The Australian Taxation Office (ATO) has issued guidance on how Section 99B of the Income Tax Assessment Act 1936 (ITAA 1936) applies to distributions from non-resident trusts to Australian residents. This section ensures that, in most cases, Australian residents who receive payments from such trusts are taxed in Australia, unless exceptions apply. Below, we break down the key aspects of Section 99B, its implications, and what beneficiaries and trustees need to know.

What is Section 99B?

Section 99B ensures that distributions made by non-resident trusts to Australian residents are generally taxed in Australia. This section applies when the trust has been a non-resident at any point since its establishment. While the law is not specifically limited to non-resident trusts, the risk of it being applied is higher for such trusts.

A key provision of Section 99B is Section 99B(2), which allows a reduction in the amount taxed if the distribution is made from the trust’s corpus (principal), rather than income. However, this reduction only applies if the income or gains would have been taxed in Australia if derived by an Australian resident.

The Hypothetical Resident Taxpayer

A critical aspect of Section 99B is the ‘hypothetical resident taxpayer’ (TD 2024/9) of the rules. This assumes that the beneficiary receiving the distribution is an Australian resident, regardless of the trust’s actual residency status. The ATO uses this hypothetical resident taxpayer to determine how the distribution should be taxed.

For example, if a foreign trust sells a pre-CGT asset (an asset acquired before 1985, when capital gains tax was introduced) and distributes the capital gain to an Australian resident, Section 99B would reduce the capital gain under Section 99B(2). In this case, no capital gains tax would apply. Notably, the CGT discount does not apply to the hypothetical resident taxpayer, as the ATO treats them as an Australian resident taxpayer for tax purposes.

ATO’s Guidance on Section 99B

The ATO’s PCG 2024/3 provides further details on how Section 99B applies in different scenarios. While the guidelines are broad, they help clarify how low-risk and high-risk situations are treated under Section 99B.

Two common scenarios are identified where the ATO considers the risk of non-compliance to be low:

1. Deceased Estates
   If a deceased individual was a non-resident at the time of death, the distribution of their estate to Australian beneficiaries may be treated as low-risk, provided:
   • The property is distributed to the beneficiary within 24 months of death.
   • The value of the property received does not exceed $2 million.
   • The distribution is not made from a testamentary trust (created by a will).
   • Proper documentation, such as the signed will or trust deed, is provided.

If these conditions are met, the ATO considers the distribution to be low-risk and will not focus compliance efforts on it unless something unusual is detected.

2. Trust Property Used on Commercial Terms
   If a beneficiary uses trust property under commercial terms, the risk is considered low. The conditions include:
   • The agreement (whether verbal or written) must be on commercial terms.
   • The beneficiary must pay the trustee an amount that matches the commercial terms, such as interest or rental payments.

An agreement is considered on commercial terms if the rates and terms align with market rates. There is also a safe harbour for loans where interest rates and terms follow Division 7A loan standards.

Documentation Requirements

Beneficiaries must provide proper documentation to substantiate their claims for reductions under Section 99B(2). This documentation is essential for proving that the distribution is correctly taxed. Required documents include:

• Signed trust deeds or the will of the deceased person.
• Trustee minutes or distribution statements confirming that payments were made from the trust’s corpus.
• The trust’s financial accounts for relevant years, following the accounting standards of the relevant country.
• Additional case-specific documents, such as bank statements, working papers, and other relevant records.

If a beneficiary fails to provide the required documents, the ATO will treat the entire amount as assessable income, meaning the full distribution will be taxed.

For trustees and beneficiaries of non-resident trusts, understanding Section 99B is crucial for managing tax obligations. Always ensure you have the necessary documents to substantiate your claims and stay compliant with Australian tax law.

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 Group qualifications 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.

