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

Each month, we will explore various aspects of transferring property, such as estate planning, handling inheritances, and business succession. This month, let’s focus on the tax implications of inheriting assets—an area that can have significant financial consequences if not handled properly.

Beyond the emotional and logistical challenges of dividing assets, it’s critical to understand the tax consequences of how your wealth will flow to your beneficiaries. Depending on the type of asset and the tax status of the beneficiary—such as whether they are an Australian resident—the tax outcome can vary significantly.

Inheriting Cash

When cash is passed from the deceased to their estate, and then distributed to beneficiaries, there are generally no tax implications, provided the funds are in Australian dollars. Cash transfers in this context are typically straightforward and do not trigger capital gains tax (CGT).

Inheriting Assets

In the world of taxation, death is often considered a “taxing event.” When ownership of an asset changes due to death, it usually triggers a CGT event. However, Australian tax law offers relief under certain conditions. In most cases, capital gains or losses resulting from a death are disregarded unless the asset is transferred to:

• An exempt entity (with some exceptions, particularly if the entity is a charity with deductible gift recipient status),
• A trustee of a complying superannuation fund, or
• A foreign entity, assuming the asset is not considered “taxable Australian property.”

As long as the asset is passed to the deceased’s legal representative (e.g., the executor) or a beneficiary, who is not one of the entities listed above, the asset transfer is exempt from CGT at the time of death. However, once the beneficiary decides to sell the asset, any capital gains or losses become taxable.

Inheriting Shares

Let’s say you inherit a share portfolio listed on the Australian Stock Exchange (ASX) under your mother’s will. The tax treatment of those shares will depend on factors like whether your mother was an Australian resident for tax purposes at the time of her death and whether the shares were purchased before or after 20 September 1985 (the introduction of CGT).

• Post-CGT shares: If your mother was an Australian tax resident and acquired the shares after the CGT rules were introduced, the cost base of the shares is typically the original purchase price. For example, if she purchased BHP shares for $17.82 on 2 January 1997, that price would be the cost base used to calculate your gain or loss when you eventually sell the shares.
• Pre-CGT shares: If the shares were acquired before 20 September 1985, the cost base is reset to the market value at the date of death. For instance, if your mother passed away on 1 October 2024, and the shares were valued at $45.96, that price would be your cost base for tax purposes.
• Non-resident status: If your mother was a non-resident for tax purposes when she died, the cost base is usually the market value of the shares at the time of death.

Managing inherited shares can be challenging as their value and composition can fluctuate over time. What starts as a small portfolio may grow significantly in value, making proper tax planning essential.

Inheriting Property

Now, imagine you inherit a residential property in Australia from your father’s estate. For CGT purposes, you are deemed to have acquired the property on the date of his death. In many cases, the cost base of the property is inherited, meaning it’s based on the value when your father originally purchased it. However, the treatment differs for properties acquired before the CGT regime was introduced and for a property that was your father’s primary residence.

Special rules allow beneficiaries to access a full or partial main residence exemption on inherited properties. If your father’s home was his main residence at the time of death, and it wasn’t used to generate income (i.e., not rented or used for business purposes), the executor or beneficiary might qualify for a full CGT exemption under either of these conditions:

• The house is sold within two years of your father’s death, or
• The house remains the main residence of a surviving spouse or other qualifying individuals (such as someone who had the right to occupy the property under the will) until the house is sold.

For example, if the house was your father’s primary residence and sold within two years, no CGT would apply. If you choose to sell the house later, say 10 years after inheriting it, the CGT treatment will depend on how the property has been used during those 10 years.

An extension to the two-year rule can apply in certain situations, such as if the will is contested or complicated, delaying the sale of the property.

If your father was no longer living in the property but continued to treat it as his main residence under the “absence rule” (e.g., if he moved to a retirement village), the CGT exemption may still apply.

If your father was a non-resident for tax purposes, given the proeprty was purchased at post-CGT period, the cost base for CGT purposes is usually inheriting the acquiring price when your father purchased it.

