During June, we have seen tax decisions dealing with FBT and trusts, travel expenses and individual tax residency, together with the next chapter in the Bendel case. The ATO has also continued its education campaign on Division 7A with the latest guidance focused on debunking Division 7A myths.

TAX CHANGES FROM 1 JULY 2025

Superannuation

• Super guarantee rate increases from 11.5% to 12%

• The transfer balance cap /total superannuation balance limit increase from $1.9m to $2m

• CGT non-concessional contributions cap increases by $85,000 to $1,865,000.

Income tax

• General Interest and Shortfall Interest Charges accruing from 1 July 2025 will not be deductible.

• Car depreciation claim limit increases to $69,674.

Tax agent reforms

Firms with fewer than 100 employees must comply with new requirements in the Code of Professional Conduct for tax agent services. These include obligations not to make false or misleading statements; keeping proper client records of tax agent services provided and keeping clients informed.

Payroll tax - Victoria

The tax-free threshold increases from $900,000 to $1m for annual returns, and from $75,000 to $83,333 for monthly returns. There is a phasing of the threshold for every dollar of wages above $3,000,000, and businesses with Australian wages above $5,000,000 will not receive any tax-free threshold.

CASE LAW UPDATE

FCT v SEPL—FBT: Employee & “In respect of employment”

The Federal Court has held that a trust was liable for FBT on luxury vehicles provided to 3 brothers who were directors of the corporate trustee. The brothers worked full-time in the business but did not receive salaries. The AAT had held that the brothers were not ‘employees’ and, even if they were, the non-cash benefits were not conferred ‘in respect of employment’.

However, the Court held each director was an employee within the extended meaning for FBT purposes. If the benefits had been paid in cash, they would have constituted salary and wages. The benefits were ‘in respect of employment’ as there was a material relationship between the benefit and employment. The brothers could not be regarded as the owners of the trust or assets as it was a discretionary trust.

Key point: This is a relevant issue if non-cash benefits are conferred on directors of a discretionary trust.

CBRX v FCofT — Travel expenses

The taxpayer lived in Brisbane and mainly worked at an offshore facility off the coast of Broome. He worked a rotating cycle, with on-duty periods commencing at the start of work at the facility and off-duty periods on departure. He could also be required to do work on additional days. He was paid a commuting allowance for travel to the airport, an offshore allowance and a secondment allowance for Covid-19 quarantine. In the relevant income year, he spent off-duty days in Perth, Broome & Darwin and claimed travel expenses (under the substantiation exception) on the basis his contract allowed him to work from other locations and Covid-19 restrictions required him to remain in WA. .

The ART held that the travel expenses were not deductible as travel during off-duty periods was preliminary to commencing duties or occurred after duties had ceased. To rely on the substantiation exception he must have received a travel allowance to cover those expenses and no allowance met this definition.

Key point: The ATO has been focussing on use by taxpayers of the reasonable travel and meal allowance amounts. These are not able to be relied on if an employee does not receive a travel allowance.

FCT v Abotemy— Individual tax residency

The taxpayer was an Australian citizen who consulted to a company with business in China. On relocating there in 2009 he then started to provide his services through a Hong Kong company of which he was the sole shareholder. The company subsequently transferred amounts into his Australian bank accounts as  loans. The taxpayer had a leased apartment in China whilst his family remained at their home in South Yarra. He travelled back to Australia multiple times for business, spending 212 days here in 2015. He    removed his name from the electoral roll, but maintained financial and social connections to Australia. The taxpayer returned to Australia in February 2015.

The ART held that the taxpayer was a non-resident in 2014 as he had abandoned his residence and established a home in China that was not temporary. However, his circumstances changed in 2015 as a new consultancy agreement contemplated that his services would be provided in Australia. The taxpayer was a resident under the ‘ordinary concepts’ and ‘183-day’ tests of residency. As a result, the Hong Kong company became a CFC and its income was included in the taxpayer’s assessable income. As it was a resident of an ‘unlisted country’ loans made to the taxpayer in that year were also treated as taxable dividends.

Key point: When a taxpayer changes tax residency you must also consider any impact on the tax
treatment of controlled entities.

Other Case Updates

Bendel case: The High Court has granted the Commissioner special leave to appeal the Full Federal Court     decision dealing with Division 7A and unpaid beneficiary entitlements. We are therefore unlikely to have a final outcome in this case until 2026.

Hall v FCT : The Commissioner has appealed to the Federal Court against this decision in which an ABC employee required to both work from home and the studio during the Covid-19 lockdowns was allowed a deduction for occupancy and travel expenses (May 2025 Tax Update). The ATO does not intend to revise its views during the appeal process.

OTHER UPDATES

Divion 7A myths

The ATO has published a fact sheet on debunking ‘Division 7A myths’ as part of its Division 7A education focus. These include myths around:

• The use of journal entries to apply dividends as loan repayments to private companies without other documentation;
• Temporarily borrowing amounts from private companies to place in mortgage offset accounts or redrawing loan repayments after being made; and
• Loans made by private companies to trusts or for income producing purposes.

CONTACT US

For further information on any of these updates, or for general assistance, please contact Our Directors, Jacci Mandersloot or Natalie Claughton.

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.