Contractors Omitting Income

Through data matching, the Tax Office is seeing some contractors incorrectly reporting or omitting contractor income. Contractors need to report all their income in their tax return, including payments made by businesses for their contracting work.

Note that, as part of the taxable payments reporting system (‘TPRS’), certain businesses must lodge a ‘Taxable Payments Annual Report’ (‘TPAR’) to report payments made to contractors for providing the following services;

• Building and construction;

• Courier;

• Information technology;

• Road freight; and

• Security, investigation, or surveillance.

For taxpayers who work as a contractor and provide any of these services, the business they contract to should be reporting these payments to the Tax Office on their TPAR. Contractors obviously then need to include this income on their tax return.

If the Tax Office suspects a contractor may have omitted TPRS income on their tax return, they may contact them to request they amend their tax return. If the contractor does not take action, the Tax Office may conduct a review and audit of their business, and penalties and interest may apply.

Businesses Using Cash to Dodge Obligations

The Tax Office is ‘cracking down’ on businesses that use cash to avoid meeting their tax, employer or business obligations. Businesses that do this may:

• Fail to report all sales transactions and fail to issue receipts;

• Avoid paying GST, income tax, PAYG withholding, super guarantee, insurance and work cover protection;

• Report their income below the $75,000 threshold to avoid registering for GST;

• Exploit workers by not meeting award conditions and work cover protections; or

• Undercut honest businesses by offering cheaper prices for cash.

The Tax Office warns that workers who are paid in cash-in-hand or working ‘off the books’ are often disadvantaged. Apart from not receiving the entitlements they should be, if they are injured at work, they may not be protected.

$20,000 Instant Asset Write-Off Extended

Taxpayers should note that if their business has an aggregated annual turnover of less than $10 million, they may be able to use the instant asset write-off (‘IAWO’) to immediately deduct the business portion of the cost of the eligible assets which cost less than $20,000.

Eligible assets must basically have been first used (or installed ready to use) between 1 July 2025 and 30 June 2026. The $20,000 limit applies on a per asset basis, so taxpayers can instantly write-off multiple assets.

The IAWO can be used for both new and second-hand assets (but some exclusions and limits apply).

Paying Super Guarantee

The Tax Office is reminding employers that they must pay super guarantee (‘SG’) contributions for eligible employees.

Employers need to pay a minimum of 12% (the current SG rate as from 1 July 2025) of each employee’s ordinary time earnings into a complying super fund on a quarterly basis (the due date for the March 2026 quarter is 28 April 2026).

In most cases, employees can choose the super fund.

Employers who do not pay in full, on time, or to the correct super fund, will have to pay the SG charge, which is made up of the super they owe, nominal interest on these amounts (currently 10%), and an administration fee of $20 per employee, per quarter.

These payments must be made through SuperStream (where super payments and information move through the system electronically).

Employers who use the Small Business Superannuation Clearing House to make super contributions should note that this service will be permanently closed from 1 July 2026. Existing users should switch to an alternative method to pay their employees’ super guarantee.

Also, when new employees start, employers may have an extra step to comply with the ‘choice of funds rules’ if the new employee does not choose a super fund. Employers may now need to request the new employee’s ‘stapled super fund’ details from the Tax Office.

Working from Home

With remote work remaining a common arrangement for many Australians, its important to understand how to claim tax deductions for your working from home (‘WFH’) expenses.

To claim WFH tax deductions, you must:

• Be working from home to fulfil your employment duties, not just doing minimal tasks like occasionally checking emails or taking calls

• Incur additional expenses as a direct result of working from home

• Have records to substantiate your claims

There are two ways to calculate a Work from Home deduction. The deduction is the biggest amount of the Fixed Rate Method or the Actual Cost Method.

The Fixed Rate Method

The current rate is 70 cents per hour for each hour you work from home.

To use the fixed rate method, you must:

• Work from home while carrying out your employment duties or carrying on your business

• Incur additional running expenses as a result from working from home

• Keep records of the hours spent working at home for the whole income year via timesheets, a logbook, your roster or diary entries

• Keep records that show the work-related portion of your expenses.

