01

What is an SMSF, exactly?

An SMSF is a private superannuation fund that you manage yourself — or with up to five other members. Unlike a retail or industry fund where a trustee company manages pooled investments on your behalf, an SMSF puts you in the trustee seat. That means you're responsible for investment decisions, compliance, record-keeping, and annual reporting.

The ATO regulates SMSFs, and the rules are detailed. Get them right and you have a powerful, tax-effective vehicle for building and protecting wealth. Get them wrong and the penalties are significant — including potential disqualification and loss of concessional tax treatment.

"The question isn't whether an SMSF is a good idea in general. The question is whether it's the right structure for your specific situation — right now, and over the next ten years."

02

The case for an SMSF

When structured correctly, an SMSF offers genuine advantages that are hard to replicate elsewhere.

03

The obligations you need to understand

This is the part that often doesn't get enough attention in the initial excitement of setting up a fund.

As a trustee of an SMSF, you are personally responsible for the fund's compliance with superannuation law — regardless of whether you have a professional adviser helping you. The ATO takes trustee obligations seriously, and ignorance is not an accepted defence.

Key obligations include:

• Preparing and lodging an annual SMSF tax return
• Having the fund audited by an approved SMSF auditor each year
• Maintaining a current investment strategy documented in writing
• Keeping fund assets strictly separate from personal assets
• Ensuring all contributions and payments comply with the relevant rules
• Meeting minimum pension payment requirements each financial year

These are not optional. A good SMSF adviser will manage most of this on your behalf — but you remain the trustee, and the responsibility ultimately sits with you.

04

The balance question

One of the most common questions we receive is: "How much do I need in super before an SMSF makes sense?"

The ATO and ASIC have both noted that funds with balances below $200,000 may struggle to be cost-competitive with retail alternatives once administration, audit, and advice costs are factored in. That doesn't mean a fund with a lower balance is always wrong — there are situations where the specific strategies available through an SMSF justify the cost — but it's an important starting point for the conversation.

Most of our SMSF clients have balances above $300,000, and many are using the fund as part of a broader structuring or business strategy. If you're below that threshold but have a clear reason to establish a fund — such as purchasing business real property — that context matters, and we'll work through the numbers with you honestly.

05

Five questions worth asking yourself

Our View

Our view

SMSFs are a genuinely powerful tool when they're the right fit. We've helped clients use them to build significant wealth, run efficient retirement income strategies, and integrate their business and personal financial lives in ways that simply aren't possible in a retail fund.

But we've also seen funds established for the wrong reasons — because someone read an article, because their business partner had one, or because they were told it was "always better." In those cases, the fund often becomes a burden rather than a benefit.

Our job is to help you make the right decision for your situation — and to be honest with you if we think an SMSF isn't the answer right now. If it is the right structure, we'll set it up correctly, keep it compliant, and make sure it's working as hard as it should for your future.

01

What is Division 296?

Division 296 is a proposed additional tax of 15% on the superannuation earnings attributable to balances above $3 million. It was announced in the 2023–24 Federal Budget and, subject to its passage through Parliament, is intended to apply from 1 July 2025.

It's important to be clear on what Division 296 is — and what it isn't. It is not a tax on balances above $3 million. It is a tax on the earnings attributable to the portion of a superannuation balance that exceeds $3 million. The effective rate on those earnings would increase from 15% to 30% — still below the top marginal tax rate, but a meaningful increase for those affected.

The measure applies across all superannuation accounts — APRA-regulated funds, SMSFs, defined benefit schemes, and retirement savings accounts are all captured.

"Division 296 taxes earnings, not balances. The distinction matters — and so does the way those earnings are calculated."

02

How the tax is calculated — and why it's unusual

The calculation method for Division 296 is one of the more contentious aspects of the measure. Rather than taxing only realised investment earnings, the proposed legislation calculates "earnings" as the movement in your total superannuation balance over the financial year — adjusted for contributions and withdrawals.

This means that unrealised gains — for example, an increase in the value of a property held within an SMSF — can give rise to a Division 296 tax liability in the year the gain occurs, even though no asset has been sold and no cash has been received.

For SMSF trustees holding illiquid assets such as property or unlisted business interests, this creates a practical challenge: the fund may need to find cash to meet a tax liability that arises from a paper gain. The legislation allows the liability to be paid personally by the member (rather than from the fund) to address this, but it remains a real planning consideration.

Losses in a year can be carried forward and offset against future Division 296 earnings — but they cannot be used to generate a refund in the year they occur.

03

Who does it affect?

The government has stated that Division 296 will affect approximately 80,000 Australians — less than 0.5% of the population. But the $3 million threshold is not indexed to inflation, which means that over time, a growing number of Australians will find themselves captured by the measure.