Inheriting Foreign Property

If you are an Australian resident inheriting foreign property from a non-resident (for example, a house from a relative in the UK), the cost base for tax purposes will generally be the market value of the property at the time of their death. If you sell the property and a gain arises, the Australian CGT rules will apply, though the CGT discount may be less than 50%. Additionally, if the gain is also taxed overseas, a foreign tax offset may be available to reduce the amount of tax payable in Australia.

The Complexity of Inheritance Taxation

Inheriting assets can quickly become complex, especially when multiple types of assets are involved, or if foreign tax rules come into play. Proper estate planning and an understanding of the tax consequences of inheritance are essential to ensuring that you and your beneficiaries can navigate these issues effectively. For personalized advice on the tax implications of inheriting property, feel free to reach out for professional assistance.

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

When accessing your myGov account, you notice that your activity statements from the past year have been modified, and $100,000 in GST credits have been issued. The problem? You weren’t the one who made these changes, and there’s no sign of a $100,000 refund in your bank account. What should you do now?

This scenario is becoming increasingly common as scammers target myGov accounts for their wealth of personal data. They change bank details and file fake refunds, using your identity to claim large sums of money. From the outside, it looks like it’s all coming from you. The worst part is, you may have unknowingly helped these fraudsters access your account.

And it’s not just activity statements being manipulated. Scammers are targeting any myGov-linked service that can issue payments or refunds. They use legal loopholes and amendment windows in tax law to adjust tax data, leading to fraudulent refunds on personal income tax, GST, or pay-as-you-go (PAYG) instalments. The level of knowledge these scammers have about Australia’s tax and social systems is impressive—and concerning.

Once they gain control of your myGov account, they can wreak havoc.

How does this happen?

Human error is often at fault. Many scams start with phishing attempts. Around 79% of reported tax-related scams over the past year have come through email, while 18% have been through SMS. These scams mimic official messages that seem legitimate, with scammers using several common strategies:

• Fake warnings about unauthorized access attempts, prompting you to click a link and verify your details.
• Offers of supposed rewards, like a tax refund, with a link you must click to claim.
• Messages resembling official notifications from the Australian Tax Office (ATO), complete with a link to view the message.

The ATO reported that 75% of all email scams up to March 2024 involved a counterfeit myGov login page.

How to recognize a scam

You might first notice suspicious activity through alerts from myGov—ironically, the same kinds of alerts scammers may have used to access your account. However, there are clear ways to identify a fake:

• The ATO, Centrelink, and myGov never send messages with clickable links. If a message includes one, it’s likely a scam.
• The ATO doesn’t use QR codes to direct you to your account.
• The ATO will never ask for your tax file number (TFN), bank details, or myGov login information through social media platforms. Scammers often impersonate ATO or government agencies on social media to trick people into sharing personal data. Assistant Commissioner Tim Loh compares this to ‘handing your house keys to a stranger and watching them change the locks.’
• The ATO will not send pre-recorded messages about tax debt. It won’t cancel or suspend your TFN due to suspicious activity or tell you to transfer funds to a “safe” account.
• The ATO won’t initiate a conference call with you, your tax agent, and someone claiming to be from law enforcement. Some scammers pretend to be ATO representatives and stage fake calls with fraudulent tax agents to deceive victims.
• The ATO will not ask you to update your details due to a security issue with myGov. If you receive such a request, it’s likely a phishing attempt.

In general, you should avoid clicking on links in emails or messages. Instead, log directly into your myGov account to review any alerts or updates.

And remember: never log into myGov while using public Wi-Fi.

Who gets scammed?

While many assume older adults are the most vulnerable to scams, younger people are increasingly falling victim. The ATO reports that individuals aged 25 to 34 are the most likely to provide personal information to scammers. Younger people are also particularly susceptible to investment scams.

The AFP-led Joint Policing Cybercrime Coordination Centre (JPC3) notes that Australians under 50 are now more frequently targeted by investment scams than older citizens. During the 2023-24 financial year, Australians lost $382 million to investment fraud, with almost half of those losses involving cryptocurrency.

