'Wild' tax deduction attempts

'Wild' tax deduction attempts

The ATO recently revealed some of the 'wild' work related expense tax claims people have tried to "put past" the ATO, including the following:

-   A mechanic tried to claim an air fryer, microwave, two vacuum cleaners, a TV, gaming console and gaming accessories as work-related.  The claim was denied as these expenses are personal in nature.

-   A truck driver tried to claim swimwear because it was hot when they stopped in transit and they wanted to go for a swim.  The claim was denied as these expenses are personal in nature.

-   A manager in the fashion industry tried to claim well over $10,000 in luxury-branded clothing and accessories to be well presented at work, and to attend events, dinners and functions.  The clothing was all conventional in nature and was not allowed.

This tax time. the ATO will be focused on areas where it sees frequent errors, including work-related expenses, working from home deductions, and in respect to multiple income sources.

Getting ready for business

The ATO advises new business owners that they need to understand their obligations to ensure they are "getting it right from the start."

These are the 'top 7 things' taxpayers need to know when starting a business.

-   They should use digital tools and maintain accurate records to help them manage daily activities and cash flow.

-   There are some registrations they will need to complete when they start a business (for example, registering for an ABN or a business name).

-   They can claim a tax deduction for most business expenses if the expense is directly related to earning their income.  Taxpayers should remember to keep records and only claim the business portion of mixed-use expenses.

-   The type of business structure they set up will affect their tax and registration requirements, so they need to choose the right business structure and understand their obligations.

-   If they are an employer, they should realise that they have extra responsibilities and obligations (e.g., super guarantee and Single Touch Payroll).

-   They need to lodge and pay their taxes on time.  They can prepay their estimated income tax liability through PAYG instalments.

-   Businesses that maintain accurate records, lodge and pay on time and avoid errors not only steer clear of penalties and general interest charge but also become more resilient when facing challenges.

Editor: If you need assistance with any of these issues, please contact our office.

Taxi service and ride-sourcing providers must be registered

Taxpayers that provide taxi, limousine or ride-sourcing services must register for GST regardless of their turnover. 

They must collect and pay GST and income tax on all their rides and all other business income.

The ATO is advising drivers in this industry who do not have a TFN, ABN or GST registration that they need to register now, and collect, report and pay GST on all their future rides. 

They also need to report all their income from their rides in their next tax return.

Penalties and interest may apply for drivers who do not register for GST. 

Drivers who have not declared all their income for ride-sourcing in prior years can amend a previous tax return.

Partial release from tax debt on serious hardship grounds

In a recent decision, the Administrative Review Tribunal ('ART') held that a taxpayer should be released from payment of part of his tax debt on the grounds of serious hardship.

As at the 2022 income year, the taxpayer had an accumulated tax debt of approximately $528,000, comprising income tax, late lodgment penalties, PAYG instalments, and the general interest charge  on the PAYG and unpaid income tax.

Much of the taxpayer's tax debt had arisen as a result of the taxpayer deriving income protection insurance payments from his insurer (which were assessable).  These payments had been made since around 2002, and arose from a serious injury the taxpayer had suffered in a fire at his restaurant business.

The ART noted that there were a number of  factors which weighed against the taxpayer, including his  failure to make payments to meet the tax debt and his 'extremely poor' tax compliance history.

However, the ART decided that some relief was justified, given the extent of hardship, concerns about the taxpayer's health, and recoverability time for the tax debt. 

The ART accordingly reduced the total tax debt (including penalties) to $250,000.

$20,000 instant asset write-off for 2024/25

Taxpayers who have purchased or are purchasing a business asset this financial year should remember that the instant asset write-off limit is $20,000 for the 2025 income year.

If a taxpayer's business has an aggregated annual turnover of less than $10 million and they use the simplified depreciation rules, they may be able to use the instant asset write-off to immediately deduct the business part of the cost of eligible assets, as follows.

-   The full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use for a taxable purpose between 1 July 2024 and 30 June 2025.

-   New and second-hand assets can qualify, although some exclusions and limits apply.

-   If the taxpayer claimed an immediate deduction for an asset's cost under the simplified depreciation rules in an earlier income year, they can also immediately claim a deduction the first time they incur a cost to make an improvement to that asset if it is incurred between 1 July 2024 and 30 June 2025 and less than $20,000.

-   The $20,000 limit applies on a per-asset basis, so taxpayers can instantly write off multiple assets as long as the cost of each asset is less than the limit.

The usual rules for claiming deductions still apply.  Taxpayers can only claim the business part of the expense, and they must have records to prove it.

Beware websites sharing fake news on super preservation age

The ATO is warning the community about a "proliferation of dodgy websites sharing fake news about changes to the superannuation preservation rules and withdrawal rules starting on 1 June."

ATO Deputy Commissioner Emma Rosenzweig confirmed the maximum preservation age (the age when an individual can access their superannuation savings on retirement) is 60 for anyone born from 1 July 1964.

May Update

How to manage business day-to-day transactions

The ATO has the following tips for small business owners "that can make your tax life easier":

• They should keep an eye on upcoming expenses, and regularly update their books and reconcile their accounts.

• They should set aside the GST they collect (e.g., by transferring it into another bank account within the business to keep it separate from their cash flow).

• They can also set their PAYG withholding and super aside, so they will have the funds available when payments are due.

• They should plan ahead and schedule time in their calendar to prepare their business activity statement ('BAS'), and lodge and pay their BAS on time.

Editor: If you need assistance with any of these issues, please contact our office.

Minimum pension drawdown reminder

An SMSF must pay a minimum amount each year to a member who is receiving an account-based pension.

This minimum amount is calculated by applying the relevant percentage factor based on the member's age by the member's pension account balance calculated as of 1 July 2024, or on a pro-rata basis if the pension commenced part way through the 2025 financial year.

If the minimum payment is not made by 30 June, this could result in adverse taxation consequences for the member.

How to avoid common CGT errors

The ATO wants taxpayers to know that having a foreign resident capital gains withholding ('FRCGW') clearance certificate does not mean they do not have any further CGT obligations.

If taxpayers have sold property, they still need to include capital gains, losses or an exemption or rollover code in their tax return.

Editor: If an amount of FRCGW was withheld from the property sale, you should let us know and provide the 'FRCGW payment confirmation' from the purchaser.