You may be directly affected if your total superannuation balance currently exceeds $3 million. You may be indirectly affected — and worth planning for now — if your balance is on a trajectory to exceed $3 million over the next 10 to 20 years, particularly given the lack of indexation.

SMSF members with significant property holdings, business real property, or other illiquid assets are particularly worth reviewing, given the unrealised gains issue described above.

04

What to consider

If you're affected — or approaching the threshold — there are several areas worth reviewing with your adviser:

We'd stress that any planning should be done carefully and with the full picture in view. Restructuring purely to avoid Division 296 can trigger capital gains tax, stamp duty, or other costs that outweigh the benefit. The right answer depends entirely on your specific circumstances.

Our View

Our view

Division 296 is real and warrants attention — but it should be kept in perspective. Superannuation remains one of the most tax-effective structures available for building long-term wealth in Australia, even with this additional layer for higher balances.

Our advice to clients is to understand the measure clearly, model the likely impact on their specific balance and asset profile, and then make considered adjustments where the numbers support it — rather than reacting to the headlines. If you're unsure where you stand, this is exactly the kind of conversation we're here for.

Our View

Making it a habit

The value of these metrics isn't in knowing the number once — it's in tracking them over time and understanding the direction of travel. A quarterly rhythm gives you enough distance from the noise of day-to-day operations to see the trends that matter.

We work with our business advisory clients to build straightforward reporting that puts these numbers in front of you each quarter — and to have the conversation about what they mean and what to do next. If you'd like to put that in place for your business, we'd be glad to help.

01

The discretionary trust

A discretionary trust — commonly called a family trust — is a legal arrangement where a trustee holds assets for the benefit of a group of beneficiaries. The trustee (usually a company or an individual) has the discretion each year to decide how income is distributed among those beneficiaries.

This flexibility is the trust's primary advantage. In a year of high income, distributions can be directed to beneficiaries in lower tax brackets — a spouse, adult children, or a related company — to reduce the overall tax burden on the family group.

"Neither structure is inherently superior. The right answer comes from understanding which advantages are most valuable in your specific situation — now and over the next decade."

02

The company

A company is a separate legal entity that pays tax on its own income at the corporate tax rate — currently 25% for base rate entities and 30% for larger companies. Unlike a trust, a company can retain profits within the entity and reinvest them, paying tax at the corporate rate rather than the individual rate.

This is the company's primary advantage as an investment vehicle when shareholders are on high marginal tax rates and don't need to access the income immediately. Profits left inside the company are taxed at 25–30%, with the remaining balance available for reinvestment. When profits are eventually distributed as dividends, shareholders receive a franking credit for the tax already paid.

03

The factors that often tip the decision

Our View

Our view

There is no universally correct answer to the trust-versus-company question — and anyone who tells you otherwise without understanding your specific circumstances is oversimplifying.

What we can say is that getting the structure right at the outset is significantly cheaper than changing it later. Restructuring an existing portfolio can trigger capital gains tax, stamp duty, and other costs that dwarf the annual tax savings from an improved structure. This is one of the conversations where early, considered advice pays for itself many times over.

A Final Note

Timing is everything

Every strategy above requires action before 30 June — not an instruction to your accountant after the fact. If you read this in the final days of June, move quickly: many of these steps require funds to be transferred, resolutions to be signed, or purchases to be completed and delivered by the deadline.

If you'd like to work through which of these strategies applies to your situation this year, get in touch now. The earlier in June we can have that conversation, the more time we have to act on it properly.

Key dates at a glance

01

Personal income tax cuts

The Budget delivers further personal income tax relief, building on the Stage 3 cuts already in place. From 1 July 2026, the second marginal tax rate drops from 16% to 15%. A further reduction to 14% follows from 1 July 2027.

From the 2027–28 income year, a new permanent Working Australians Tax Offset (WATO) of up to $250 will apply automatically to the tax returns of over 13 million workers. This effectively increases the tax-free threshold by approximately $1,800, and applies in addition to the existing Low Income Tax Offset.

From 1 July 2026, a new $1,000 instant tax deduction for work-related expenses will allow individuals to reduce their taxable income by up to $1,000 without needing to substantiate individual receipts. This is expected to benefit 6.2 million workers and reduce compliance costs significantly. It does not replace the existing substantiation rules — taxpayers with work-related expenses above $1,000 can still claim the full amount if they have the documentation.

"The 50% CGT discount — in place since 1999 — is gone. What replaces it is more nuanced, and for many investors the practical impact will depend heavily on how long they have held an asset and what their marginal rate is."

02

Capital gains tax: the 50% discount is replaced

This is arguably the most significant structural change in the Budget. From 1 July 2027, the 50% CGT discount for individuals, partnerships, and trusts will be replaced by two new mechanisms operating together: cost base indexation and a 30% minimum tax on real capital gains.