By Yvonne Shao @ Pitt Martin Tax

The Australian Taxation Office (ATO) is paying close attention to wealthy baby boomers, especially those who own family-run businesses. Many of these individuals are passing on their businesses and assets to their children or selling them. The ATO is concerned that some of these transfers and business restructures are being done in ways that reduce tax payments unfairly.

According to ATO Private Wealth Deputy Commissioner Louise Clarke, succession planning and tax risks are a major focus for 2025. The ATO has noticed a rise in business reorganizations that seem to be linked to business owners retiring and passing on their wealth.

If you belong to the ATO’s Top 500 (the wealthiest private groups in Australia) or Next 5,000 (those who control a net wealth of over $50 million), expect the ATO to closely examine how money moves through your businesses and investments.

Why Business Owners Should Be Careful

For many business owners, their company is more than just a source of income—it’s their biggest asset. Over the years, they’ve earned income through salaries, dividends, or by selling shares. While tax laws allow business owners to structure their assets in ways that protect their wealth, they must do so legally. If the ATO finds that a structure exists only to avoid taxes, it can deny any tax benefits under Part IVA, the rule that prevents artificial tax avoidance.

The ATO is particularly watching business owners who are nearing retirement and want to pass their companies down to their children. Often, these owners transfer wealth through trusts and other financial arrangements. While this is legal, the ATO is looking at whether these methods are being used to reduce tax payments unfairly.

Areas That Concern the ATO

Some of the key things the ATO is monitoring include:

1. Division 7A loans settlements – Some companies lend money to shareholders, and instead of repaying the loan, they remove it from the books by calling it a “distribution.” This raises tax concerns.
2. Moving Assets Without Proper Valuation – If businesses transfer assets between family members or related companies, they must properly value them. If an asset is moved just to avoid paying capital gains tax, the ATO may investigate.
3. Restructuring Family Interests – Changing how family members own or control assets may trigger tax issues.
4. Changes to Trust Deeds – The ATO is checking whether changes to trust agreements are being used to lower tax payments.
5. Delays in Tax Filings – Businesses delaying tax returns after a restructure may face scrutiny.

The Use of Trusts

Trusts are under greater scrutiny in 2025. If a trust makes a Family Trust Election (FTE) or Interposed Entity Election (IEE), it must follow strict rules about distributing income. If the trust distributes money outside the family, a 47% Family Trust Distribution Tax applies.

The ATO is also tightening rules on trust tax returns for private trusts. When a trust distributes money or assets to another trust, it must complete a Trustee Beneficiary (TB) statement, unless there is an exclusion that applies. If the TB statement is missing or late, the trustee may face a 47% Non-Disclosure Tax on the undisclosed income.

How to Avoid Risk

If you control multiple businesses or investment entities, make sure everything is structured correctly. Whether these businesses are in Australia or overseas, failing to report transactions properly could lead to penalties.

Transferring a business to the next generation might require changes to share ownership, trust structures, partnership agreements, or asset transfers. Each of these changes has tax consequences that need to be carefully managed.

Business owners should also keep detailed records of why and how they transfer assets. Proper documentation can help show that the purpose of a transaction was legitimate and not just for avoiding tax.

It’s important to plan succession and tax strategies properly. Seeking professional tax advice before making major changes could be something you might need to take into consideration. Tax laws are complex, and a professional can ensure that business owners comply with regulations while still minimizing tax burdens legally to avoid any issues in the future.

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 Group qualifications 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.

By Angela Abejo @ Pitt Martin Tax

The last few years have been marked by economic and political uncertainty. As we just entered into 2025, there is cautious optimism for increased stability—though no guarantees. Below, we explore the key developments and challenges businesses and individuals can anticipate.

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Federal Election: Political Advertising Resumes

With a federal election on the horizon, prepare for an influx of political messages across social media, voicemail, and TV. Opposition parties will question if Australians are better off, while incumbents will emphasize their achievements.

The 2025-26 Federal Budget is set to be delivered on 25 March 2025, suggesting the election will occur in either March or May 2025, but no later than 17 May 2025.