Where you have lived in a property for any period during your ownership period you should provide us with the full details so we can determine the correct application of the main residence exemption.

Keeping not-for-profit records up to date

Taxpayers should remember that they are legally required to keep certain records for their not-for-profit ('NFP'). 

All organisations including NFPs are required to keep accurate and complete records of all transactions relating to their tax and superannuation affairs.

Generally, for tax purposes, taxpayers must keep their records in an accessible form (either printed or electronic) for five years. 

Records that NFP taxpayers are required to keep include:

• governing documents;

• financial reports;

• documentation relating to grants; and

• registrations and certificates.

A good record keeping system will help taxpayers run their NFP successfully and manage their tax and super obligations.

If a taxpayer's NFP is endorsed as a deductible gift recipient ('DGR'), they must keep records that explain all  transactions and other acts relevant to their organisation's status as a DGR. 

This requirement applies to both endorsed DGRs and listed by name DGRs.

Increase to rate for working from home running expenses

PCG 2023/1 outlines the ATO's new method ('the fixed-rate method') for calculating additional running expenses while working from home, which has applied from 1 July 2022.

Editor: This  guideline was recently updated to increase the work from home fixed rate from 67 cents to 70 cents per hour from 1 July 2024.

The fixed-rate method allows taxpayers to claim at a rate of 70 cents per hour for the following additional running expenses for working from home:

• energy expenses (electricity and gas) for lighting, heating, cooling, and electronic items used while working from home;

• internet expenses;

• mobile and home phone expenses; and

• stationery and computer consumables.

However, PCG 2023/1 does not cover occupancy expenses relating to a home, such as rent, mortgage interest, property insurance and land tax.

Taxpayers are not required to use the above fixed-rate method — as from 1 July 2022, they can instead continue to claim the actual expenses they incurred as a result of working from home and keep all records necessary to substantiate their claim.

Truck driver entitled to claim meal expenses

In a recent decision, the Administrative Review Tribunal ('ART') upheld a truck driver's claim for meal expenses, notwithstanding that those expenses had not been fully substantiated.

The taxpayer was employed as a long-haul truck driver in Western Australia.  He was away from home for considerable periods each year.

The taxpayer sought a deduction for meal expenses of $32,782 in the 2021 income year, apparently calculated by multiplying the number of days he was away from home (310) by the maximum reasonable daily allowance under Taxation Determination TD 2020/5.

The ATO only allowed the taxpayer a deduction for meal expenses of $5,890 based on a review of his logbook, fatigue diary and bank statements.  This was an average of $19 per day multiplied by 310.

The ART found on the balance of probabilities that the taxpayer incurred the claimed expenditure, and it found that the taxpayer had met his burden of proof.

In this regard, the ART determined that the taxpayer incurred the disputed expenses in gaining or producing his assessable income, and it did not agree with the ATO that there was an insufficient linkage between the expenditure on bank statements and the taxpayer's work.

The ART held that the exception to the substantiation provisions applied to the taxpayer, as:

• a travel allowance was paid by the taxpayer's employer which covered the expenses;

• the taxpayer incurred the expenditure in gaining or producing his assessable income; and

• the expenditure fell within the ATO's reasonable travel amounts set out in TD 2020/5.

The ART accordingly allowed the taxpayer's claim for travel expenses in full.

Please note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

March Update

How to master employer obligations in 2025

Taxpayers who employ staff should remember the following important dates and obligations:

Fringe benefits tax ('FBT')

31 March 2025 marks the end of the 2024/25 FBT year.  Employers should remember the following regarding their FBT tax time obligations.

• They should identify if they have provided a fringe benefit.  If they have, they should determine the taxable value to work out if they have an FBT liability.

• They should lodge an FBT return and pay any FBT owed by 21 May 2025.  If their registered tax agent lodges electronically for them, they have until 25 June 2025.

• They should keep the right records to support their FBT position.

Pay as you go ('PAYG') withholding

Taxpayers need to withhold the right amount of tax from payments they make to their employees and other payees, and pay those amounts to the ATO.

Single touch payroll ('STP')

Employers should finalise their STP data by 14 July 2025 for the 2024/25 financial year (there may be a later due date for any closely held payees).

Super guarantee ('SG')

• 28 January, 28 April, 28 July and 28 October are the quarterly due dates for making SG payments;

• The SG rate is currently 11.5% of an employee's ordinary time earnings.  From 1 July 2025, it will increase to 12%.

• Taxpayers should ensure SG for their eligible employees is paid in full, on time and to the right super fund, otherwise they will be liable for the SG charge.
  
  

ATO's tips to help taxpayers stay on top of their BAS

The ATO has the following tips to help taxpayers get their BAS right before they lodge:

• They should make sure they enter the figures for their obligations at the correct label, and only complete applicable fields.

• If lodging online, or through a registered tax or BAS agent, they may be able to get an extra 2 or 4 weeks to lodge and pay.

• If they have nothing to report for the period, they can lodge a 'nil' BAS online by selecting 'Prepare' and then 'Prepare as nil', or they can call the ATO's automated service "any time of the day".

• If they made a mistake on their last BAS, instead of lodging a revision, they may be able to use their current BAS to fix it.  For example, they can use label 1A to adjust GST on sales, or label 1B to adjust GST on purchases.

• They can also use their BAS to vary an instalment amount.
  
  

Claiming fuel tax credits when rates change

Fuel tax credits changed on 3 February, and taxpayers could receive more savings for fuel they have acquired on and from this date.  Different rates apply based on the type of fuel, when it was acquired and what activity it is used for.

The ATO has the following tips for taxpayers to ensure they are claiming correctly.

• They can use the ATO's 'eligibility tool' on its website to find out if they can claim fuel tax credits for fuel they have acquired and used.

• They can use the ATO's online fuel tax credit calculator (which should automatically apply the right rate) to work out their claim.

• They can lodge their BAS via Online services or a registered tax or BAS agent (lodging via an agent can allow them extra time to lodge and pay).

ATO "busts" NFP myths

Editor: As the Not-for-profit ('NFP') self-review return is due in March, the ATO has recently published a document 'busting' various NFP 'myths'.

Myth 1: All NFPs are income tax exempt.

ATO response: This is not true.  Some NFPs are income tax exempt and some are taxable.

Myth 2: There is only one way to lodge the NFP self-review return.