The changes apply only to gains arising on or after 1 July 2027. Assets sold before that date are assessed under the existing 50% discount rules. The family home remains fully exempt. Small business CGT concessions are unchanged. Investors in new residential builds may choose between the old 50% discount or the new regime when they eventually sell.

The CGT changes apply in superannuation funds — including SMSFs — for the one-third discount that currently applies within super. The Budget papers confirm that the concessional CGT treatment within superannuation is not affected by these changes, which is a significant carveout and continues to make SMSFs an attractive vehicle for long-term asset accumulation.

03

Negative gearing: limited to new builds from 1 July 2027

From 1 July 2027, negative gearing deductions for established residential property will be quarantined — losses can only be offset against residential property income or capital gains from residential property, not against wages or other income. Unused losses carry forward to future years.

The grandfathering rules are important and more generous than many expected. All properties owned at 7:30pm AEST on 12 May 2026 — including contracts entered into but not yet settled — are fully exempt from the changes for as long as those properties are held. Full negative gearing against all income continues to apply to these properties indefinitely. New residential builds, as defined by the Budget papers (vacant land construction, off-the-plan, or knock-down rebuilds that increase housing supply), are also exempt from the new rules. Widely held trusts and superannuation funds, including SMSFs, are excluded from the negative gearing changes.

04

Discretionary trust minimum tax: 30% from 1 July 2028

This is the measure with the broadest potential impact on our client base. From 1 July 2028, the trustee of a discretionary trust will be required to pay a minimum tax of 30% on the taxable income of the trust — regardless of how that income is distributed among beneficiaries.

Non-corporate beneficiaries will receive non-refundable tax credits for the tax paid by the trustee, which can reduce their own tax liability. However, because the credits are non-refundable, beneficiaries on rates below 30% will not receive a cash refund for the difference — meaning the minimum tax is effectively a floor, not a prepayment.

The following are excluded from the minimum tax:

• Fixed and widely held trusts (including most managed investment trusts)
• Complying superannuation funds, including SMSFs
• Charitable trusts and special disability trusts
• Deceased estates
• Primary production income
• Certain income relating to vulnerable minors
• Fixed testamentary trusts existing at the time of announcement

Importantly, a three-year rollover relief period will be available from 1 July 2027 to 30 June 2030, allowing trustees who wish to restructure out of a discretionary trust into another entity — a company, unit trust, or other structure — to do so with relief from income tax and capital gains tax on the restructure. State duty consequences are not covered by this relief and will need to be managed separately in each jurisdiction.

05

Business measures

The Budget includes a number of pro-business measures that will benefit SME clients in particular.

06

Superannuation: no new measures

There are no new superannuation measures in this Budget beyond those already legislated. Division 296 — the additional 15% tax on superannuation earnings attributable to balances above $3 million — proceeds as previously announced, commencing 1 July 2026. The Budget did not modify or delay this measure.

SMSFs receive meaningful carveouts from the three major structural reforms in this Budget — they are excluded from the negative gearing changes, the discretionary trust minimum tax does not apply to complying superannuation funds, and the concessional CGT treatment within superannuation is preserved. This makes the SMSF environment notably more favourable relative to discretionary trust structures than it has been historically.

Our View

Our view

This is a genuinely significant Budget — not because of any single measure, but because of the combined effect of three structural reforms that interact in ways that will take time to fully analyse. The CGT changes, the negative gearing quarantine, and the discretionary trust minimum tax all point in the same direction: a fundamental shift in the tax treatment of private wealth held outside of superannuation.

The grandfathering and rollover relief provisions are real and meaningful. They provide a window to plan — but that window has a closing date, and restructuring of complex trust and property arrangements takes time. The best outcomes for clients will go to those who begin that work early and with the full picture in front of them.

We will be contacting clients over the coming weeks to discuss the specific implications for their arrangements. If you would like to speak with us sooner, please reach out directly — we are glad to make time for these conversations now.

01

What is Section 100A?

Section 100A of the Income Tax Assessment Act 1936 is an anti-avoidance provision. At its core, it targets situations where a beneficiary is made presently entitled to trust income — and therefore bears the tax on that income — but the economic benefit of that income is actually enjoyed by someone else.

The classic example is a trust distribution made to an adult child on a low income. The child is entitled to, say, $30,000 of trust income and pays tax at their marginal rate. But instead of actually receiving and spending that money, the funds are used to pay expenses for the parents — a family holiday, home renovations, or simply retained in the trust's accounts for the family's broader benefit. The income is taxed in the child's hands, but they've received no real economic benefit.