Here’s what’s included under the fixed rate WFH deduction method:

• Internet expenses

• Energy expenses (electricity and gas) for heating and cooling, lighting and powering electronic devices

• Mobile and home phone expenses

• Stationery and computer consumables (like printer paper and ink).

It’s important to understand that you can’t claim additional separate deductions for any of the above expenses under the fixed rate method. For example, if you use your mobile phone while working from home, you can’t claim your mobile bill as a separate deduction - this expense is covered under the 70 cents per hour fixed rate.

While the rate covers many common expenses, you can still claim additional deductions for:

• The decline in value (depreciation) of home office equipment and furniture used for work (items costing more than $300)

• Immediate deductions for home office equipment and furniture used for work (items costing less than $300)

• Repair and maintenance costs for home office equipment

• Cleaning expenses for a dedicated home office (if applicable)

• Any other running expenses not covered by the fixed rate.

One of the benefits of the revised fixed rate method is that you no longer need a dedicated office space to use this approach. You can work from any area in your home and still claim the fixed rate deduction.

• You must record the total hours you work from via a timesheet, logbook, roster or diary.

• You must retain records of all your additional running expenses, like phone, internet and utility bills, and hold onto them for five years.

The Actual Cost Method

The actual cost method allows you to claim the exact expenses you incur when working from home. While this method requires more detailed record-keeping, it may result in a larger deduction if you have significant home office expenses.

To use this method, you must:

• Incur additional running expenses as a result of working from home

• Keep detailed records (receipts and other written evidence) showing the amount spent on expenses, the amount spent on depreciating assets used while working from home and the percentage of work-related use for your expenses and assets

You also need to keep a record of the hours you spend working from home via either:

• A record of the total number of hours spent working from home for the whole income year via timesheets, a logbook, your roster or diary entries; or

• A diary or logbook showing your WFH hours over a continuous four-week period.

It’s important to note that you can’t claim additional expenses if other members of your household (who are not working from home) are in the same room as you while you’re working from home. So, if you work in the living room while your family members watch TV, you can’t claim the running costs for heating or cooling, because you’re not incurring any additional costs.

What you can claim under the actual cost method

Home office running costs

The work-related portion of:

• Electricity and gas for heating, cooling, and lighting

• Cleaning expenses for a dedicated work area

• Phone and internet expenses

• Computer consumables and stationery

Decline in value of depreciating assets

Depreciation of:

• Office furniture (desks, chairs, bookshelves, etc)

• Computers, laptops, and tablets

• Printers and scanners

• Other electronic equipment used for work

Record-Keeping Requirements

Regardless of which method you choose, good record-keeping is essential.

For the fixed rate method:

• A record of hours worked from home (via timesheet, diary, roster, or similar)

• Evidence of expenses for any additional deductions claimed outside the fixed rate

For the actual cost method:

• Receipts for all expenses claimed

• Evidence of how you calculated the additional running expenses as a result of working from home

• A record of hours worked from home

• Documentation showing the work-related use of assets

ATO Reminder: Business Expenses that Can (and Cannot) be Claimed

Taxpayers can claim a tax deduction for most business expenses, provided they meet the ATO’s three ‘golden rules’;

• The expense must be for business use, not for private use.

• If the expense is for a mix of business and private use, they can only claim the portion that is used for business.

• They must have records to prove their claim.

The ATO also wants business taxpayers to remember that there are some expenses that they cannot claim, including entertainment expenses, traffic fines, and expenses that relate to earning non-assessable income.

Dual Cab Utes and FBT

The ATO wishes to dispel the ‘common myth’ that dual cab utes are automatically exempt from Fringe Benefits Tax (‘FBT’). If an employer provides dual cab utes to staff to complete their duties and the vehicle is available for personal use, then the benefit may be subject to FBT.

By understanding how their employees use their dual cab utes, employers can work out if FBT applies and meet their FBT obligations.

To qualify for an exemption, the dual cab ute must be an ‘eligible vehicle’. That is, it must be designed to carry a load of one tonne or more, or more than eight passengers (including the driver).

The dual cab ute must also be used for limited private use (ie minor, infrequent or irregular trips), such as the occasional trip to the tip or helping a mate move house.