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Legislative Uncertainty: Key Bills in Limbo

The final parliamentary sitting day of 2024 saw 32 bills passed, including several with implications for businesses and individuals. However, two significant proposals remain unresolved:

1. Division 296 Tax: 30% on Super Earnings Over $3 Million

The proposed Division 296 tax would impose a 30% tax rate on earnings from superannuation balances exceeding $3 million, starting 1 July 2025. Currently, the enabling legislation is stalled in the Senate and unlikely to pass before the election. If the bill lapses, the next government will determine whether to revisit or abandon the measure.

2. $20,000 Instant Asset Write-Off for Small Businesses

The government proposed extending the $20,000 instant asset write-off for eligible small businesses for the 2024-25 financial year. However, this measure was unexpectedly removed from the final enabling legislation. Without this extension, the write-off threshold will revert to $1,000, creating uncertainty for small businesses planning asset investments.

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Tax and Superannuation Changes

1. Foreign Resident Capital Gains Withholding (FRCGW)

From 1 January 2025, changes to capital gains withholding will apply to foreign residents selling Australian property:

• The withholding rate will increase from 12.5% to 15%.
• The value threshold (currently $750,000) will be removed, applying the withholding to all property sales by foreign residents.

The reforms will affect property acquisitions made on or after 1 January 2025.

2. Superannuation Guarantee Increase

The Superannuation Guarantee (SG) rate will rise from 11.5% to 12% on 1 July 2025, marking the final step in the legislated increase.

3. Superannuation on Paid Parental Leave

From 1 July 2025, superannuation contributions (12% of Paid Parental Leave payments) will be paid to eligible parents’ super funds.

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Economic Outlook: Interest Rates and Cost of Living

Interest Rates

While inflation eased from 5.4% to 2.8% over the year to September 2024, the Reserve Bank of Australia (RBA) remains cautious. Governor Michele Bullock emphasized the need for sustainable inflation levels within the 2-3% target range before rate cuts occur. Forecasts for interest rate reductions vary:

• CBA: February 2025
• ANZ and Westpac: May 2025
• NAB: June 2025

Cost of Living Pressures

Australia’s economic growth remains sluggish, with just 0.8% growth through 2024—the lowest since the December 2020 quarter. Personal income tax cuts and energy subsidies have provided some relief, but rising mortgage costs continue to strain households. Government spending remains a key driver of economic activity.

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International Developments: The Trump Effect

Donald Trump has been inaugurated as U.S. President on 20 January 2025, with the Republican Party controlling both the Senate and the House. Trump’s proposed policies, including tariffs on imports from China, Canada, and Mexico, raise concerns of a trade war. Key statements include:

• A 25% tariff on goods from Canada and Mexico.
• An additional 10% tariff on Chinese imports.

For Australia, these policies could have a secondary impact, given China’s significance as Australia’s largest trading partner, accounting for 26% of two-way trade in 2023. A slowdown in China’s economy may negatively affect Australia’s economic growth. The immediate result has been a decline in the AUD/USD, currently hovering around 63c.

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Environmental Policy: New Car Emissions Standards

From 1 January 2025, vehicle manufacturers will face mandatory CO2 emissions targets for new cars. These targets will gradually tighten over time, requiring manufacturers to produce more fuel-efficient or zero-emission vehicles.

While manufacturers can still sell any type of vehicle, they must balance less efficient models with more fuel-efficient ones. Suppliers who meet or exceed their targets will earn credits, while those who fall short will have two years to either trade credits or generate them before facing penalties.

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Workplace Changes: Wage Theft Criminalised

Effective 1 January 2025, intentional underpayment of wages or superannuation will become a criminal offence. Employers face penalties if they intentionally fail to pay required amounts under the Fair Work Act or relevant agreements.

• Penalties: Fines up to three times the underpayment amount or a maximum of $7.825 million.

