals, low-carbon fuels, and the processing of critical minerals.
These investments include two time‑limited tax incentives to encourage new industries:
– A tax incentive for Critical Minerals Production, starting from 2027–28 to 2040–41, to support refining and processing of Australia’s 31 critical minerals. It will be valued at 10% of processing and refining costs, applicable for up to 10 years per project that will reach final investment decisions by 2030.
– A Hydrogen Production Tax Incentive, also starting from 2027–28 to 2040–41, for producers of renewable hydrogen. This will be $2 per kilogram of renewable hydrogen produced, for up to 10 years per project that will also reach final investment decisions by 2030.
These tax incentives are planned to be active from the 2027–28 to the 2040–41 financial years.
Other funding measures include:
– $10.2 million in 2024–25 for pre-feasibility studies on common-user processing facilities for critical minerals.
– $1.3 billion over ten years from 2024–25 for the Hydrogen Headstart program to support early-mover renewable hydrogen projects.
– $17.1 million over four years from 2024–25 for the 2024 National Hydrogen Strategy, including planning, social license, and safety training.
– $1.5 billion over seven years from 2027–28 for renewable energy investments by the Australian Renewable Energy Agency.
– $1.7 billion over ten years from 2024–25 for the Future Made in Australia Innovation Fund, focusing on projects in priority sectors.
– $1.4 billion over 11 years from 2023–24 to support manufacturing of clean energy technologies.
– $20.9 million over four years from 2024–25 for further consultation on incentives for low carbon liquid fuels.
– $18.1 million over six years from 2024–25 for foundational initiatives in the green metals industry.
– $11.4 million over four years from 2024–25 to fast track the Guarantee of Origin Scheme for green hydrogen and accelerate work on green metals.
These measures aim to enhance Australia’s capability in processing critical minerals, support the growth of a competitive hydrogen industry, and advance clean energy technologies.
Film producer tax offset
Date
2025-26 income year
The Producer Tax Offset is a refund given for Australian spending on making Australian films, if certain conditions are met. The amount of the offset is:
40% of the company’s spending on a feature film made in Australia.
20% of the company’s spending on other films made in Australia.
The minimum time needed for the production depends on what type of production it is.
As part of the Government’s National Cultural Policy, changes will be made to the Producer Tax Offset from 2025–26. These changes will:
Remove the minimum length rules for content.
Remove the cap that restricts spending on certain production costs to 20% of the total.
Small business support services
Date
Over four years from 2024–25
The Government plans to provide $41.7 million over four years starting from 2024–25 for several initiatives to support small businesses:
Improve how quickly small businesses get paid, including publicly identifying slow-paying businesses.
Support the mental health and financial wellbeing of small business owners, including extending the Small Business Debt Helpline and NewAccess for Small Business Owners program, which offers tailored, free, and private mental health support.
Update the Franchising Code of Conduct based on the 2023 Schaper Review, with a $3 million investment to remake and improve the code. This includes promoting best practices between franchisors and franchisees and making it easier for small businesses to operate, including better access to dispute resolution.
Provide $2.6 million to the Australian Small Business and Family Enterprise Ombudsman to help small businesses, including resolving disputes.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
Transitioning a family business from one generation to the next is a complex process that demands careful planning and execution. While the idea of passing the torch to the next kin may seem straightforward, the reality is often far from it. Disputes, misunderstandings, and financial challenges can arise, jeopardizing both the business and familial relationships. In this article, we delve into the key considerations and strategies for successful generational succession.
1. Assessing Capability and Willingness:
The first step in generational succession is to determine whether the next generation is both capable of and willing to take on the business. This requires a realistic assessment of their skills, experience, and passion for the industry. While some successors may view it as their birthright, mere willingness is not enough; they must also possess the necessary competencies to lead the business forward. Conversely, the exiting generation must be open to the possibility that their children may have different career aspirations.
2. Managing Capital Transfer:
Determining the amount of capital to be extracted from the business during the transition to maintain its financial stability is another pivotal concern. Exiting generation may require a substantial sum, exerting pressure on both the business and its stakeholders. Often, the incoming generation lacks the necessary funds for a complete buyout, necessitating ongoing investment from the exiting generation or increased debt for the business. Clear documentation of the capital transition plan is vital to ensure transparency and alignment between all stakeholders.