ATO response: There are three ways, as follows:

• A 'principal authority' may be able to lodge using 'Online services for business';

• It may be possible for the return to be lodged by phoning the ATO's automated self-help phone service on 13 72 26; and

• A registered tax agent can lodge the return through Online services for agents.

Myth 3: Anyone can lodge the NFP self-review return online.

ATO response: If lodging via Online services for business, anyone authorised to access the return in Online Services can lodge.  If a registered tax agent has been engaged, they can also prepare and lodge the return in Online services for agents.

Myth 4: If a person is unsure whether their NFP has charitable purposes, then they do not need to lodge.

ATO response: The self-review return still needs to be lodged, even if it is not certain whether the NFP is charitable.

Taxpayer's claim for input tax credits unsuccessful

In a recent decision, the Administrative Review Tribunal ('ART') rejected a taxpayer's claim for input tax credits on the basis that all the relevant GST returns (i.e., BASs) were lodged out of time.

For the GST periods from 1 October 2015 to 31 March 2017, the taxpayer filed each of her GST returns more than four years after they were due.  The taxpayer still claimed input tax credits totalling over $10,000 for this period.

The ATO disallowed this claim, on the basis that none of the input tax credits were claimed within the four year period, as required by the GST Act.

The ART upheld the ATO's decision, noting that, as the taxpayer did not file the GST returns within the four year period "she did not have input tax credits taken into account . . . As a consequence, . . . (she) simply ceased to be entitled to those input tax credits."

ATO's appeal against decision that UPEs are not "loans" fails

The Full Federal Court recently dismissed the ATO's appeal against an AAT decision that unpaid present entitlements ('UPEs') owing by a trust to a corporate beneficiary were not "loans" for Division 7A purposes.

A corporate beneficiary had become entitled to a share of the income of a trust for the 2013 to 2017 income years.  Parts of these entitlements remained outstanding, resulting in UPEs.  The ATO treated these UPEs as loans from the corporate beneficiary back to the trust (and, in consequence, as "deemed dividends" made to the trust).

The AAT held at first instance that a loan had not been made in this case.

The Full Federal Court upheld the AAT's decision, noting that a loan for Division 7A purposes requires an obligation to repay an amount, not merely the creation of an obligation to pay an amount (such as when a trust distributes income to a beneficiary).

Please note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

How to master employer obligations in 2025

 How to master employer obligations in 2025

Taxpayers who employ staff should remember the following important dates and obligations:

Fringe benefits tax ('FBT')

31 March 2025 marks the end of the 2024/25 FBT year.  Employers should remember the following regarding their FBT tax time obligations.

-  They should identify if they have provided a fringe benefit.  If they have, they should determine the taxable value to work out if they have an FBT liability.

-   They should lodge an FBT return and pay any FBT owed by 21 May 2025.  If their registered tax agent lodges electronically for them, they have until 25 June 2025.

-   They should keep the right records to support their FBT position.

Pay as you go ('PAYG') withholding

Taxpayers need to withhold the right amount of tax from payments they make to their employees and other payees, and pay those amounts to the ATO.

Single touch payroll ('STP')

Employers should finalise their STP data by 14 July 2025 for the 2024/25 financial year (there may be a later due date for any closely held payees).

Super guarantee ('SG')

-   28 January, 28 April, 28 July and 28 October are the quarterly due dates for making SG payments;

-  The SG rate is currently 11.5% of an employee's ordinary time earnings.  From 1 July 2025, it will increase to 12%.

-   Taxpayers should ensure SG for their eligible employees is paid in full, on time and to the right super fund, otherwise they will be liable for the SG charge.

ATO's tips to help taxpayers stay on top of their BAS

The ATO has the following tips to help taxpayers get their BAS right before they lodge:

-   They should make sure they enter the figures for their obligations at the correct label, and only complete applicable fields.

-   If lodging online, or through a registered tax or BAS agent, they may be able to get an extra 2 or 4 weeks to lodge and pay.

-   If they have nothing to report for the period, they can lodge a 'nil' BAS online by selecting 'Prepare' and then 'Prepare as nil', or they can call the ATO's automated service "any time of the day".

-   If they made a mistake on their last BAS, instead of lodging a revision, they may be able to use their current BAS to fix it.  For example, they can use label 1A to adjust GST on sales, or label 1B to adjust GST on purchases.

-   They can also use their BAS to vary an instalment amount.

Claiming fuel tax credits when rates change

Fuel tax credits changed on 3 February, and taxpayers could receive more savings for fuel they have acquired on and from this date.  Different rates apply based on the type of fuel, when it was acquired and what activity it is used for.

The ATO has the following tips for taxpayers to ensure they are claiming correctly.

-   They can use the ATO's 'eligibility tool' on its website to find out if they can claim fuel tax credits for fuel they have acquired and used.

-   They can use the ATO's online fuel tax credit calculator (which should automatically apply the right rate) to work out their claim.

-   They can lodge their BAS via Online services or a registered tax or BAS agent (lodging via an agent can allow them extra time to lodge and pay).

ATO "busts" NFP myths

Editor: As the Not-for-profit ('NFP') self-review return is due in March, the ATO has recently published a document 'busting' various NFP 'myths'.

Myth 1: All NFPs are income tax exempt.

ATO response: This is not true.  Some NFPs are income tax exempt and some are taxable.

Myth 2: There is only one way to lodge the NFP self-review return.

ATO response: There are three ways, as follows:

-   A 'principal authority' may be able to lodge using 'Online services for business';

-   It may be possible for the return to be lodged by phoning the ATO's automated self-help phone service on 13 72 26; and

-   A registered tax agent can lodge the return  through Online services for agents.

Myth 3: Anyone can lodge the NFP self-review return online.

ATO response: If lodging via Online services for business, anyone authorised to access the return in Online Services can lodge.  If a registered tax agent has been engaged, they can also prepare and lodge the return in Online services for agents.

Myth 4: If a person is unsure whether their NFP has charitable purposes, then they do not need to lodge.

ATO response: The self-review return still needs to be lodged, even if it is not certain whether the NFP is charitable.

Taxpayer's claim for input tax credits unsuccessful

In a recent decision, the Administrative Review Tribunal ('ART') rejected a taxpayer's claim for input tax credits on the basis that all the relevant GST returns (i.e., BASs) were lodged out of time.

For the GST periods from 1 October 2015 to 31 March 2017, the taxpayer filed each of her GST returns more than four years after they were due.  The taxpayer still claimed input tax credits totalling over $10,000 for this period.