When Section 100A applies, the distribution is effectively unwound for tax purposes. The income is treated as if it had not been distributed to the beneficiary at all — and the trustee is assessed on that income at the top marginal rate of 47%.

"When Section 100A applies, the tax benefit of the distribution is entirely undone — and the trustee is assessed at the top marginal rate. The risk isn't theoretical. The ATO is actively applying this provision."

02

The legal test: reimbursement agreements

Section 100A requires two elements to be satisfied before it can apply. First, there must be a "reimbursement agreement" — an arrangement under which a benefit flows to someone other than the beneficiary as a result of the distribution. Second, a purpose of the agreement must be to reduce someone's tax.

The critical point is that "agreement" in this context is interpreted very broadly by the ATO. It doesn't require a formal contract or even an explicit understanding — an informal family arrangement or a consistent pattern of behaviour can be sufficient to constitute a reimbursement agreement.

There is, however, an important exception: Section 100A does not apply to arrangements that are entered into in the course of "ordinary family or commercial dealings." This exception is the central battleground — and understanding it is essential to assessing your risk.

03

The "ordinary family or commercial dealings" exception

This exception is where the legal uncertainty — and the risk — is concentrated. The courts and the ATO have provided some guidance on what qualifies, but the boundaries are not always clear.

Generally speaking, an arrangement is more likely to fall within ordinary family dealings when the beneficiary actually receives a real economic benefit from the distribution — either in cash, in assets, or in the reduction of a genuine obligation. Examples the ATO has suggested may qualify include:

• A distribution to an adult child who genuinely uses the funds for their own benefit — living expenses, education, a deposit on a property
• A distribution to a spouse who uses the funds for their own purposes
• A distribution that is applied to pay down the beneficiary's own mortgage or investment loan
• A distribution applied toward assets the beneficiary genuinely owns and benefits from

By contrast, arrangements that are more likely to attract scrutiny include distributions to beneficiaries whose entitlements are never actually paid, funds retained in a running loan account in the trust without a genuine repayment plan, distributions where the funds loop back to benefit the parents or controllers of the trust, and consistent patterns of distributing to low-rate beneficiaries who have no independent use for the funds.

The Guardian AIT case, decided in the Full Federal Court in 2023, confirmed that the exception requires more than a benign family motivation — the arrangement must reflect genuine economic substance, not merely a tax-driven paper transaction with a family flavour.

04

How the ATO is approaching this

The ATO released Taxation Ruling TR 2022/4 and accompanying Practical Compliance Guideline PCG 2022/2, which together set out the ATO's current view on Section 100A and its compliance approach. These documents are essential reading for any trust adviser.

The PCG uses a risk framework — a "traffic light" system — to categorise trust arrangements:

It's also important to note the ATO's treatment of prior years. While Section 100A has a standard four-year amendment period, the ATO has flagged it may apply the extended six-year period — or in some cases no time limit — where it considers the arrangement involved fraud or evasion. Trustees should not assume that historical arrangements are beyond reach simply because time has passed.

05

What you should be doing now

If you operate through a discretionary trust, there are several practical steps worth taking — ideally before the next round of distribution resolutions.

Our View

Our view

Section 100A has changed the landscape for discretionary trusts in Australia. The ATO is actively applying it, the courts have confirmed a broad interpretation, and historical arrangements that were once considered routine are now being scrutinised.

The good news is that the vast majority of well-advised family trusts — where distributions reflect genuine economic outcomes for beneficiaries — are not at serious risk. The issue is most acute for arrangements where the distribution was always primarily about the tax outcome, with little economic substance behind it.

If you're unsure where your trust arrangements sit, now is the right time to find out. It is considerably easier — and less costly — to address a Section 100A exposure proactively than to deal with it after an ATO audit has commenced. We work through this analysis regularly with our trust clients, and we'd be glad to do the same for you.

The Current Position

Still a proposal — but a durable one

The Treasury Laws Amendment (Better Targeted Superannuation) Bill, which contains the Division 296 measure, has passed the House of Representatives but continues to face crossbench resistance in the Senate. As at December 2024, it has not been passed into law.

The Government has maintained its intention to legislate with a commencement date of 1 July 2025, and has indicated it will continue to pursue passage. The practical reality is that even if the Bill is passed early in 2025, the effective date will likely be preserved as 1 July 2025 — meaning the window for pre-commencement planning is narrowing.

Key Concern

The unrealised gains problem remains unresolved

The most contentious aspect of Division 296 — the taxation of unrealised gains, particularly for SMSF members holding illiquid assets like property — has not been amended in the current Bill. Trustees holding business real property or unlisted investments inside their SMSF remain exposed to tax liabilities arising from paper gains in years when no asset has been sold.