Other types of scams

Scammers aren’t limited to tax fraud—they will exploit any opportunity to steal money:

• Investment scams: Scammers engage in a tactic known as ‘pig butchering’, where they build trust with victims over time through social media or messaging apps. Once trust is established, they lure victims into investing in fake cryptocurrency or foreign exchange platforms. These platforms are often designed to look legitimate, showing fake profits to convince victims to invest more money. Eventually, the scammers disappear with all the funds. Another type is called ‘deepface scams’ that scammers use AI-generated content, such as fake videos or images of public figures, to promote fraudulent investments. These deepfakes can be very convincing and are often shared through social media or direct messages. While subtle clues like unnatural facial movements or odd speech patterns can be giveaways, the quality of these deepfakes is improving rapidly.
• Invoice scams: Cybercriminals gain access to business systems, identify suppliers, and use legitimate company details to send fake invoices. The money is then diverted to scammer-controlled accounts.
• Bank scams: Some scammers call people pretending to be from their bank, claiming there’s an issue with their account. They guide the victim through a series of steps that eventually result in transferring money to a scammer’s ‘safe’ account. Victims often trust the scammers because they seem to know a lot of personal information.

It’s important to know that your bank will never request personal or account details via email or text. A recent survey by CHOICE found that four in five bank scam victims weren’t alerted by their bank before they transferred money to scammers.

The Australian Banking Association has announced that by the end of 2024, banks will implement new warning systems and payment delays, especially for high-risk transactions like cryptocurrency transfers.

What to do if you’ve been scammed

• For myGov scams: If you’ve downloaded a fake app, shared your details, or clicked on a suspicious link, immediately contact the Services Australia Scams and Identity Theft Helpdesk at 1800 941 126 or seek assistance online.
• For tax scams: Before acting on any instructions you receive, contact your tax agent for verification. If you’ve already been scammed, reach out to the ATO directly at 1800 008 540 to report the issue.

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

Do you own an investment property or luxury lifestyle assets such as a boat, a high-end vehicle, or even an aircraft? If so, the Australian Taxation Office (ATO) is keeping a close eye on these assets to ensure that what is declared in tax returns aligns with the actual financial and asset data.

In a recent move, the ATO launched two new data-matching initiatives specifically aimed at investment property owners and individuals fortunate enough to possess high-value lifestyle assets.

Investment Properties: Increased ATO Focus

Investment properties have long been a focal point for the ATO, especially when it comes to ensuring correct reporting of rental income and deductions. Building on previous data-matching efforts that examined data from residential investment property loans and landlord insurance, the ATO has now extended its reach. From the 2018-19 financial year through to the 2025-26 financial year, the ATO will collect data from property management software.

This data capture includes a wide range of information:

• Owner identification details: This includes personal information such as names, addresses, phone numbers, dates of birth, email addresses, business names, and Australian Business Numbers (ABNs) where applicable.
• Property details: Information like property addresses, the date the property was first made available for rent, as well as details of the property manager (including their ABN and license number).
• Property transactions: Detailed records of rental income and expenses, covering transaction periods, descriptions, amounts, and rental account balances.

While this new program is a significant step, it complements the ATO’s ongoing collection of property transfer data from state and territory governments since July 1, 2016. This means that property transfers are regularly reported to the ATO each quarter.

The latest data-matching initiative is aimed squarely at landlords who:

• Fail to submit required rental property schedules when required;
• Underreport or omit rental income;
• Incorrectly claim deductions;
• Omit or inaccurately report Capital Gains Tax (CGT) information.

Lifestyle Assets Under Review

In addition to investment properties, the ATO is also tightening its oversight of high-value lifestyle assets by working with insurance providers. Through this partnership, the ATO can cross-reference ownership of luxury assets, such as:

• Caravans and motorhomes valued at $65,000 or more;
• Motor vehicles, including cars, trucks, and motorcycles, valued at $65,000 or more;
• Thoroughbred horses valued at $65,000 or more;
• Fine art with a valuation of $100,000 or more per item;
• Marine vessels valued at $100,000 or more;
• Aircraft valued at $150,000 or more.