The ATO disallowed this claim, on the basis that none of the input tax credits were claimed within the four year period, as required by the GST Act.

The ART upheld the ATO's decision, noting that, as the taxpayer did not file the GST returns within the four year period "she did not have input tax credits taken into account . . . As a consequence, . . . (she) simply ceased to be entitled to those input tax credits."

ATO's appeal against decision that UPEs are not "loans" fails

The Full Federal Court recently dismissed the ATO's appeal against an AAT decision that unpaid present entitlements ('UPEs') owing by a trust to a corporate beneficiary were not "loans" for Division 7A purposes.

A corporate beneficiary had become entitled to a share of the income of a trust for the 2013 to 2017 income years.  Parts of these entitlements remained outstanding, resulting in UPEs.  The ATO treated these UPEs as loans from the corporate beneficiary back to the trust (and, in consequence, as "deemed dividends" made to the trust).

The AAT held at first instance that a loan had not been made in this case.

The Full Federal Court upheld the AAT's decision, noting that a loan for Division 7A purposes requires an obligation to repay an amount, not merely the creation of an obligation to pay an amount (such as when a trust distributes income to a beneficiary).

ATO debunks Division 7A 'myths'

CGT withholding measures now law

The Government recently passed legislation making changes to the foreign resident capital gains withholding laws (among other changes).

Editor: Foreign resident capital gains withholding is relevant for all vendors selling certain taxable real property (e.g., Australian land).

Even Australian residents can be caught by these laws because, if they do not have a valid 'clearance certificate' issued by the ATO at, or before settlement, tax must be withheld from the sale proceeds by the purchaser and paid to the ATO.

The new legislation increases the foreign resident capital gains withholding rate to 15% (from 12.5%), and completely removes the threshold (currently $750,000) before which withholding applies.

This means that all disposals of taxable real property are potentially subject to foreign residents' capital gains withholding requirements regardless of the market value of the CGT asset.

These amendments take effect from 1 January 2025.

ATO debunks Division 7A 'myths'

Editor: The ATO has recently published a document 'debunking' various Division 7A 'myths'.

Division 7A of the tax legislation is intended to prevent profits or assets being provided to shareholders or their associates tax free.

A payment or other benefit provided by a private company to a shareholder or their associate can be treated as a dividend for income tax purposes under Division 7A, even if the participants treat it as some other form of transaction (such as a loan, advance, gift or writing off a debt).

Division 7A can also apply if a trust has allocated income to a private company but has not actually paid it, and the trust has provided a payment or benefit to the company's shareholder or their associate (as well as in other circumstances).

Myth 1: If I own a company, I can use the company  money any way I like.

ATO response: A company is a separate legal entity, and there will be consequences every time the taxpayer takes money or accesses other benefits from their private company.

Myth 2: Division 7A only applies to the shareholders of my private company.

ATO response: Division 7A applies to both shareholders and their 'associates'.  The definition of an 'associate' is broad.

Myth 3:  I don't need to keep records when my private company makes payments, loans or provides other benefits to other entities.

ATO response: Taxpayers are legally required to keep records of all transactions relating to their tax affairs when they are running a business.

Myth 4:  I can avoid Division 7A by temporarily repaying my loan before the private company lodges its tax return, and using the company’s money to make my repayments.

ATO response: A repayment made on a loan may not be taken into account if similar or larger amounts are reborrowed from the same company after making the repayment.

Myth 5: There are no tax consequences if I use my private company's money to fund another business or income earning activity.

ATO response: Division 7A may apply to any loan a private company makes to its shareholders or their associates, regardless of what the loan recipient uses the amounts for.

ATO's notice of rental bond data-matching program

The ATO will acquire rental bond data from State and Territory rental bond regulators bi-annually for the 2024 to 2026 income years, including details of the landlord and tenant, managing agent identification details, and rental bond transaction details.

The objectives of this program are to (among other things) identify and educate individuals and businesses who may be failing to meet their registration or lodgment obligations.

The ATO expects to collect data on approximately 2.2 million individuals each financial year.

Study/training loans — What's new

The indexation rate for study and training loans is now based on the Consumer Price Index ('CPI') or Wage Price Index — whichever is lower. 

This change has been backdated to indexation applied from 1 June 2023 for all HELP, VET Student Loan, Australian Apprenticeship Support Loan, and other study or training support loan accounts.

Consequently, indexation rates for 2023 and 2024 have changed to:

-      3.2% for 1 June 2023 (reduced from 7.1%); and

-      4% for 1 June 2024 (reduced from 4.7%).

Individuals who had a study loan that was indexed on 1 June 2023 or 1 June 2024 do not need to do anything.

Individuals whose study loan is in credit after the adjustment may receive a refund for the excess amount to their nominated bank account, if they have no outstanding tax or Commonwealth debts.

When to lodge SMSF annual returns

All trustees of SMSFs with assets (including super contributions or any other investments) as at 30 June 2024 need to lodge an SMSF annual return ('SAR') for the 2023/24 financial year. 

The SAR is more than a tax return — it is required to report super regulatory information, member contributions, and pay the SMSF supervisory levy.

However, not all SMSFs have the same lodgment due date: 

-      Newly registered SMSFs and SMSFs with overdue SARs for prior financial years (excluding deferrals) should have lodged their SAR by 31 October 2024.

-      All other self-preparing SMSFs need to lodge their SAR by 28 February 2025 (unless the ATO has asked them to lodge on a different date).

-      For SMSFs that lodge through a tax agent, the due date for lodgment of their SAR is generally 15 May or 6 June 2025.

SMSFs that have engaged a new tax agent need to nominate them to confirm they are the authorised representative for the fund.

SMSF trustees must appoint an approved SMSF auditor no later than 45 days before they need to lodge their SAR.  Before they lodge, they must ensure that their SMSF's audit has been finalised and the SAR contains the correct auditor details.

Editor: If you need assistance with these or any other SMSF issues, please contact our office.

$13.6m in penalties imposed for false R&D claims

A joint investigation involving the ATO found that, between 2014 and 2017, a Sydney business coach promoted unlawful tax schemes encouraging clients to lodge over-inflated, inaccurate or unsubstantiated research and development ('R&D') tax incentive claims.