The Government has maintained that the personal payment option (allowing the Division 296 tax to be paid personally by the member rather than from the fund) adequately addresses this concern. Many practitioners and industry bodies disagree.

Planning Now

What to do before the legislation passes

For members with balances approaching or exceeding $3 million, the uncertainty around timing does not reduce the need to plan. Whether Division 296 commences on 1 July 2025 or later, the structural questions it raises — about contribution strategy, asset allocation within the fund, liquidity, and whether certain assets belong inside or outside superannuation — remain relevant and worth addressing now.

We are working through these reviews with affected clients and encourage anyone in this position to make contact before the end of the financial year.

The scale of ATO collectable debt

The ATO's total collectable debt reached approximately $52 billion during the 2023–24 financial year, with small business accounting for the largest share. Much of this accumulated during the COVID period when the ATO deliberately scaled back enforcement activity to support businesses in financial difficulty. That period is firmly over.

The ATO is now actively issuing director penalty notices, garnishee notices on bank accounts, and statutory demands with much less lead time than pre-pandemic. Taxpayers who assumed that their outstanding debts remained low on the ATO's priority list are discovering otherwise.

GIC and SIC: no longer deductible from 1 July 2025

The 2023–24 Mid-Year Economic and Fiscal Outlook announced that the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) — previously deductible for income tax purposes — will no longer be deductible from 1 July 2025. This change, now legislated, significantly increases the effective cost of carrying a tax debt. At GIC rates of approximately 11% per annum (which are themselves non-deductible from next financial year), the real cost of unpaid tax obligations is now substantial.

For businesses or individuals with existing ATO payment arrangements or outstanding debts, the urgency of resolving those obligations has materially increased.

What to do if you have outstanding ATO debt

The ATO generally responds well to proactive engagement. Taxpayers who contact the ATO before enforcement action is initiated tend to achieve better outcomes than those who wait. Options include formal payment arrangements, interest remission applications in appropriate circumstances, and objections where the underlying liability is in dispute.

If you have an outstanding ATO debt — whether or not you are currently in a payment arrangement — we recommend reviewing the position before the end of the 2024 calendar year.

What was originally legislated

The original Stage 3 cuts, legislated in 2019, were designed to flatten the tax system — abolishing the 37% bracket and reducing the 32.5% rate to 30% for incomes between $45,000 and $200,000. High-income earners were the primary beneficiaries of this structure.

What was actually legislated in early 2024

The redesigned cuts, effective from 1 July 2024, retain significant relief but redistribute it toward lower and middle income earners:

• The 19% rate reduces to 16% on income from $18,201 to $45,000
• The 32.5% rate reduces to 30% on income from $45,001 to $135,000 (previously $120,000)
• The 37% rate threshold increases from $120,000 to $135,000
• The 45% rate threshold increases from $180,000 to $190,000

Every Australian taxpayer benefits from the cuts. The maximum benefit for those earning $135,000 or more is approximately $4,529 per year compared to the prior rates. Those on lower incomes receive a proportionally larger benefit relative to their tax bill.

Planning implications

The rate changes from 1 July 2024 affect income splitting strategies and the relative benefit of distributing trust income across beneficiaries at different tax levels. If your distribution strategy was modelled on the previous rate structure, it is worth revisiting how the new rates interact with your arrangements.

For salary and wage earners, the changes will flow through automatically in PAYG withholding from July — no action is required. For those with variable income or trust distributions, the new rates are worth factoring into your 2024–25 planning now.

How the exemption works

Under the Treasury Laws Amendment (Electric Car Discount) Act 2022, employers providing eligible battery electric or plug-in hybrid vehicles to employees for private use are exempt from FBT on those vehicles. The car must be a zero or low emissions vehicle with a value below the luxury car tax threshold for fuel-efficient vehicles (currently $89,332 for 2023–24).

Note that from 1 April 2025, plug-in hybrid electric vehicles (PHEVs) will no longer qualify for the exemption — only battery electric vehicles (BEVs) will remain eligible. This creates an important planning window for anyone considering a PHEV novated lease arrangement.

The novated lease structure

The most common and tax-effective way to access the exemption is through a novated lease — a three-way arrangement between employer, employee, and finance provider. Under a novated lease, the employer makes lease payments from the employee's pre-tax salary, reducing the employee's taxable income. Because the vehicle is FBT-exempt, the employer has no FBT liability. The combination of income tax savings and no FBT can produce a very significant net benefit.

For a business owner paying the top marginal rate, the effective cost of acquiring an eligible EV through this structure can be substantially lower than purchasing the same vehicle personally.

What to watch out for

Although the vehicle is exempt from FBT, the reportable fringe benefit amount associated with the vehicle must still be included on the employee's payment summary. This affects means-tested government payments and obligations calculated by reference to adjusted taxable income — including the Medicare levy surcharge threshold and certain government benefit entitlements. This is worth understanding before proceeding.