3. Establishing Fair Compensation:
Remuneration should be based on commercial terms rather than meeting the personal needs of the owners. Formalizing compensation structures for directors and shareholders is essential to avoid disparities and conflicts of interest. Performance incentives should be clearly defined and tied to measurable outcomes to align incentives and drive accountability.
4. Defining Operating and Management Control:
The transition of control is often a sensitive issue in generational succession. It’s crucial to establish clear guidelines for operating and management control and to ensure buy-in from all parties involved. This may involve gradual transitions over time or event-driven milestones, depending on the circumstances of the business and the preferences of the stakeholders.
5. Setting Realistic Timeframes:
Generational succession is not an overnight process; it requires careful planning and implementation over an extended period. Setting realistic timeframes and expectations is essential to manage the transition effectively. Ensuring that all stakeholders have a common understanding of it to avoid misunderstandings and delays is crucial. This realistic timeline must be defined and documented in the succession plan.
6. Embracing Formality and Structure:
Finally, generational succession often necessitates a greater level of formality and structure within the business. This includes defining roles and responsibilities, establishing clear decision-making processes, and implementing key performance indicators (KPIs) for management. By fostering a culture of accountability and transparency, family businesses can navigate the complexities of succession more smoothly.
In conclusion, generational succession is a multifaceted process that requires careful consideration of financial, operational, and interpersonal dynamics. By addressing key issues such as capability assessment, capital transfer, compensation, control transition, timeframe management, and organizational structure, family businesses can increase the likelihood of a successful transition and ensure the continuity of their legacy for future generations.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
The Australian Taxation Office (ATO) is tightening its grip on professional services firms suspected of diverting profits to evade taxes.
Two recent cases brought before the Administrative Appeals Tribunal have underscored the ATO’s commitment to ensuring that businesses, including lawyers, accountants, architects, medical practices, and engineers, fulfill their tax obligations.
In both instances, the ATO invoked Part IVA of the income tax law, a powerful tool that allows the Tax Commissioner to dismantle schemes designed solely to secure tax benefits. Even if a structure is legally sound, if its primary aim is tax reduction, then Part IVA can be exercised by the Commissioner to nullify any tax advantages obtained through such arrangements. Moreover, offenders under Part IVA may face additional tax liabilities along with hefty administrative penalties of either 25% or 50% of the tax shortfall.
The core of these cases involved a solicitor who oversaw multiple practice trusts generating profits from marketing and facilitating tax planning schemes.
Despite the complexity of these case arrangements involving intricate steps, the core strategy involved the practice trusts channeling their business profits through a series of trusts to entities with existing tax losses or tax-exempt status to ensure that the business profits are being shielded from taxation. However, the actual funds tied to these trust distributions, minus a commission paid to these entities, were funneled back to the solicitor or related entities in the form of loans.
Professional services firms have long been under the ATO’s scrutiny for their profit distribution practices. In 2021, the ATO issued comprehensive guidance on profit allocation within professional firms, establishing risk ratings and gateway tests. These recent cases showed the ATO’s determination to address the matter through litigation, leveraging the Commissioner’s authority outlined in Part IVA.
Professional services firms must be informed of various avenues through which the ATO can challenge their profit distribution arrangement. Here are some scenarios:
1. Personal Services Income (PSI): If a trading entity derives PSI primarily from the skills and efforts of an individual, the ATO expects profits to be attributed to that individual for tax assessment.
2. Business Structure Income: For income derived from professional practice business structures, the ATO scrutinizes arrangements that fail to allocate a reasonable level of profit to individual practitioners.
3. Trust Distributions: For a trust making paper distributions to entities with losses to manipulate deductions, the ATO can refer to the integrity rules under section 100A of the tax law.
Professional services firms must heed these warnings and ensure compliance with tax laws to avoid potential legal and tax repercussions. The ATO’s recent actions signal a heightened focus on combating tax avoidance tactics, underscoring the importance of transparent and lawful business practices within the professional services sector.
Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