The Federal Court recently handed down judgment against the business coach, his company co-director (and former tax agent), and their related companies, ordering that the business coach pay a penalty of $4.5 million, in addition to $9 million in penalties for the related companies. 

The company co-director was also ordered to pay $100,000 for their role in promoting the schemes.

Tips for Small Businesses and reminder about Family Trust elections

Can staff celebrations attract FBT?

With the holiday season coming up, employers may be planning to celebrate with their employees.

Before they hire a restaurant or book an event, employers should make sure to work out if the benefits they provide their employees are considered entertainment-related, and therefore subject to fringe benefits tax ('FBT').  This will depend on:

• the amount they spend on each employee;

• when and where the celebration is held;

• who attends — is it just employees, or are partners, clients or suppliers also invited?

• the value and type of gifts they provide.

Employers who do provide entertainment-related fringe benefits should keep records detailing all of this information so they can calculate their taxable value.

Reminder of December 2024 Quarter Superannuation Guarantee ('SG')

Employers are reminded that employee superannuation contributions for the quarter ending 31 December 2024 must be received by the relevant super funds by 28 January 2025.  If the correct amount of SG is not paid by an employer on time, they will be liable to pay the SG charge, which includes a penalty and interest component.

The SG rate is 11.5% for the 2025 income year.

ATO's tips for small businesses to 'get it right'

While the ATO knows most small businesses try to report correctly, it understands that mistakes can happen.  The ATO advises taxpayers that it is important to get the following 'basics' right:

• using digital tools and business software to help track and streamline processes to increase the efficiency of their business;

• keeping accurate and complete records, which will help taxpayers meet their tax and super obligations and make lodging easier; and

• getting the right advice from trusted resources such as their registered tax professional or the ATO's website, which can help taxpayers navigate change and uncertainty at any stage of the business life cycle.

SMSFs cannot be used for Christmas presents!

There are very limited circumstances where taxpayers can legally access their super early, and the ATO is reminding taxpayers that "paying bills and buying Christmas presents doesn't make the list."

Generally, taxpayers can only access their super when they:

1. reach preservation age and 'retire'; or

2. turn 65 (even if they are still working).

To access their super legally before then, taxpayers must satisfy a 'condition of release'.

SMSF members who illegally access their benefits may be liable for additional income tax and administrative penalties, and they could be disqualified as a trustee.

For taxpayers who have illegally accessed their super, returning it to the fund may be considered a new contribution.  Depending on their contribution caps, this may result in additional tax on excess contributions.

Taxpayers should beware of people promoting 'early access schemes' to withdraw their super early (other than by legal means). 

They can protect themselves from promoters of such schemes by:

• stopping any involvement with the scheme, organisation or person who approached them;

• not signing any documents, and not providing any of their personal details such as their tax file number; and

• making a 'tip-off' to the ATO online or by phoning the ATO on 13 10 20.

Taxpayer's claims for various 'home business' expenses rejected

In a recent decision, the AAT rejected in full a taxpayer's claims for "several classes or categories of deductions."

For the relevant period of 1 July 2021 to 30 June 2022, the taxpayer was (according to his employer) a 'technical architect'. 

However, the taxpayer also claimed he worked from home 6am to 11pm seven days a week, 365 days of the year (as he was ‘always on call’), and his income tax return for the 2022 financial year claimed a wide range of deductions, totalling approximately $40,000.

The AAT separately considered each category of deductions claimed, and rejected each in turn.

In relation to his home office 'occupancy expenses' (e.g., for home insurance, council rates, waste disposal, water rates, and repairs), the AAT noted that the 'home office' rooms (comprising floorspace occupying 31% of the dwelling’s total floor area) were not physically separate from the remainder of the dwelling, which the taxpayer shared with four other members of his family.

Home office running expenses (e.g., gas, power and internet) were disallowed on the grounds that the taxpayer had "not properly established an entitlement to such deductions or otherwise appropriately apportioned them between private or work-related activities."

The AAT found his 100% claim for the internet, on the basis that the other members of the household did not use the internet connection, "very difficult to accept".

In relation to plant and equipment expenses, the evidence was "largely non-existent."

In relation to consumable expenses, the AAT noted that they appeared to be for goods or services of a private or domestic nature (including medications, toilet paper, milk, tea, sugar and insect spray).

The AAT also rejected the taxpayer's claim for "payments made to his spouse for tax management, office cleaning and document management/storage", noting that the services provided were generally of a private or domestic nature, and that the rendering of invoices by the spouse "has a degree of artificiality to it".

ATO reminder about family trust elections

Taxpayers may be considering whether they should make a family trust election ('FTE') for a trust, or an interposed entity election ('IEE') for a trust or other entity.

Making an FTE provides access to certain tax concessions (assuming the relevant tests and conditions are satisfied), although there are important things to consider.

In particular, once the election is in effect, family trust distribution tax ('FTDT') is imposed when distributions are made outside the family group of the 'specified individual'.  FTDT is a 47% tax, payable by a trustee, director, or partner, as the case may be (depending on the entity).

Taxpayers should review FTEs and IEEs annually to ensure they remain appropriate.  Taxpayers can only revoke or vary FTEs and IEEs in limited circumstances and subject to certain conditions.

Before making a distribution or annual trust resolutions, trustees should identify the members of the specified individual's family group.  This will help avoid FTDT liabilities.

Editor: Please contact our office if you require any assistance in this regard.

Please note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

Hiring for the Festive Season and Deductions for Advice fees

Hiring for the Festive Season

As the festive season approaches, employers that hire new employees to help with their business should remember the following when it comes to their employer tax and super obligations:

• Employers should make sure they are withholding the right amount of tax from payments they make to their employees and other payees, especially as this will help their employees meet their end-of-year tax liabilities;

• Employers must pay super guarantee (currently at 11.5%) to all eligible employee's super funds in full and on time to avoid paying the super guarantee charge; and

• If employers are still not reporting through single touch payroll ('STP') and they do not have an approved exemption, deferral or concession in place, they should start reporting now.  If they have just started a business or recently employed staff, they will need to report through STP from their first payday.

Lodging and paying business activity statements ('BASs')

The ATO is reminding taxpayers that it is important to lodge BASs and pay in full and on time to avoid penalties and interest charges.

The BAS for the first quarter of 2024/25 is generally due on 28 October, but taxpayers may receive an extra:

• four weeks if they lodge through a registered tax or BAS agent; or

• two weeks if they lodge online.