Director IDs: compliance is now enforced

The Director Identification Number (Director ID) regime, administered by the Australian Business Registry Services, required all existing directors to apply by 30 November 2022. New directors appointed after that date must obtain their Director ID before appointment or within 28 days.

The Australian Securities and Investments Commission (ASIC) is now actively enforcing compliance. Failure to have a Director ID can result in civil penalties of up to $13,200 and criminal penalties for deliberate non-compliance. If you are a director of any company and have not yet obtained your Director ID, this is an urgent matter.

Director penalty notices: personal liability for company tax debts

A Director Penalty Notice (DPN) is a mechanism by which the ATO can make company directors personally liable for unpaid PAYG withholding, superannuation guarantee charge, and GST. The ATO has significantly increased its use of DPNs following the resumption of active debt collection.

There are two types of DPN — lockdown and non-lockdown. A lockdown DPN arises where a company has failed to report its obligations (lodge activity statements or BAS) within three months of the due date. In a lockdown situation, the director cannot escape personal liability by placing the company into administration or liquidation — the debt follows them personally.

Ensuring the company's lodgment obligations are current — even where payment is not possible — is therefore critically important for directors seeking to preserve the ability to limit their personal exposure.

What directors should be reviewing now

Directors of companies with outstanding ATO obligations should review: whether all lodgment obligations (activity statements, SGC returns) are current; the company's current ATO debt position; whether a payment arrangement is in place and being met; and whether the company's financial position is such that formal advice on insolvency options is appropriate.

The shortcut method is finished

The 80 cents per hour shortcut method, introduced at the start of the pandemic to simplify work from home claims, ended on 30 June 2022. It is not available for 2022–23 or any subsequent year. Taxpayers who have been using this method need to transition to either the revised fixed rate method or the actual cost method for their 2023 return.

The revised fixed rate method: 67 cents per hour

From 1 July 2022, the fixed rate method is 67 cents per hour worked from home. This covers energy expenses, internet, phone, and stationery. Unlike the shortcut method, it does not cover depreciation of furniture or equipment — those must be claimed separately.

Critically, the record-keeping requirements have tightened significantly. From 1 March 2023, taxpayers must keep a record of all hours worked from home for the entire income year — a timesheet, roster, or diary entry for each day. A four-week representative diary is no longer sufficient.

You must also have a dedicated work area at home — not necessarily a separate room, but a clearly defined space used for work. You no longer need to have a separate home office, but you do need to demonstrate a genuine working area.

The actual cost method

For taxpayers who work from home extensively and incur significant running costs, the actual cost method may produce a larger deduction. This requires detailed records of all relevant expenses — energy, phone, internet, depreciation — and a calculation of the work-related proportion of each. It is more complex but may be worthwhile for home-based business operators or those with a dedicated home office.

The full rate schedule

What employers need to check

The most important question is whether employee remuneration packages are expressed as inclusive or exclusive of superannuation. Where an employment contract specifies a total package inclusive of super, the employer's cash cost remains the same as the rate rises — it is the employee's take-home pay that reduces. Where contracts specify a base salary plus super, the rate increase directly increases the employer's cost.

This is worth reviewing before 1 July 2023. Payroll software also needs to be updated to reflect the new rate from the first pay run on or after 1 July.

For business owners paying themselves

Business owners who pay themselves a salary through a company or trust are required to pay the applicable SG rate on that salary. With the rate now increasing annually, it is worth ensuring remuneration structures are reviewed each financial year, and that super obligations are being met on time — late payment of SG results in the Superannuation Guarantee Charge applying, which is not deductible and carries significant administrative penalties.

What temporary full expensing allows

Introduced in the 2020–21 Federal Budget as a COVID stimulus measure, temporary full expensing allows eligible businesses to immediately deduct the full cost of eligible depreciating assets purchased and first used or installed ready for use between 6 October 2020 and 30 June 2023. There is no upper limit on the cost of the asset — unlike the instant asset write-off threshold, which has varied over the years.

Eligibility broadly extends to businesses with an aggregated annual turnover below $5 billion, making it available to the vast majority of Australian businesses.

What happens after 30 June 2023

After the measure ends, businesses will return to standard depreciation rules. For assets costing above the instant asset write-off threshold (which for small businesses is $20,000 under current policy), depreciation will be spread over the effective life of the asset rather than claimed in full in the year of purchase. This significantly reduces the tax benefit of capital investment in the short term.

Additionally, the loss carry-back measure — which allows companies to carry tax losses back against prior year profits and receive a cash refund — also ends on 30 June 2023.