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Transitioning Away from Cheques

The government has outlined a plan to phase out cheques:

• Cheques will no longer be issued after 30 June 2028.
• Cheques will no longer be accepted after 30 September 2029.

Usage of cheques has declined by 90% in the last decade, and banks have already begun discontinuing chequebooks for new customers. Despite this transition, cash remains an essential payment method.

Cash Remains Essential

While Australians increasingly use digital payments, the government has emphasized the importance of cash:

• 1.5 million Australians rely on cash for over 80% of in-person payments.
• Cash provides a backup during digital outages or natural disasters.

The government intends to mandate that businesses accept cash for essential items, with certain exemptions for small businesses.

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Final Thoughts: Slow and Steady Progress

2025 promises measured changes in tax, superannuation, and economic policy, along with ongoing political and international challenges. While the path toward stability remains uncertain, businesses and individuals should prepare for key transitions in legislation, workplace regulation, and global trade conditions.

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 Group qualifications 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.

By Zoe Ma @ Pitt Martin Tax

As the festive season approaches, many businesses are planning Christmas parties and gifts. But how can you avoid giving an unexpected present to the Australian Tax Office (ATO)? Here are some key considerations for making your holiday celebrations more tax-efficient.

Can You Make Your Staff Christmas Party Tax Deductible or Tax-Free?

While completely avoiding taxes may not be possible, you can structure your festivities to minimize tax liabilities. However, keep in mind that if you avoid fringe benefits tax (FBT), you typically won’t be able to claim a tax deduction or goods and services tax (GST) credits for the expenses. Here’s how it works:

No FBT Option

• In-office parties: Hosting a Christmas party in your office during a regular workday is usually FBT-exempt for food and drinks. Taxi travel to or from the office for the party is also FBT-free, which can be helpful if employees need a safe way home.
• External venues under $300 per person: If your party is held off-site and the cost per attendee is under $300 (the minor benefit threshold), FBT generally doesn’t apply. However, you won’t be able to claim a tax deduction or GST credits for these expenses.

Tax-Deductible Option

• More extravagant celebrations: If the cost of your off-site Christmas party exceeds the $300 minor benefit threshold per person, you’ll incur FBT but can claim a tax deduction and GST credits for the expenses.

Are Client Gifts Tax Deductible?

Whether or not client gifts are tax-deductible depends on the nature of the gift and its purpose. Gifts given with the expectation of benefiting your business, such as promotional or marketing items, are deductible. However, gifts that qualify as entertainment (e.g., event tickets, meals, or golf outings) are not tax-deductible.

What About Gifts for Staff?

The key to tax-efficient staff gifts is to keep them below the $300 minor benefit threshold and ensure they are spontaneous and one-off. Gifts like cash bonuses are treated as regular income and taxed accordingly, so they’re not as tax-friendly as non-cash items.

Some tips for tax-efficient gifting:

• Avoid ongoing benefits like gym memberships.
• Don’t give multiple identical gifts to the same person that cumulatively exceed $300.
• Spread gifts throughout the year to stay within the minor benefit limits.

Are Client Lunches or Drinks Deductible?

Unfortunately, entertaining clients with meals, drinks, or other forms of entertainment is not tax-deductible, whether during Christmas or any other time of the year. The ATO takes a firm stance against subsidizing such expenses, ensuring taxpayers don’t foot the bill for your social activities.

Planning your Christmas celebrations with tax considerations in mind can help you manage costs effectively. While it’s difficult to avoid all taxes, understanding the rules around FBT, deductions, and minor benefits can make a significant difference. Happy holidays, and may your celebrations be both festive and financially savvy!

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 Group qualifications 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.

By Yvonne Shao @ Pitt Martin Tax

The Federal Court recently decided against a sports company that wanted to claim tax benefits for research and development (R&D) work on an Australian signature basketball shoe.