If an employee’s personal use of the dual cab ute does not meet both of the above exemption conditions, then the employer will be liable for FBT.

Alternative Providers to the SBSCH

Employers should start preparing for the permanent closure of the Small Business Closing House (‘SBSCH’) on 1 July 2026.

By acting now to find an alternative service, employers will:

• Have an established process in place to pay super guarantee (‘SG’) for the March and June quarters (if they currently pay quarterly);

• Reduce the risk of late payment of SG for the June 2026 quarter due date (28 July), as the SBSCH will already be closed;

• Have more time to set up their business cash flow to enable frequent payments of SG; and

• Have finalised payments and downloaded any reports from the SBSCH before it closes permanently.

Employers that are still using the SBSCH should be aware of the following key dates:

• February to March 2026 - Employers should move to an alternatuve option to the SBSCH.

• 28 April 2026 - March 2026 SG quarterly payments are due.

• 30 June 2026 - Final day for empoyers to use the service, make any final payments and download reports.

• 1 July 2026 - SBSCH is no longer available.

Employers may already have other options readily available so they can exit using the SBSCH ahead of time. They should check their existing software and payroll packages, as they may already include super functions they can use to pay SG.

Otherwise, employers can look for options from super funds or digital service providers offering payroll services, software or commercial clearing houses.

Small Business Superannuation Clearing House is Closing

The Small Business Superannuation Clearing House (SBSCH) will close on 1 July 2026.

The SBSCH is a free online service provided by the Australian Government through the ATO. The SBSCH can be used by employers to pay superannuation for all their employees through a single payment. The SBSCH will then distribute the money to each employee's superannuation fund according to the employer's instructions.

To support small businesses to transition to alternative services prior to this time, new users will be unable to register to use the service from 1 October 2025.

Existing users are encouraged to take steps now to transition to alternative options.

These include reviewing their existing software and payroll packages (which may already include super functions), or looking at options offered by super funds, commercial dealing houses, or other payroll software or providers.

ATO Warns of Common Division 7A Errors

The ATO reminds shareholders of private companies that understanding how Division 7A of the tax legislation applies is crucial to avoiding costly tax consequences when accessing the company's money or other benefits.

While Division 7A can complex, most errors the ATO sees that result in its application are simple in nature, including:

• Shareholders not recognising that a company's money is not their money, and they cannot access it for personal use without tax consequences;

• Loans being made without complying loan agreements; and

• Applying the wrong benchmark interest rate when calculating Division 7A loan repayments.

These errors are often the result of common myths about Division 7A and how it works.

To support taxpayers' understanding of their tax obligations when managing private company money, the ATO has launched new content 'Division 7A Myths Debunked' on its website.

Taxpayer Alert

Tax File Numbers are being compromised more often than ever. We remind you that the privacy around your personal details, including your tax file number and myGov accounts, are of the utmost importance.

Our business continues to update our protections to keep your information safe, but there are many ways to also protect yourself.

• Any correspondence from the Tax Office contains confidential information, including payment slips. Keep this in mind when receiving these documents.

• Change your passwords often, including your myGov and Tax Office logins, as well as our client portal.

• Dispose of documents securely.

• Do not share your drivers licence, passport, Medicare card or any documentation with your tax file number without good reason.

• Do not email personal details unless secured.

• Royal Cornell, the Tax Office and your bank will not send through email links. Do not supply information, unless you know these are secure.

Superannuation Guarantee Rate Increase

The superannuation guarantee (SG) rate will increase to 12% on 1 July 2025.

The 12% rate will need to be applied for all salary and wages paid to eligible workers on and after 1 July. This is even if some or all of the pay period it relates to is before 1 July. 

General Transfer Balance Cap Will Be Indexedon 1 July 2025

Indexation of the general transfer balance cap ('TBC') will occur on 1 July 2025. This cap will increase by $100,000 from $1.9 million to $2 million. 

This increase has flow through impacts for individuals who have started a retirement phase pension, as they will be entitled to an increase to their personal TBC if they have not previously been at, or exceeded, their cap. 