The cost of managing tax affairs is tax deductible for taxpayers, and a registered agent's help will allow them to focus on running their business.

Deductions for financial advice fees

The ATO has provided guidance about when an individual not carrying on an investment business may be entitled to a deduction for fees paid for financial advice.

An individual is entitled to a deduction for fees for financial advice to the extent that the loss or outgoing is incurred in gaining or producing assessable income, unless the loss or outgoing is of a capital, private or domestic nature.

Fees for financial advice an individual incurs may also be deductible to the extent that the advice relates to managing their 'tax affairs' (e.g., fees for advice in relation to salary sacrifice arrangements).

However, fees for financial advice on a proposed investment prior to the acquisition of an asset, or about how to invest additional funds to grow an investment portfolio, will not be deductible.

The individual must also have sufficient evidence of the expenditure to claim the expense as a deduction, such as a properly itemised invoice.

ATO's notice of government payments data-matching program

The ATO will acquire government payments data from government entities which administer government programs for the 2024 to 2026 income years, matching data on government payments made to service providers against ATO records, including service provider identification details and payment transaction details.

The ATO estimates that records relating to approximately 60,000 service providers will be obtained each financial year, including approximately 9,000 individuals, with the remainder consisting of companies, partnerships, trusts and government entities.

FBT on plug-in hybrid electric vehicles

From 1 April 2025, a plug-in hybrid electric vehicle ('PHEV') will not be considered a zero or low emissions vehicle under fringe benefits tax ('FBT') law and will not be eligible for the electric car FBT exemption.  However, an employer can continue to apply the electric car exemption if:

• use of the PHEV was exempt from FBT before 1 April 2025; and

• they have a financially binding commitment to continue providing private use of the vehicle to an employee or their associate on and after 1 April 2025 (note that any optional extension of the agreement is not considered binding).

If there is a change to a pre-existing commitment on or after 1 April 2025, the FBT exemption for the PHEV will no longer apply from the date of that new commitment.

An employer is not entitled to an exemption from FBT after 1 April 2025 if there was no binding financial commitment to provide the car to a particular employee in place before then.

Eligibility for compassionate release of superannuation

The ATO has been responsible for the administration of the early release of superannuation on compassionate grounds since 1 July 2018. 

It will only approve a release of superannuation on compassionate grounds if the applicant meets all the conditions set out in the regulations, including that the applicant has no other means to pay the expenses.

The five main grounds of eligibility are:

• medical treatment or transport (i.e., to treat a life-threatening illness or injury, or alleviate acute or chronic pain or mental illness) for the applicant or their dependant;

• accommodating a disability for the applicant or their dependant;

• palliative care for a terminal illness for the applicant or their dependant;

• funeral expenses for a dependant of the applicant; or

• preventing foreclosure or forced sale of the applicant's home.

AAT rejects taxpayer's claims for work-related expenses

In a recent decision, a taxpayer's claims for various work-related expenses were rejected by the AAT.

The taxpayer was employed as a traffic controller in the 2020 income year.  In his income tax return for that year he claimed $9,800 in work-related deductions, including for car expenses (using the cents per km method), travel expenses, clothing expenses and self-education expenses, as well as supplemental deductions.

The ATO disallowed all of the deductions, and the taxpayer then appealed to the AAT.

The AAT agreed that all of the taxpayer's claims for work-related expenses should be disallowed, largely because the taxpayer failed to substantiate these expenses, whether by way of receipts/bank statements or any other form of evidence. 

Also, in relation to the claim for car expenses, the AAT noted that the taxpayer had been using company vehicles at least some of the time.

The AAT also noted that there had generally been "no attempt to apportion work use against private use. . . Even if I could satisfy myself of some apportionment, the amount would likely be so insignificant that it would not result in any real deduction in taxable income."

Please note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

AVOID TAX TIME SHOCK

Avoid a tax time shock

Individual taxpayers can take the following steps right now to ensure the correct amount of tax is being put aside throughout the year:

- let their employer know if they have a study or training support loan, such as a HECS or HELP debt;

- check they are only claiming the tax-free threshold from one employer;

- consider whether the Medicare Levy Surcharge may affect them this financial year (i.e., whether they have the appropriate private health insurance);

- check their income tier is correct for their private health insurance rebate; and

- consider voluntarily entering PAYG instalments and pre-paying tax throughout the year to avoid a large tax bill at tax time for investment or business income.

Editor: If you would like to discuss or implement any of these steps and strategies in more detail, please feel free to contact our office.

Reminder of September Quarter Superannuation Guarantee ('SG')

Employers are reminded that employee super contributions for the 1 July 2024 to 30 September 2024 quarter must be received by the relevant super funds by 28 October 2024 in order to avoid being liable to pay the SG charge.

myGovId changing its name to myID

The digital identity app 'myGovID' will soon be changing its name to 'myID'.  While the name is changing, the login and security will not change.

Taxpayers who have already set up their myGovID and use it to access government online services will not need to do anything when the app changes to myID.  They will still have:

- the same details — there is no need to set up a new myID.  Their login details (including email address) and identity strength remain the same;

- continued use — once available their existing app should automatically update to myID or they can manually update it from the APP Store or Google Play; and

- access to services — they can still use the app to securely access government online services.

The new name aims to reduce the confusion between myGovID and myGov.

ATO security safeguards for victims of fraud recently enhanced

Where a taxpayer has been the victim of identity, tax or super fraud, the ATO may apply security safeguards to their account to prevent further harm.  This may require the impacted taxpayer to contact the ATO each time they need to access their information and cause inconvenience for the taxpayer as well as their tax agents.

The ATO has recently enhanced processes to improve ongoing access to ATO online services.  Impacted taxpayers must contact the ATO for initial access and then set a Strong online access strength.

To set a Strong online access strength, taxpayers need to:

- set up their myGovID to a Strong identity strength using their Australian passport;

- connect their myGovID to their myGov account;

- sign in to myGov with their myGovID; and

- go to ATO online services.

Once set, taxpayers no longer need to contact the ATO every time they access their information.

Impacted taxpayers must continue to use their Strong myGovID whenever they access ATO online services, or account access will be restricted to maintain ongoing protection of client information.

Editor: As noted above, myGovID will soon be changing its name to myID.

Valuing fund assets for SMSFs

One of the many responsibilities SMSF trustees have every income year is valuing their fund's assets at market value.