The case brings to mind the success of Nike’s Air Jordan shoes, famously highlighted in the movie Air. Originally, Nike expected these shoes to earn $3 million by the fourth year. However, they became a massive success, earning $126 million in the first year alone. Nike sold 1.5 million pairs within six weeks. Marketing played a big role, hinting that the colorful shoes violated NBA rules. Today, the Jordan brand is a key part of Nike’s success. By May 31, 2024, it was worth $7 billion and saw a 6% increase in sales during the fourth quarter.

In Australia, Peak Australia tried to replicate similar success with the Delly1 shoe. This shoe was designed with the help of Matthew Dellavedova, an Australian Olympian and NBA champion. Dellavedova worked closely on the shoe, stating in interviews that he wanted it to be low-cut, lightweight, and comfortable for defending quick players in the NBA. He said the team made small adjustments based on his feedback during the testing phase.

However, the key question was whether the work done to create the Delly1 shoe qualified as R&D under tax law.

How R&D Tax Incentives Work

Australia’s R&D tax incentive program is meant to encourage companies to perform research they might not do otherwise. The program offers tax benefits based on how much a company spends on qualifying R&D activities. The type of tax benefit depends on the company’s situation. To qualify, the activities must either be “core” or “supporting.”

Core R&D activities involve solving problems that can only be addressed through scientific methods and experiments. The goal is to create new knowledge. Supporting activities are those that directly assist core R&D work.

Active Sports Management Pty Ltd applied with Industry Innovation and Science Australia (IISA), to have their work on the Delly1 shoe recognized as core R&D. They said the process involved detailed research and testing.

Why the Claim Was Denied

Despite the company’s claims, the Australian Taxation Office (ATO), the Administrative Appeals Tribunal, and the Federal Court all rejected the application. They found that the shoe’s development didn’t meet the standards for core R&D. According to the courts, the work didn’t involve significant technical or scientific uncertainty. Instead, it seemed to focus more on personal preferences and design adjustments.

As a result, the company couldn’t claim R&D tax incentives for their work on the Delly1.

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 Group qualifications 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.

By Angela Abejo @ Pitt Martin Tax

Working with overseas, non-resident workers can be a great opportunity for Australian businesses, but it also brings some important tax responsibilities. Let’s break this down in simple terms to help you understand the basics.

Understand the Worker’s Status

Before anything else, you need to figure out if the worker is an employee or an independent contractor. This is important because tax rules apply differently to each type. The Australian Taxation Office (ATO) provides guidance on this in their Employee or Independent Contractor resource, but if you’re unsure, seeking professional advice is a good idea.

Tax Rules for Employees

If the worker is classified as an employee and they are not a resident of Australia for tax purposes, here are the main things you should know:

1. Tax on Income
   Non-resident employees are generally taxed in Australia only on income earned from an Australian source. For instance, if the work is done entirely overseas, it might not be taxed in Australia.

However, you must check if a Double Tax Agreement (DTA) between Australia and the worker’s home country applies. Australia has around 45 DTAs, which help decide how income is taxed in such cases. For example, the DTA between Australia and the Philippines (Article 15) typically prevents Australia from taxing income unless the work is done within Australia.

2. PAYG Withholding
   Normally, you don’t need to withhold Pay As You Go (PAYG) tax if the employee is a non-resident and earns income from a foreign source.
3. Superannuation
   If the worker is a non-resident and performs all work overseas, superannuation contributions are not required under Australian rules. However, you’ll need to check the worker’s local laws to see if superannuation or similar payments are necessary in their home country.
4. Local Tax Advice
   It’s essential to get advice from a tax expert in the worker’s home country. They can guide you on obligations like withholding taxes or pension contributions.