Individuals starting a pension for the first time on or after 1 July 2025 will be entitled to a personal TBC of $2 million. 

The ATO will calculate an individual's personal TBC based on the information reported to and processed by the ATO. To help individuals have a clear understanding of their position, the ATO encourages funds to report all 'TBC events' before the 1 July 2025 indexation start date. 

CGT Withholding Measures Now Law

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

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. 

Note - foreign resident capital gains withholding is relevant for all vendors selling certain taxable real property (eg 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. 

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. 

The fixed-rate method allows taxpayers to claim at a rate of 70 cents per hour for the 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 keeping all records necessary to substantiate their claim. 

Please be aware that you are required to keep relevant diaries or timesheets for this expense to be deductible. 

ATO Interest Charges No Longer Deductible

On the 13th December 2023, as part of the 2023-24 Mid-Year Economic and Fiscal Outlook (MYEFO), the government announced it would amend the tax law to deny income tax deductions for ATO interest charges. The law change applies in relation to assessments for income years starting on or after 1 July 2025. An assessment for an income year is how your income tax is calculated, as explained in your Notice of Assessment. 

This means that you can no longer deduct General Interest Charges (GIC) and Shortfall Interest Charges (SIC) incurred on or after 1 July 2025 in your income tax return for income years starting on or after 1 July 2025. 

ATO Warning Regarding Prohibited SMSF Loans

Loans to members continue to be the highest reported contravention of the superannuation laws that the ATO sees in auditor contravention reports.

Self-Managed Super Funds (SMSF) trustees should remember that they cannot loan money or provide other forms of financial assistance to a member or relative, and if they do, they can incur a penalty of up to $18,780. They may also be disqualified as a trustee.

SMSF trustees also cannot loan money to a related party, such as a business, where the value of the loan exceeds 5% of the value of the fund's total assets, as this is a prohibited 'in-house asset' investment.

If the SMSF's in-house assets exceed 5% of the total value at the end of the financial year, the trustee must plan to reduce their in-house assets to less than 5%, which must be implemented by the end of the following financial year.

If a trustee has made a prohibited loan from their SMSF, the loan must be repaid as soon as possible.

Tax Issues for Businesses That Have Received a Support Payment

Taxpayers who have received a government support grant recently to help their business recover from COVID-19 or a natural disaster should check if they need to include the payment in their assessable income.

Grants are generally treated as assessable income, and taxpayers may be able to claim deductions if they use these payments to:

• Purchase replacement trading stock or new assets;

• Repair their business premises and fit out; or

• Pay for other business expenses.

However, some grants are declared non-assessable, non-exempt ('NANE') income. This means taxpayers don't need to include them in their tax return if they meet certain eligibility requirements.

NANE grants include, but are not limited to:

• COVID-19 business support payments;

• Natural disaster grants; and

• Water infrastructure payments.

Taxpayers can only claim deductions for expenses associated with NANE grants if they relate directly to earning their assessable income, including wages, dividends, interest and rent.

Taxpayers cannot claim expenses related to obtaining the grant, such as accountant's fees.

Christmas Parties & Gifts

Year End Staff Parties

With the holiday season underway, many employers will be planning to reward staff with a celebratory party or event. However, there are important issues to consider, including the possible FBT and income tax implications of providing 'entertainment' (including Christmas parties) to staff and clients.

FBT and 'entertainment'

Under the FBT Act, employers must choose how they calculate their FBT meal entertainment liability, and most use either the 'actual method' or the '50/50 method', rather than the '12-week method'.

Using the actual method

Under the actual method, entertainment costs are normally split up between employees (and their families) and non-employees (eg clients). Such expenditure on employees is deductible and liable to FBT. Expenditure on non-employees is not liable to FBT and not tax deductible.

Using the 50/50 method

Rather than apportion meal entertainment expenditure on the basis of actual attendance by employees, etc, many employers choose to use the simpler 50/50 method. Under this method (irrespective of where the part is held or who attends) 50% of the total expenditure is subject to FBT and 50% is tax deductible.