What to consider before 30 June 2023

If your business has been considering capital investment — plant and equipment, vehicles, technology, or fit-out — in the next 12 months, the question of whether to bring that investment forward to before 30 June 2023 is a meaningful tax planning decision. An asset that costs $100,000 purchased before 30 June produces an immediate deduction of $100,000. The same asset purchased on 1 July 2023 may produce a first-year deduction of significantly less.

How the ATO data matching works

The ATO obtains data directly from Australian digital currency exchanges under its data matching program. This data includes the names, addresses, dates of birth, and transaction records of individuals who have used those exchanges. The ATO then cross-references this data against lodged tax returns to identify discrepancies.

The ATO has indicated it is writing to taxpayers whose exchange data suggests unreported gains, and has noted that voluntary disclosure prior to being contacted typically results in reduced penalties compared to cases where the ATO initiates contact first.

The key tax rules for crypto

The ATO treats cryptocurrency as a CGT asset, not as currency. This means that every disposal — every sale, exchange, or use of crypto to purchase goods or services — is a CGT event that must be reported. The taxable gain or loss is the difference between the cost base (what you paid for the crypto) and the proceeds (what you received).

If you have held the asset for more than 12 months, the 50% CGT discount applies to reduce the taxable gain. If you are classified as trading in cryptocurrency rather than investing, the gains may be taxed as ordinary income rather than as capital gains — and the 50% discount would not apply.

Common misconceptions include: that crypto-to-crypto swaps are not taxable events (they are), that losses on crypto can be disregarded (they cannot — but they can reduce gains), and that DeFi and staking activities have no tax consequences (they do, though the precise treatment depends on the nature of the activity).

What to do if your crypto reporting is not up to date

Voluntary disclosure to the ATO — amending prior year returns to include unreported crypto gains — generally results in a base penalty of 25% of the shortfall rather than the 75% that applies to cases of intentional disregard. Acting before receiving a nudge letter from the ATO is the better position to be in. We have experience in this area and can assist with reconstructing transaction histories and calculating accurate gains and losses across multiple exchanges and wallets.

Low income tax offset and the end of LMITO

The Low and Middle Income Tax Offset (LMITO), which provided up to $1,500 of tax relief for individuals earning up to $126,000, ends on 30 June 2022 and will not be renewed. For taxpayers who have benefited from LMITO in recent years — particularly those earning between $48,000 and $90,000 who received the maximum offset — their effective tax rate will increase from 1 July 2022 without any other change in circumstances.

The one-time $420 cost of living tax offset announced in the 2022 Federal Budget partially offsets this for the 2021–22 year only.

Trust distributions: TR 2022/4 and PCG 2022/2 just released

The ATO finalised Taxation Ruling TR 2022/4 and the accompanying Practical Compliance Guideline PCG 2022/2 on Section 100A of the ITAA 1936 in February 2022. These documents set out the ATO's position on trust distribution arrangements that it considers may constitute reimbursement agreements — and therefore be subject to Section 100A.

This is the most significant development in trust taxation in many years. The ruling has retrospective application and covers arrangements dating back to 2014. For trustees making distribution resolutions before 30 June 2022, the implications of these documents must be understood before resolutions are finalised.

Super guarantee rate increase to 10.5% from 1 July

The superannuation guarantee rate increases from 10% to 10.5% from 1 July 2022. Employers need to ensure payroll systems are updated and that employment contracts are reviewed to understand whether the increase flows through to the employer's cost or results in a reduction in employee take-home pay.

Also from 1 July 2022, the $450 per month minimum earnings threshold for SG eligibility is abolished — meaning employees earning less than $450 per month from a single employer will now be entitled to SG contributions for the first time.

What can go wrong with an old deed

Older trust deeds commonly contain income definitions that do not align with the Tax Act's definition of trust income — a mismatch that can cause unintended tax consequences, particularly around capital gains. If a deed defines income narrowly and capital gains are excluded from the definition of distributable income, trustees may find that CGT concessions — including the 50% discount — cannot be streamed to beneficiaries in the way they intended.

Some older deeds also have rigid beneficiary classes that exclude people who might now logically be beneficiaries — adult grandchildren born after the deed was established, for example, or corporate beneficiaries that have since been incorporated. Where a distribution is made to someone not properly within the deed's beneficiary class, the distribution may not be effective for tax purposes.

Other common issues include: trustee appointment and succession provisions that do not work as intended; outdated trustee provisions that conflict with current corporate law; and the absence of provisions dealing with specific modern assets like cryptocurrency.

Updating a trust deed: what's involved

Updating a trust deed — called a deed of variation — must be done carefully to avoid inadvertently triggering a resettlement, which would be treated as a CGT disposal of all the trust's assets. A resettlement can occur if the variation is so fundamental that it effectively creates a new trust. Whether a particular variation risks resettlement depends on the terms of the original deed and the nature of the proposed change.