Tax Rules for Independent Contractors

If the worker is a genuine independent contractor (or operates through a trust or company), here are the key points:

1. Tax on Income
   Non-resident contractors are taxed in Australia only on income earned from an Australian source. For example, under Article 7 of the DTA with the Philippines, Australia generally cannot tax the contractor’s income unless they have a permanent establishment in Australia.
2. PAYG Withholding
   In most cases, you won’t need to withhold PAYG tax if:
   • The contractor has an Australian Business Number (ABN).
   • The DTA prevents Australian taxation.
   • The contractor isn’t conducting a business in Australia.

If the contractor works entirely overseas with no physical presence in Australia, they likely don’t carry on a business in Australia.

3. Reporting to the ATO
   Payments to foreign contractors might need to be reported in the Taxable Payments Annual Report (TPAR) if your business operates in areas like construction, cleaning, IT, or security services.

What About Permanent Establishments?

Hiring overseas workers could lead to your business being seen as operating in their home country. This is called a permanent establishment, and it might mean you have to pay tax in that country.

A permanent establishment usually refers to having a fixed place of business in another country, like an office or warehouse. However, each DTA has its own definition, so it’s important to understand how the rules apply to the specific country you’re working with.

Why Get Professional Advice?

The rules around international workers and taxes can get complicated quickly. Mistakes can lead to unnecessary taxes or penalties. That’s why it’s always a good idea to:

• Seek advice from tax professionals in both Australia and the worker’s home country.
• Understand your obligations clearly to avoid surprises.

By handling these details carefully, you can focus on making the most of your international partnerships while staying on the right side of the law.

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 Group qualifications 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.

By Angela Abejo @ Pitt Martin Tax

Australia prides itself on maintaining a more equitable approach to education compared to the United States, where access to higher education often depends on financial circumstances. The stark difference is reflected in the average student debt figures. In the US, student debt averages USD $37,693 per person and can take up to 20 years to repay. Despite this, many US students face gaps in funding that loans cannot fully address.

In contrast, Australian domestic students benefit from a more structured and accessible loan system, primarily through HECS-HELP. The cost of obtaining a bachelor’s degree in Australia typically ranges from $20,000 to $45,000, though certain high-value courses like medicine can exceed this range. HECS-HELP loans are available for eligible students, covering tuition fees up to $121,844 for most degrees and $174,998 for courses like medicine and dentistry.

Currently, around 3 million Australians carry higher education student debt, which collectively exceeds $81 billion. The average debt per student is approximately $27,000, and repayment typically spans a little over eight years. More than 7,000 Australians have loans surpassing $100,000.

Current HECS-HELP Repayment Terms

Repayment for HECS-HELP loans starts when an individual’s income reaches $54,435. The repayment rate scales progressively with income, beginning at 1% and peaking at 10% for those earning $159,664 or more.

Proposed Changes to HECS-HELP

The Australian Government has introduced a series of reforms to HECS-HELP loans aimed at addressing concerns over rising debt and repayment burdens. While these changes are not yet law, they propose significant improvements:

1. Indexation Adjustments: The indexation rate for HECS-HELP loans will be the lower of the Consumer Price Index (CPI) or Wage Price Index (WPI), instead of the current CPI-based calculation. This change, intended to be backdated to 1 June 2023, would eliminate the 7.1% increase applied in 2023.
2. Higher Repayment Threshold: From 2025-26, the minimum income threshold for repayments will increase to $67,000. Additionally, repayments will only apply to the portion of income exceeding this threshold, not the entire annual income.
3. Loan Reductions: A 20% reduction will apply to all outstanding study and training support loans before 1 June 2025. This measure would alleviate around $16 billion in debt.

Deductibility of HECS-HELP Loan Repayments

While the proposed changes aim to reduce the burden on borrowers, there is ongoing debate about whether HECS-HELP repayments should be tax-deductible. Unlike other forms of debt, such as business or investment loans, HECS-HELP repayments do not qualify for tax deductions, even though education often serves as an investment in an individual’s earning potential.