However, the following traps must be considered:

• Even if the function is held on the employer's premises, food and drink provided to employees is not exempt from FBT;

• The minor benefit exemption* cannot apply; and

• The general tax travel exemption (for travel to or from the employer's premises) also cannot apply.

*Minor benefit exemption

The minor benefit exemption provides an exemption from FBT for most benefits of 'less than $300' that are provided to employees and their associates (eg family) on an infrequent and irregular basis.

The ATO accepts that different benefits provided at, or about the same time (such as a Christmas party and a gift) are not added together when applying this $300 threshold.

However, entertainment expenditure that is FBT-exempt is also not deductible.

Example: Christmas Party

An employer holds a Christmas party for its employees and their spouses - 40 attendees in total. The cost of food and drink per person is $250 and no other benefits provided.

If the actual method is used:

- For all 40 employees and their spouses - no FBT is payable (ie if the minor benefit exemption is available), however the party expenditure is not tax deductible.

If the 50/50 method is used:

- The total expenditure is $10,000, so $5,000 (ie 50%) is liable to FBT and tax deductible.

Christmas Gifts

With the holiday season here, many employers and businesses want to reward their staff and loyal clients/customers/suppliers.

Again, it is important to understand how gifts to staff and clients are handled tax-wise.

Gifts that are not considered to be entertainment

These generally include a Christmas hamper, a bottle of whiskey or wine, gift vouchers, a bottle of perfume, flowers, a pen set, etc.

Briefly, the general FBT and income tax consequences for these gifts are as follows:

• Gifts to employees and their family members - are liable to FBT (except where the 'less than $300' minor benefit exemption applies) and tax deductible; and

• Gifts to clients, suppliers, etc - no FBT and tax deductible.

Gifts that are considered to be entertainment

These generally include, for example, tickets to attend the theatre, a live play, sporting event, movie or the like, a holiday airline ticket, or an admission ticket to an amusement centre.

Briefly, the general FBT and income tax consequences for these gifts are as follows:

• Gifts to employees and their family members - are liable to FBT (except where the 'less than $300' minor benefit exemption applies) and tax deductible (unless they are exempt from FBT); and

• Gifts to clients, suppliers, etc - no FBT and not tax deductible.

Non-entertainment gifts at functions

What if a Christmas party is held at a restaurant at a cost of less than $300 per person attending, and employees are given a gift or gift voucher (for their spouse) to the value of $150?

Actual method used for meal entertainment

Under the actual method no FBT is payable, because the cost of each separate benefit (being the expenditure on the Christmas part and the gift respectively) is less than $300 (ie the benefits are not aggregated). No deduction is allowed for the food and drink expenditure, but the cost of each gift is tax deductible.

50/50 method used for meal entertainment

Where the 50/50 method is adopted:

- 50% of the total cost of the food and drink is liable to FBT and tax deductible; and

- In relation to the gifts, the total cost of all gifts is not liable to FBT because the individual cost of each gift is less than $300, and as the gifts are not entertainment, the cost is tax deductible.

Downsizer Contribution Measure Eligibility Has Been Extended

The downsizer contribution concession was introduced to allow older Australians selling an eligible dwelling to make additional contributions into their superannuation fund.

Broadly, the downsizer contribution concessional allows eligible individuals to make non-deductible contributions of up to $300,000 (or up to $600,000 per couple) from the sale of an eligible dwelling that was used as their main residence.

The downsizer contribution concession is an attractive option for eligible individuals to boost their superannuation entitlements, as it is not counted towards an individual's standard contribution caps.

Also, the total superannuation balance restriction does not apply in respect of a downsizer contribution (so an eligible individual can make a downsizer contribution into their superannuation fund, regardless of their total superannuation balance), and it is not included in the assessable income of the receiving fund.

However, there are various eligibility requirements that need to be satisfied in order for a downsizer contribution to be made, and professional advice should be sought in this regard as required.

Importantly, as from 1 January 2023, the Government has broadened access to the downsizer contribution concession by reducing the minimum age requirement for accessing this concession from age 60 to age 55. This means that individuals aged 55 to 59 years who were not previously eligible to make downsizer contributions due to their age are now eligible to make contributions if they satisfy all the eligibility requirements.