Prior to calling the election, the Government passed the tax rate cuts and 2025 instant asset write-off legislation, together with releasing draft Payday Super legislation. The ATO have released the Decision Impact Statement for Bendel, and has lost two Court cases while being criticised for taking unrealistic documentation approaches.
LEGISATION UPDATE
Legislation passed
Prior to the election being called, Parliament has managed to pass a number of tax related measures:
Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025:
Extends the $20,000 Instant Asset Write-off (IAWO) for small businesses (up to $10m aggregated annual turnover) to 30 June 2025. A further extension for 2026 was not announced in the Budget.
- Denies a deduction for the General Interest Charge and Shortfall Interest Charge incurred by a taxpayer from 1 July 2025.
- Updates the definition of a fuel efficient car.
- Extends the ATO notification period for retaining refunds to 30 days.
Treasury Laws Amendment (More Cost of Living Relief) Act 2025:
- Implements the income tax cuts for resident individuals announced in the Federal Budget. The 16% rate will be reduced to 15% for the 2027 income year and to 14% from the 2028 income year.
- Increases the Medicare levy low-income thresholds.
Opposition Budget Reply
The Opposition Budget Reply included a number of tax related policies:
- Repeal the tax cuts and instead cut fuel excise by 25.4 c/l on petrol and diesel for 12 months.
- Permanent increase to the IAWO to $30,000.
- Providing small businesses with a tax deduction of up to $20,000 for meal and entertainment expenses (excluding alcohol).
Payday Super
Treasury has released exposure draft materials on the Payday Super measure and other amendments to the superannuation guarantee (SG) regime to apply from 1 July 2026. Superannuation Guarantee Charge Amendment Bill 2025 and Treasury Laws Amendment Bill 2025: SG Reforms to address unpaid super align the payment of SG contributions to employees with the day on which they are paid salary or wages.
Employers will have 7 days to pay superannuation for employees, with additional time allowed for new employees and a deduction allowed for late contributions and the SG charge. Changes will be made to the interest and penalty regime, with the requirement to lodge SG statements to be removed. The operation of the Small Business Superannuation Clearing House will also cease.
CASE LAW UPDATE
Bendel—Interim Decision Impact Statement (DIS)
Following on from the Full Federal Court decision in Bendel, the Commissioner is seeking leave to appeal to the High Court. The ATO has issued an interim DIS stating it will maintain its current view of treating unpaid present entitlements (UPEs) to corporate beneficiaries as loans under Division 7A, as set out in TD 2022/11, until the appeal process is complete. In the meantime, where a decision turns on whether a UPE is a Division 7A loan, the ATO will not seek to finalise issuing amending assessments, private ruling applications, or objection decisions.
The ATO has also confirmed its view that section 100A (trust reimbursement agreements) can also potentially apply to UPEs.
S.N.A Group Pty Ltd v CoT—Deductibility of Service Fees
This case involved a privately owned taxpayer group which restructured its business into several entities, each operating different parts of its real estate activities. Due to the relationship there was a degree of informality around agreements and documentation of transactions between the entities. In the income years under review, the Commissioner disallowed total deductions of $18.8m for service fees charged between entities, on the basis of non-compliance with the record-keeping requirements.
The Federal Court held for the taxpayer. The Commissioner lacked commercial understanding in denying the deductions on the basis of the informality of dealings and lack of formal documentation. The evidence supported the service fees were essential for producing the assessable income of the business.
Key point: Although the case supports taking a practical approach, lack of formal documentation makes discharging the onus of proof more difficult, and contemporaneous documentation is recommended.
Shaw v CoT—Truck Drivers and Meal Expenses
The taxpayer was a long-haul truck driver who spent considerable periods away from home and was paid a travel allowance by his employer. The taxpayer sought a deduction for meal expenses of $32,782 per the reasonable daily allowance in TD 2020/5. The taxpayer claimed this was less than he spent, and that his tax agent advised he did not need to keep records if he claimed less than the reasonable allowance. The Commissioner denied the deduction on the basis of the lack of substantiation and, on objection, allowed a deduction of $19 per day, being a total of $5,890.
The ART allowed the objection in full, commenting on the ‘absurdly inadequate amount’ of $19 per day and the ATO focus on substantiating purchases made 5 years ago, stating that ‘the Commissioner must act with some realism’. The Tribunal also criticised the substantiation advice provided by the tax agent.
TAX RULINGS & DETERMINATIONS
TD 2025/D2—Division 7A: Interaction between Section 109R and 109T
The ATO has set out its preliminary view about the interaction of section 109R and section 109T.
Section 109R can apply to disregard loan repayments made to a private company where the borrower is taken to have obtained a loan from the company of the same or similar amount via an interposed entity. Section 109T can deem loans made via interposed entities to be Division 7A loans.
The ruling provides examples of the interaction of these provisions. The ATO also states that, alternatively, they may also consider the application of Part IVA to arrangements whereby loans from a company are refinanced for the purposes of obtaining a tax benefit. When finalised, the TD will apply to before and after its date of issue.
OTHER UPDATES
FBT—Target Areas
The ATO has flagged FBT areas that attract their attention. These include motor vehicles not classified correctly, leading to mistakes in the method used to calculate FBT; treatment of an employee’s private use of a motor vehicle as business use; and mistakes with completion of logbooks.
The information contained in this bulletin is intended to provide general information only and is not intended to serve as tax advice. Specific advice should always be sought regarding a taxpayers’ particular circumstances. Please contact MC Tax Advisors if you would like assistance with the issues identified in this bulletin.
