During October, the Government has announced changes to the Division 296 superannuation tax, together with introducing the PayDay Super legislation. In case law, an ART decision has focused on the pre-status of assets held in a discretionary trust. 

LEGISLATION UPDATE

PayDay Super

Superannuation Guarantee Charge Amendment Bill 2025 and Treasury Laws Amendment (Payday Superannuation) Bill 2025 to introduce the Payday Super rules have passed the lower house:

• From 1 July 2026 employers will need to ensure Superannuation Guarantee (SG) contributions are received by each employee’s super fund within a specified period (generally 7 business days) after payment of ‘qualifying earnings’. Employers will have additional time if it is the first time they have contributed to a particular fund.
• If payments are received after this date, the SG charge, notional interest  and any applicable administrative penalties will be payable. The level of penalties will vary, depending on various factors. 
• The new SG charge will be deductible to the employer.

The ATO has also issued draft PCG 2025/D5 setting out its proposed compliance approach for the first year of operation. The ATO will prioritise the application of compliance resources to areas of highest risk, which will be based on the efforts an employer has made to meet the new deadlines.

Note: The ATO Superannuation Clearing House will cease to operate from 1 July 2026.

Key points: Employers who are not meeting current contribution deadlines, or do not make any changes to the timing of superannuation payments from 1 July 2026, will be at the highest risk of review. Cashflow planning should therefore start as early as possible. Employers looking at changing salary payment cycles will need to consider any awards or agreements, notice required to employees, and any upfront cashflow implications on changeover.

Division 296—Superannuation tax changes

Treasury has announced the following changes to the proposed tax on superannuation balances above $3m. The start date for the measures has also been deferred to 1 July 2026. 

Reporting:

• The ATO will contact a super fund for the proportion of the fund’s applicable realised earnings for any individual with a Total Superannuation Balance (TSB) above the legislated threshold.

• Funds calculate share of earnings attributable to individual and provide this information to the ATO.

 Calculating earnings:

• Based on superannuation fund’s realised earnings , closely aligned to existing tax concepts.

• Members will be attributed an appropriate share of realised earnings based on existing reporting mechanisms or on a fair and reasonable basis. This would be supported by guidance from the ATO.

 Tax rate

• 15% on proportion of earnings corresponding to TSBs between the lower threshold ($3m) and the higher threshold ($10m); and

• Additional 10% on proportion of earnings corresponding to TSBs above the higher threshold ($10m).

 Indexation:

• $3 million threshold indexed to the CPI in $150,000 increments,

• $10m threshold indexed in $500,000 increments

 The Government will also increase the low-income superannuation tax offset and raise the eligibility threshold from 1 July 2027.

CASE LAW UPDATE

XLZH and Cof T—Pre-CGT assets and discretionary trusts

This case dealt with a trust that was established pre-CGT, with the original beneficiaries excluding the taxpayer’s husband. A corporate beneficiary was established with a hybrid unit trust as the shareholder. As a result, the husband was ultimately entitled to 19% of distributions made by the trust. In the 2020 income year, the trust disposed of shares which it had acquired pre-CGT. The ATO argued that the establishment of the new corporate beneficiary caused the shares to stop being pre-CGT assets, as the husband was not previously a direct or indirect beneficiary of the trust.

The ART held that the shares retained their pre-CGT status as ‘Division 149’ has to be read as permitting a sensible identification of whether an asset of a discretionary trust has stopped being a pre-CGT asset. The husband did not receive more than 50% of the distributions.

Key Point: The approach taken by the ATO in this case indicates that it may be changing its view on pre-CGT assets held within discretionary trusts.

Appeals Update

Merchant & Anor v  FCT—Part IVA and dividend stripping:

• Both the ATO and the taxpayer have been granted special leave to appeal the Full Federal Court decision to the High Court.
• This case dealt with the transfer of shares to a related party which triggered a capital loss, and the forgiveness  of debts between related parties.

Bendel decision—Division 7A:

• The High Court has commenced hearing the appeal in the Bendel case. A decision is now not        expected until next year.
• In addition to the issues raised at the Full Federal Court, the High Court will be considering the issue of whether an unpaid present entitlement creates a debtor/creditor relationship.

VICTORIAN STATE TAXES UPDATE

The Victorian State Government has introduced the State Taxation Further Amendment Bill 2025 to make changes to a number of state taxes. These include:

• Foreign Purchaser Additional Duty: NZ citizens will need to ordinarily reside in Australia for a minimum period to not be classified as a ‘foreign natural person’.
• Land Tax: Definition of ’natural person absentee’ and ‘Australian citizen or resident’ for NZ citizens to focus on ordinary residence in Australia. ‘Principal Place of Residence’ exemption to include land with a temporary residence.
• Vacant Residential Land Tax: Change of notification deadline from 15 January to 15 February. New exemption provision for residential land temporarily incapable of being used as such, provided it resumes to be residential land by the end of the year.

 CONTACT US

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