Allowing tax deductibility for HECS-HELP repayments could provide immediate financial relief for borrowers, particularly those in middle-income brackets. It would incentivize individuals to repay loans sooner, potentially reducing overall debt levels. Moreover, tax-deductibility would align with the principle of encouraging skill acquisition and workforce development, which benefits the broader economy.

Balancing the System

The discussion around student loans in Australia reflects broader concerns about affordability, accessibility, and equity in education. While HECS-HELP provides substantial support compared to systems in other countries, the growing total debt and repayment challenges indicate room for improvement.

By implementing reforms such as indexation changes, higher thresholds, and potentially introducing tax deductibility, Australia could further enhance its higher education funding system to support students and graduates more effectively. These changes would ensure that education remains a pathway to opportunity rather than a lifelong financial burden.

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 Group qualifications 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.

By Zoe Ma @ Pitt Martin Tax

While cost-of-living pressures have slightly eased this year, consumers and businesses alike continue to feel financial strain, making careful planning essential for companies navigating the holiday season. Christmas can bring both opportunities and challenges for businesses, so let’s explore what “makes or breaks” the season from a business perspective.

Managing Seasonal Disruption and Volatility

The holiday rush is underway, and as businesses race to capture any remaining opportunities before the Christmas slowdown, many find themselves grappling with dislocation and unpredictability. Christmas disrupts regular operations, creating periods of volatility that are challenging for businesses to manage without thorough planning.

Consumers, facing ongoing living cost pressures, are particularly cautious. Many households with mortgages are feeling the pinch as fixed-rate loans roll over into higher variable rates. Although energy subsidies and lower fuel costs offer some respite, overall inflation—especially for services like rent, insurance, and personal care—remains above target. The Reserve Bank of Australia has hinted that interest rate reductions are still some way off, so consumers are seeking value for every dollar they spend. Ironically, if spending spikes this season, it may delay future rate cuts, as increased spending can further fuel inflation. However, given inflation, consumers will naturally spend more this year just to match last year’s buying power.

The Discount Dilemma

Discounting remains a key strategy during the holiday season, but businesses must approach it carefully. Knowing your profit margins is essential before offering discounts. For instance, a 20% gross profit margin business offering a 15% discount would need to triple sales volume just to break even. Without careful planning, discounts may lead to losses if sales don’t increase significantly.

Discounting works best when you have excess stock, older inventory that needs to move, or if it generates demand and attracts new customers. Value doesn’t always have to come from direct discounts; bundling products can be more profitable. Packaging high-demand items with lower-demand stock or offering quantity discounts can create value for customers without eroding profits.

Holiday Cost Management

Operating costs often rise around Christmas, with increased staffing, reduced efficiency, downtime on non-trading days, and higher marketing expenses. While it’s essential to embrace the season, careful cost management is necessary to avoid a financial “hangover” in the New Year. If hiring casual employees, ensure they’re paid correctly, including superannuation contributions, to stay compliant.

Planning for New Year Cash Flow

The start of the New Year can bring reduced business activity and tight cash flow. Historically, the March quarter tends to be the hardest quarter for cash flow, so building a buffer is essential. Overextending during the holiday rush may lead to issues in the quieter months ahead.

Lessons from Scrooge: Managing Debts

For businesses working with account customers, it’s wise to start debt collection efforts early, as many clients may face financial pressure during the holiday season. Early follow-ups on overdue accounts increase the chances of getting paid, while waiting could mean missed payments if clients run out of cash.

Inventory Management for the Christmas Rush

If holiday sales are booming, businesses may feel tempted to stock up. While this makes sense, overstocking can lead to excess post-holiday inventory or too much cash tied up in stock. Instead, aim to work with suppliers who can provide goods on short notice to avoid tying up funds. Additionally, if items are out of stock in-store, offer customers online options to complete sales, ensuring no missed opportunities.

