During September, the ATO released its focus area for private groups and specific industries, together with common mistakes relating to the FBT treatment of vehicles. In addition, changes have been released to the Employee Share Schemes valuation method for the start-up concessions.

LEGISLATION UPDATE

Outstanding measures 

Both houses of Parliament will next sit on 27 October 2025. Outstanding tax legislation includes:

• Treasury Laws Amendment (Better Targeted Superannuation Concessions & Other Measures) Bill 2023 introduces the new Division 296 tax (on superannuation balances above $3m). The Bill lapsed at the Federal Election and the Government has not announced when it will be re-introduced.
• Treasury Laws Amendment (Strengthening Financial Systems & Other Measures) Bill 2025 extends the $20,000 instant asset write-off for small businesses through to 30 June 2026.

The ATO has also confirmed that from mid-November it will begin applying the 20% reduction to student debts incurred on or before 1 June 2025. The ATO anticipates that most people will see the reduction by mid-December.

 Board of Tax review—Red-tape reduction 

The Government has requested the Board of Tax to engage with the business community to identify areas of business tax law and administration where there are opportunities for substantial red tape reduction that directly support productivity. Where opportunities are identified, the Board will:

• Administrative changes - provide examples to the ATO to support their red tape work.
• Legislative changes - provide recommendations to government for potential improvements. Any recommended improvements should be revenue neutral and consider any potential integrity risks.

TAX RULINGS & DETERMINATIONS

Thin capitalisation  - third party debt test

The ATO has finalised its guidance on the ‘third party debt test’ for thin capitalisation purposes and its compliance approach to restructures carried out in response to reforms to the thin capitalisation rules.

• TR 2025/2 sets out the ATO views on the third party debt test, with a particular focus on the third party debt conditions. These conditions are relevant to working out an entity's third party earnings limit, and therefore the amount of debt deductions (if any) disallowed.
• PCG 2025/2 outlines the ATO's targeted compliance approach in relation to specific matters arising under the third party debt test.

Employee share schemes—Start-up concessions

The ATO has issued an updated legislative instrument (F2025L01085) for companies eligible to use ‘safe harbour’ methodologies to calculate the market value of shares issued under an employee share or option scheme.

One of these methods is the Net Tangible Assets method based on the balance sheet of the company. Previously, this required that the company prepare a financial report that complies with the accounting standards under the Corporations Act 2001. Under the updated instrument, the obligation to prepare
accounts in accordance with accounting standards has been removed.

Key point: As many private companies are not required to prepare reports in accordance with accounting standards this will allow those companies to potentially access this valuation method.

ATO ACTIVITY

Private Groups—Focus areas 2025-26

The ATO has outlined its focus areas for private groups for the 2025-26 income year. These include:

• Capital gains tax - incorrectly applying the CGT discount, small business concessions or small business rollover; restructuring to access concessions.
• Trust distributions, including circular distributions and those triggering family trust distributions tax. Of particular concern is newly-incorporated beneficiaries that may not meet the 45-day holding rule (note—this issue arises where the company had not yet been incorporated when the dividend included in its distribution was originally paid).
• Purchasing lifestyle assets through related entities.
• Crypto assets.

Specific industry focus—tax risk

The ATO has outlined the recurring issues it sees in the following industries:

• Property and construction industry – including builders, contractors and tradies.
• Professional, scientific and technical services sector – such as engineering, design, IT, management and consulting professionals.

Common errors In these industries include:

• Incorrect claims for the R&D tax incentive.
• Omitting sales and income in the BAS and tax returns, including income from related entities.
• Private expenses incorrectly reported as business-related, or not properly apportioned between business and personal use.
• Failure to register for GST when required

FBT—Common errors

The ATO has outlined the most common issues it sees for vehicles when reviewing FBT returns. These include:

• Incorrectly treating private use as business use. For example, where an employee does work tasks on the way to or from work; or the car is in a workshop for minor repairs or maintenance.
• Assuming dual cab utes are exempt from FBT when they are taken home by employees and used for extensive private purposes (such as weekend sport and camping trips).
• Incorrectly classifying vehicles for the purpose of determining the methods to be used to calculate FBT and whether certain exemptions can apply
• Logbook errors, including insufficient information about the purpose of the journey; co-mingled business and private trips listed as one entry and discrepancies where entries don’t match actual travel.

 
CONTACT US

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