The market value of an asset is the amount that a willing buyer and seller would agree to in an arm's-length transaction.  These valuations will be used  when preparing the fund's accounts, statements and SMSF annual return ('SAR').

Asset valuations will be reviewed by an approved SMSF auditor as part of the annual audit prior to lodgment of the SAR.  The auditor will check that assets have been valued correctly and assess and document whether the basis for the valuations is appropriate given the nature of the asset.  The auditor is not responsible for valuing fund assets.

Taxpayers should ensure that they have their valuations done before going to the auditor.

It is the responsibility of the SMSF trustee to provide objective and supportable evidence to their auditor for the valuation of the fund's assets, including all relevant documents requested to prevent delays in auditing the fund.  Failure to do so could result in a potential late lodgment of their annual return or a contravention if mistakes have been made.

SMSF trustees should start researching now to find what type of evidence they need to support the valuation as this can take time.  For some asset types valuations must be undertaken by a qualified independent valuer.

ATO's notices of data-matching programs

The ATO will acquire officeholder data from  ASIC and other bodies for the 2024 to 2027 income years, including name, address, date of birth, ABN, contact details, organisation details and officeholder details.

The ATO estimates that records relating to more than 11 million individuals will be obtained.

The ATO will acquire property management data from property management software companies for the 2019 to 2026 income years, including property owner identification details, property details, and property transaction details.

The ATO estimates that records relating to approximately 2.3 million individuals will be obbtained each financial year.

The ATO will acquire lifestyle assets data from insurance providers for the 2024 to 2026 income years.

Insurance policy data will be collected for the following classes of assets, where the asset value is equal to or exceeds the nominated thresholds.

Asset class Minimum asset value threshold

Caravans, motorhomes $65,000

Motor vehicles $65,000

Thoroughbred horses $65,000

Fine art $100,000 per item

Marine vessels $100,000

Aircraft $150,000

The data items include client identification details (names, addresses, contact details, dates of birth and ABN) and policy details (including total value insured, description and purchase price of the property insured).

The ATO estimates that the total number of policy records obtained will be approximately 650,000 to 800,000 each financial year, and that approximately 250,000 to 350,000 matched records will relate to individuals.

Please note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

ATO's tips for correctly claiming deductions for rental properties

ATO's tips for correctly claiming deductions for rental properties

Taxpayers who have work done on their rental property should consider the following factors in determining claims for expenses.

Repairs and general maintenance are expenses for work done to remedy or prevent defects, damage or deterioration from using the property to earn income.  These expenses can be claimed in the year the expense occurred.

Initial repairs include any work done to fix defects, damage or deterioration existing at the time of purchase.  These are capital repair expenses and cannot be claimed as a deduction.

Capital works are structural improvements, alterations and extensions to the property, claimed at 2.5% over 40 years (with some exceptions).  Deductions for capital works can only be claimed after the work has been completed.

Improvements or renovations that are structural are also capital works.  Work going beyond remedying defects, damage or deterioration which improves the function of the property are improvements.

Repairs to an 'entirety' are also capital and cannot be claimed as repairs.  Repairs to an entirety generally involve the replacement or reconstruction of something separately identifiable as a capital item (for example, a depreciating asset).

Depreciating assets must be claimed over time (as 'capital allowances') according to their 'effective life'.

Notice of online selling data-matching program

The ATO will acquire Australian sales data from online selling platforms for the 2024 to 2026 income years, including full names, dates of birth, addresses, emails, business names, ABNs, contact phone numbers and account details.

The ATO estimates the total number of account records to be obtained will be between 20,000 and 30,000 each income year, with approximately 10,000 to 20,000 of these records relating to individuals.

The objectives of this program are to (among other things) promote voluntary compliance and increase community confidence in the integrity of the tax and superannuation systems.

Small business energy incentive available for the 2024 income year

Businesses with an aggregated annual turnover of less than $50 million that had upgraded or purchased a new asset that helps improve energy efficiency during the 2024 income year should consider the small business energy incentive.

This new measure gives them the opportunity to claim a bonus deduction equal to 20% of the cost of eligible assets or improvements to existing assets that support more efficient use of energy.

This incentive applies to eligible assets that were first used or installed ready for use for a taxable purpose between 1 July 2023 and 30 June 2024. 

Eligible improvement costs must have been incurred during this period to be eligible for the bonus deduction.

Up to $100,000 of total expenditure is eligible under this incentive, with the maximum bonus deduction being $20,000 per business.

This 20% bonus deduction is on top of other existing ones.  Businesses can claim both the ordinary deduction for the expense as well as the bonus deduction.

Editor: Please make sure to let us know if you made any purchases that may be eligible for this bonus.

Importance of good record keeping when claiming work-related expenses

The ATO is advising taxpayers that having records to substantiate claims is essential to prove deductions can be claimed, having regard to the following in particular:

- A bank or credit card statement on its own will generally not be enough evidence to support a work-related expense claim.  Taxpayers instead need detailed written evidence such as a receipt.

- If a taxpayer's total claim for deductible work expenses is $300 or less, they can claim a deduction without written evidence, but they must still be able to show that they spent the money and how they calculated the amount being claimed.

- While some deduction types do not require receipts (e.g., laundry expenses), some kind of record may still be necessary.  Taxpayers may also need a record that shows their private and work-related use (e.g., a diary), and how the amount claimed as a deduction was calculated.

SMSFs acquiring assets from related parties

SMSFs cannot acquire an asset from a 'related party' (such as a member or their spouse or relative)  unless it is acquired at market value and is:

• a listed security (e.g., shares, units or bonds listed on an approved stock exchange);

• ‘business real property' (broadly, land and buildings used wholly and exclusively in a business);

• an 'in-house asset' as defined, provided the market value of the SMSF's in-house assets does not exceed 5% of the total market value of the SMSF's assets; and/or

• an asset specifically excluded from being an in-house asset.

If the asset is acquired at less than market value, the difference between the market value and the amount actually paid is not considered to be a contribution.  Instead, income generated by the asset will be considered 'non-arm's length income' and will be taxed at the highest marginal rate.

Federal Court overturns
AAT's tax resident decision

The Federal Court has recently overturned an Administrative Appeals Tribunal ('AAT') decision that a taxpayer was a resident of Australia for tax purposes (even though he was mostly living and working overseas during the relevant period).