While Christmas can be a profitable time, it’s easy to get caught up in the excitement and overlook essential business practices. With careful planning, effective cost management, and a focus on customer needs, businesses can make the most of the holiday season without unnecessary setbacks.

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 Group qualifications 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.

By Yvonne Shao @ Pitt Martin Tax

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 Group qualifications 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.

By Angela Abejo @ Pitt Martin Tax

A significant shift in the administration of the superannuation guarantee (SG) is set to take place, introducing what is known as payday super. This change, aimed at improving the efficiency of super payments, will impose new obligations on employers starting 1 July 2026. Here’s what you need to know about the upcoming changes.

What’s Changing?

Under the new system, employers will be required to pay their employees’ SG contributions on the same day as salary and wages, a departure from the current practice of quarterly payments. This adjustment will help reduce the estimated AUD 3.4 billion gap between the super payments employees are entitled to and the actual contributions made. In addition, the government believes that this will improve employees’ retirement benefits. It is estimated that for a 25-year-old employee with an average income, if pensions are paid with wages instead of quarterly, their pension amount will increase by about 1.5% by the time they retire.

The announcement was made in the 2023-24 Federal Budget, though the payday super is not yet legislated. In anticipation of the changes, the Treasury has released a fact sheet to help employers prepare for the new requirements.

How Will Payday Super Work?

Under this new system, SG payments will be due within seven days after employees receive their ordinary time earnings (OTE). This means that employers must transfer SG contributions to employees’ super funds within a week of each payday. Some exceptions will apply, such as for new employees during their first two weeks of employment and small, irregular payments outside the usual pay cycle.

Many employers have already transitioned to Single Touch Payroll (STP) reporting, which electronically tracks employee wages. It is expected that payday super will integrate with these existing systems, with some minor adjustments to ensure OTE data is captured for super contributions.

Impact on Employers

The key challenge for many employers will not necessarily be the administrative burden but rather the impact on cash flow. Under the current system, businesses hold onto 12% of their payroll for up to 28 days after the quarter ends before paying SG. Under payday super, this money will need to be disbursed as soon as employees are paid, which could pose cashflow issues for some businesses. However, this change is expected to limit the risks of unpaid super, particularly in cases where a business becomes insolvent.

Consequences for Late Payments

Penalties for late or missed SG payments are already severe and will remain stringent under payday super. Currently, late payments trigger the superannuation guarantee charge (SGC), which consists of the unpaid SG amount, 10% annual interest starting from the quarter it was due, and a $20 administration fee per employee. Notably, these SGC amounts are non-deductible for the employer, even when settled.

Under the new payday super regime, penalties will become stricter, especially for repeated violations. If an employer fails to make SG payments on time, the following penalties will apply:

• Outstanding SG shortfall: Based on OTE (ordinary time earnings) rather than total wages.
• Notional earnings: Daily interest charged on the shortfall amount from the day after the due date, at the general interest charge rate.
• Administrative uplift: A penalty of up to 60% of the SG shortfall to cover enforcement costs, reduced if the employer voluntarily discloses the failure.
• General interest charge: Interest on any unpaid SG shortfall and notional earnings, plus any outstanding administrative penalties.
• SG charge penalty: Additional penalties of up to 50% of the unpaid SG charge if the debt is not cleared within 28 days of receiving the notice of assessment.

These penalties can quickly escalate, particularly for employers who have consistently underpaid or misclassified employees as contractors, leaving outstanding SG obligations. The new system will make such oversights costly. However, unlike the current SGC, under payday super, the SGC will become tax-deductible—excluding any penalties and interest accrued if the SG charge is not paid within 28 days.

Though not yet enacted, payday super represents a significant shift in the way superannuation is managed and paid. Employers will need to prepare for the upcoming changes and ensure they meet their new obligations once the law is finalized. Keep an eye on updates as the policy evolves to ensure compliance and avoid costly penalties.

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 Group qualifications 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.

By Yvonne Shao @ Pitt Martin Tax