The ATO will collect substantial information from these insurance providers, including personal details of policyholders, asset purchase prices, identification details, and the primary use of the asset.

These efforts are designed to identify cases where individuals or businesses:

• Accumulate or improve assets without reporting these acquisitions in their tax returns;
• Dispose of assets without declaring income and/or capital gains;
• Incorrectly claim Goods and Services Tax (GST) credits;
• Fail to report fringe benefits tax (FBT) when assets owned by a business are used for personal purposes.

What This Means for Taxpayers

The ATO’s data-matching programs serve as a reminder that accurate reporting is essential. Whether it’s a rental property or a luxury lifestyle asset, ensuring that all income, deductions, and disposals are reported correctly can help avoid unwanted scrutiny. The ATO’s access to increasingly detailed data means that discrepancies are more likely to be caught, and penalties may apply for non-compliance.

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

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 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 Australian Securities and Investments Commission (ASIC) recently reported a significant 39% uptick in corporate insolvencies compared to the previous financial year. Industries like construction, accommodation, and food services have been hit the hardest by this surge.

Restructuring Trends and Survival Rates

In the financial year 2023-24, there was an over 200% rise in restructuring efforts. Small businesses with liabilities under $1 million have the option to engage in restructuring processes. This allows them to keep control of their operations while formulating a recovery plan with the help of a restructuring expert. The goal is to establish an agreement with creditors.

Out of the 573 companies that began restructuring after January 1, 2021, and finished their restructuring plan by June 30, 2024, 89.4% were still registered as of June 30, 2024, while 5.4% had entered liquidation, and 5.2% were deregistered.

Michelle Bull from the Reserve Bank of Australia recently commented on the growing pressures within the business sector. She noted that the outlook is not as positive as it once was, and productivity is also lagging. This situation highlights the importance for managers to maintain a clear understanding of their financial health. Identifying and addressing issues early can prevent them from escalating.

Key Factors Behind Business Failures

A company is considered insolvent when it cannot meet its debt obligations on time. The top three reasons for business failure include:

1. Ineffective strategic management
2. Poor cash flow or excessive spending
3. Operating losses

Recognizing Warning Signs

It’s easy for businesses to miss early warning signs, leading to an over-reliance on hope that conditions will improve. Common signs of trouble include:

• Underperformance: When results fall significantly short of budget projections.
• Rising Fixed Costs: Increasing fixed costs without a corresponding revenue increase can harm profitability. Fixed costs remain the same regardless of business activity, so any rise can be detrimental if not matched by growth in revenue.
• Declining Gross Profit Margins: A shrinking margin between sales and the cost of goods sold directly reduces net profit.
• Over-Reliance on Debt: Relying heavily on debt rather than equity financing can lead to financial instability.
• Falling Sales: A drop in sales can have a ripple effect, stifling growth and reducing profits.
• Delayed Payments to Creditors: Good sales alone aren’t enough if cash flow issues prevent timely payment to creditors.
• Overspending: Spending beyond the business’s cash flow, hoping future income will cover today’s expenses, is a risky strategy.
• Inadequate Financial Reporting: Operating without clear financial visibility is like flying blind.
• Overexpansion: Rapid growth can overwhelm a business if sales outpace the company’s capacity to sustain them.
• Significant Bad Debts or Unsellable Inventory: Customers who fail to pay and stock that doesn’t sell can drain resources.

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

In a recent Federal Court case, the Tax Commissioner successfully argued that over $1.6 million deposited into an Australian couple’s bank account constituted assessable income rather than a gift or loan from friends.

The Case: Rusanova and Commissioner of Taxation

The case of Rusanova and Commissioner of Taxation, reads like a telemovie. It involves an Australian-resident Russian couple who received over $1.6 million in unexplained bank deposits, accrued more than $67,000 in interest, a father-in-law who is a Russian seafood exporter, several Australian companies, and a friend who provided multiple loans in $20,000 instalments.

The key issue in this case was whether the couple could convince the Australian Tax Office (ATO) that these unexplained deposits were either gifts or loans, and what happens when the Tax Commissioner disagrees. If the Commissioner believes the deposits are income, he can issue a default tax assessment, which shifts the burden onto the taxpayer to prove otherwise.