This is not DIY territory. Deed updates should always be prepared by a legal practitioner experienced in trust law, working in conjunction with your tax adviser to ensure the commercial and tax objectives are both achieved.

01

Background: PSI rules and the PSB tests

Personal Services Income (PSI) is income that is primarily a reward for an individual's personal efforts or skills — consulting fees, professional service income, trade income. The critical feature of PSI is that it effectively dries up when the individual stops working.

The PSI rules in Division 86 of the ITAA 1997 are designed to prevent individuals from reducing their tax by routing this income through an interposed entity — a company, trust, or partnership. Where the rules apply, the income is attributed back to the individual and taxed at their marginal rate, regardless of what happens inside the entity.

However, if a Personal Services Entity (PSE) can satisfy one of four PSB tests, the Division 86 attribution rules generally do not apply:

Satisfying one of these tests has historically been seen as the gateway to treating PSI as business income — allowing income splitting across family members, retention of profits within the entity at the lower corporate rate, and distributions to associates. PCG 2025/5 makes clear that this interpretation was always incomplete, and that the ATO intends to enforce the full legal position.

"Qualifying as a PSB removes the Division 86 attribution rules. It does not remove Part IVA. That distinction — which many practitioners glossed over for years — is now the ATO's central focus."

02

The critical distinction: PSB status ≠ Part IVA immunity

Part IVA is the general anti-avoidance provision of the Income Tax Assessment Act 1936. It applies where there is a scheme, a tax benefit arising from that scheme, and a dominant purpose of obtaining that tax benefit. When the Commissioner applies Part IVA, the tax benefit is cancelled — the income is attributed back to the individual and taxed at their full marginal rate, and penalties and interest can follow.

The ATO's own Taxation Ruling TR 2022/3 had already expressed the view that Part IVA can apply even where a PSE qualifies as a PSB. PCG 2025/5 doesn't change the law — it operationalises the ATO's compliance approach and tells taxpayers, in plain terms, when they will be at risk and what they should do about it.

The guideline also sits alongside — and does not replace — PCG 2021/4, which addresses the allocation of professional firm profits. Where income has the character of business structure income rather than purely personal services income (because of substantial income-producing assets or a number of employees), PCG 2021/4 continues to apply. PCG 2025/5 fills the gap for arrangements that are squarely PSI-based.

03

What the ATO is targeting

The ATO has been specific about the types of arrangements that concern it. All of them share a common feature: they reduce the tax paid on income that ultimately derives from one person's labour or expertise.

04

The risk framework

PCG 2025/5 uses a two-zone risk framework — low risk and higher risk — to describe how the ATO will allocate compliance resources. Unlike the Section 100A traffic light system, this framework is binary, which makes the ATO's position clear.

Importantly, the PCG covers a broader range of industries than earlier guidance. Whereas PCG 2021/4 had a clear focus on professional firm arrangements, PCG 2025/5 explicitly applies to tradespeople — electricians, plumbers, builders — as well as to medical practitioners, lawyers, engineers, IT consultants, and any other individual whose income is primarily generated by their own personal effort.

05

The 30 June 2027 transition window

The ATO has provided a transition window: where taxpayers with higher-risk arrangements make a genuine effort to move to a lower-risk position before 30 June 2027, the ATO has indicated it will generally not apply compliance resources under this guideline for prior years.

This is not an amnesty — it does not protect arrangements that were clearly wrong from the outset, and it does not apply to prior-year reviews already underway. But it is a meaningful window for taxpayers who have been operating in good faith under a misunderstanding of the law's reach.

Critically, acting now provides the best evidentiary position. A contemporaneous decision to restructure, supported by documented commercial reasoning, is a stronger position than a reactive restructure prompted by an ATO review letter.

06

What to do now

If you earn personal services income through a company or trust — or if you're not sure whether you do — the following steps are worth working through with your adviser before the 2027 deadline.

Our View

Our view

PCG 2025/5 is not a surprise — the legal position that Part IVA can apply to PSB arrangements has been the ATO's view since TR 2022/3. What it represents is a commitment to actively enforce that position, at scale, across a broad range of industries and professions.

The 30 June 2027 window is a genuine and reasonable opportunity to address this proactively. We think that's the right approach for the vast majority of affected taxpayers — not because the ATO has made restructuring inevitable, but because operating in a lower-risk zone is simply a better position to be in, regardless of the scrutiny environment.

If your PSB arrangement has been structured primarily around income splitting or profit retention and you haven't reviewed it in light of TR 2022/3 or this PCG, now is the time to do that. We work through these reviews regularly and we'd be glad to help you understand where you stand and what, if anything, needs to change.