The taxpayer was a mechanical engineer who became an Australian citizen in 1978.

He lived and worked in Dubai, United Arab Emirates, from September 2015 until 2020, and he spent less than two months in Australia for each of the 2017 to 2020 income years visiting his family.

The AAT nevertheless held that he was a tax resident of Australia for each of the 2016 to 2020 income years, as he "maintained an intention to return to Australia and an attitude that Australia remained his home."

On appeal to the Federal Court, the taxpayer succeeded in having the AAT's decision overturned.

The Federal Court held, in considering whether the taxpayer was a resident of Australia according to 'ordinary concepts', that the AAT applied the wrong test, confusing it with the 'domicile test'.

Also, in relation to the 'domicile test', the Federal Court noted that the AAT further misunderstood how to establish that a person had a 'permanent place of abode' outside of Australia.

The Federal Court accordingly held that the taxpayer's appeal be allowed, and the matter be remitted to the AAT for determination according to law (i.e., the AAT needs to reconsider the matter).

Please note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

ATO may cancel inactive ABNs

ATO's 'main residence exemption tips'

The main residence exemption needs to be considered in a variety of situations when a taxpayer sells a property they have lived in.  The ATO hopes that the following tips will help in this regard:

-      Taxpayers should consider if they have started earning income from their home (in which case they may need to get a market valuation for CGT purposes).

-      When renting out a property that was their main residence, taxpayers need to consider whether to use the 6-year absence rule when they sell their property. 

-      Taxpayers can only have one property as their main residence at a time.  The only exception is the 6-month period when they move from one home to another.

-      Has the taxpayer's residency changed?  If so, this may affect eligibility for the exemption.

Reminder of June 2024 Quarter Superannuation Guarantee ('SG')

Employers are reminded that employee superannuation contributions for the 1 April 2024 to 30 June 2024 quarter must be received by the relevant super funds by 28 July 2024 (which is a Sunday), in order to avoid being liable to pay the SG charge.

Notice of Medicare levy exemption data-matching program

The ATO will acquire Medicare Exemption Statement data from Services Australia for the 2024 to 2026 income years, including individuals' full names, dates of birth, residential addresses, entitlement status, and approved entitlement details.

The objectives of this program are to (among other things) ensure individuals are correctly claiming an exemption from payment of the Medicare levy and Medicare levy surcharge.

Family trust elections and interposed entity elections

Family trust distribution tax ('FTDT') is a special, 47%, tax sometimes payable by a trustee, director or partner.  It applies when a trust has made a family trust election ('FTE'), or an entity has made an interposed entity election ('IEE'), and makes a distribution outside the 'family group' (as defined) of the specified individual in the election.

Where such an election has been made by a trustee or another entity, it is important that the original election is retained in the approved form.  FTEs and IEEs can be lodged with the ATO.

Where elections are involved, taxpayers should consider the following on an annual basis:

-       if the election is needed and whether it can, and should be, revoked;

-       whether the specified individual remains the most suitable person and, if not, whether the specified individual can and should be varied; and

-       the timeframes to vary or revoke elections (noting these are limited and that, outside these periods, the elections and the specified individuals cannot be changed).

It is important to recognise who the members of the specified individual's family group are when making annual trustee resolutions, as distributions outside the family group will result in FTDT of 47%. 

ATO may cancel inactive ABNs

The ATO regularly reviews, and sometimes cancels, inactive Australian Business Numbers ('ABNs').  The ATO may review a taxpayer's ABN if the taxpayer has not reported business activity in their tax return, or there are no signs of business activity in other lodgments or third-party information.

If the ATO thinks a taxpayer is no longer using their ABN, it will contact them by email, letter or SMS. 

If the taxpayer is still running a business, the ATO will tell them what they need to do to keep their ABN.  If they are no longer in business, they do not need to do anything -— the ATO will cancel their ABN.

Taxpayers who think they are still entitled to an ABN that has been cancelled need to reapply for it.  If they restart their business activities, they should be able to reapply for the same ABN, provided that their business structure is not changing.

New lodgment obligation for income tax exempt organisations

Non-charitable not-for-profits ('NFPs') with an active ABN, including community service organisations, need to lodge an annual NFP self-review return to notify their eligibility for income tax exemption. 

To be eligible to self-assess as income tax exempt, the organisation's main purpose must be a community service purpose.  Any other purpose must be incidental, ancillary or secondary.

Community service purposes are altruistic, which means the organisation must be established and operated for the wellbeing and benefit of others, and not for political or lobbying purposes.

For example, a club or association that has been set up principally to improve the welfare of the community would be regarded as a community service organisation.  This would not be the case, however, if its main purpose was to advance the professional interests of its members.

Taxpayers able to apply CGT small business concessions

The Administrative Appeals Tribunal ('AAT') recently held that a trust was entitled to apply the CGT small business concessions and, therefore, it could reduce a capital gain it made down to nil.

In March 2015, a family trust entered into an agreement for the sale of its shares in a company for $3,500,000.  In June 2015, the trustees of the trust passed a resolution apportioning the trust's income for that year between the four taxpayers (two brothers and their wives), and also distributing the capital gain made on the sale equally between those four taxpayers.

The determination of the trust's net income for distribution to the beneficiaries took into account the 50% CGT discount and CGT small business concessions, relying on a valuation of the shares (and underlying business) being $3,500,000.

The ATO, however, deemed the shares sold by the trust to have been disposed of for a market value of $10,640,000, based on an updated valuation report.  This also meant that the trust was not entitled to the CGT small business concessions, as this valuation meant that it did not satisfy the CGT maximum net asset value ('MNAV').

The ATO relied on the 'market value substitution' rule to substitute the value of $10,640,000 in place of the sale price of the shares.  This meant that each taxpayer's share of the 2015 trust distribution was increased from $321,989 to $1,194,174.

In relation to the MNAV test, the AAT needed to determine whether the net value of the CGT assets of the trust (and its connected entities) exceeded $6,000,000. 

The AAT preferred the approach taken by the valuers for the taxpayers, partly because they had given "more attention and consideration to this particular business and the circumstances and location in which it operates."

The AAT accordingly concluded that the total net value of the CGT assets of the trust (and connected entities) was below $6,000,000, and so the MNAV test was satisfied, and the taxpayers' objections to the amended assessments should be allowed.

Please note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.