The Unexplained Deposits

Between 2012 and 2016, the couple received around $1,636,000 in their bank accounts. The ATO became suspicious when neither spouse lodged tax returns, mistakenly believing they had no taxable income. The couple claimed the deposits were gifts from the wife’s father, thus not subject to tax. However, there were no records, texts, or emails to support their claim or even to acknowledge the receipt of these funds.

In addition, a friend of the couple deposited several amounts, including a series of $20,000 transactions over the course of a week. The friend asserted these were interest-free loans with no agreed terms, although he couldn’t recall how he was asked to make the loans. There were also no loan agreements, emails, or texts to substantiate these transactions. Oddly, around the same time, the husband was documented as repaying amounts exceeding what had been borrowed, including transferring a Porsche Cayenne to his friend in Russia as alleged loan repayment.

Further complicating matters, the husband held directorships in four Australian companies, none of which had lodged tax returns. One of these companies was involved in seafood wholesale, distributing products from his father-in-law’s Russian export business. The husband claimed he was merely helping develop his father-in-law’s business from 2010 to 2016 without receiving any remuneration.

Challenging the Tax Commissioner

In 2017, a covert tax audit led to the ATO assessing the couple’s income tax liability based on the unexplained deposits and expenses, issuing a default assessment. The couple objected, partially succeeding in having the assessment revised. However, when they contested the revised assessment before the Administrative Appeals Tribunal (AAT), arguing it was excessive, their challenge was ultimately unsuccessful.

Can the Tax Commissioner Decide Your Tax Liability?

The Tax Commissioner has the authority to issue a ‘default assessment’ for overdue tax returns or activity statements based on what the ATO believes is owed, not what has been declared. Default assessments are particularly concerning because they may carry an administrative penalty of 75% of the tax-related liability, potentially increasing to 95% in cases of persistent non-compliance.

For the couple, the challenge was proving that the funds were indeed gifts, which are not taxable. However, the burden of proof lies with the taxpayer. The AAT held that without reliable evidence, there was no basis to determine if the deposits were part of the couple’s taxable income. As a result, the couple’s claim that the deposits were gifts or loans was dismissed by the AAT. Despite an affidavit from the wife’s father stating the funds were gifts, the couple failed to demonstrate what their actual income was or provide sufficient proof that the funds were indeed gifts.

The Federal Court dismissed the couple’s appeal, upholding the Tax Commissioner’s default tax assessment and associated penalties.

Avoiding the Gift Tax Trap

Gifts of money or assets are generally not taxed if given voluntarily, without expectation of something in return, and without the donor materially benefiting. However, there are circumstances where tax may apply:

1. Gifts from a Foreign Trust: If you are an Australian tax resident and a beneficiary of a foreign trust, amounts paid to you or applied for your benefit may need to be declared in your tax return. This rule can apply even if the money was indirectly received, such as through a family member who then gifted it to you.
2. Inheritances: Inherited money or property is usually not taxed, but capital gains tax (CGT) may apply when disposing of an inherited asset. For example, if you inherit your parents’ home, CGT generally doesn’t apply if the property was their main residence, they were Australian residents for tax purposes, and you sell the property within two years. However, CGT might apply if the property is sold more than two years after inheriting it, or wasn’t their main residence, or your parents were not Australian tax residents at the time of their death.
3. Gifting an Asset: Donating or gifting an asset doesn’t avoid CGT. If you receive nothing or less than the market value for the asset, the market value substitution rule might apply, potentially triggering a CGT liability. For instance, if parents gift a block of land to their daughter, the ATO will consider the land’s market value at the time of the gift. If the land’s value exceeds the purchase price, a CGT liability could arise even though no money changed hands. Similarly, donating cryptocurrency might trigger CGT. If you donate cryptocurrency to a charity, you might be assessed on its market value at the time of donation. You can only claim a tax deduction if the charity is a deductible gift recipient and accepts cryptocurrency.

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

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:

1. 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).
2. 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.
3. 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.
4. 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 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