The ATO has had a busy end to 2025 with a number of rulings and guidelines, including a new approach to individuals with rental properties that are also used as holiday homes. A number of potential tax developments are expected in 2026, with the Bendel decision on the application of Division 7A to unpaid trust distributions and the long awaited ATO view on back-to-back rollovers.

LEGISLATION UPDATE

$20,000 Instant-asset write-off passes

Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Bill 2025 has been passed. The Bill includes:

• The extension of the $20,000 instant asset write-off for small business entities to 30 June 2026.
• Strengthening of beneficial ownership tracing rules applying to listed entities.

Parliament will not sit again until 2026.

Trust beneficiary TFN reports

Treasury  released draft legislation to streamline how closely‑held trusts report beneficiary TFNs. The legislation would remove the requirement to report these on a separate form and instead incorporate the reporting for presently‑entitled beneficiaries into the trust’s income tax return. It is intended that this would commence from the 2027 income year.

Division 296 Superannuation Tax

Treasury released draft legislation for the Division 296 superannuation tax on 19 December 2025, with consultation closing on 16 January 2026. We will report on this further in our January tax bulletin.

RULINGS & COMPLIANCE GUIDELINES UPDATE

PCG 2025/5 – Personal Services Businesses & Part IVA

The ATO has finalised its compliance approach for arrangements where income from an individual's personal services is derived via a personal service entity and the PSI rules do not apply. The ruling is not relevant for entities that derive their income mainly from a business structure or from assets.

Changes from the draft guidance include the following comments:

• The ATO are more likely to target arrangements where there are substantial distributions or payments made to associated lower-tax persons or entities.
• The ATO will not apply compliance resources to pursue Part IVA where the relevant individual has  made a genuine attempt to move into a low-risk arrangement by 30 June 2027.
• Dividing profits in a partnership between spouses that may be advantageous for tax is not of itself Part IVA, but a partnership where one partner performs no services could raise questions.
• If the entity retain profits this is a high-risk indicator unless this is for working capital purposes (e.g to fund business operations or acquire a business asset) and that intention is carried out.

Key point: The ATO are less likely to take action against taxpayers who split small amounts of personal services income. We recommend you review these issues with any clients who engage in more substantial income splitting, with the aim of implementing any necessary changes by 1 July 2027.

GSTR 2012/6DC – Commercial Residential Premises

The ATO has issued a draft update to GSTR 2012/6 clarifying the GST treatment of Build-to-Rent (BTR)  developments and the distinction between permanent and short-term guest-based accommodation.

BTR developments generally remain input-taxed residential premises rather than commercial residential premises. The occupants hold rights consistent with residential leases such as exclusive possession. In contrast, hotels, motels, and hostels provide occupants with licences only, with the operator retaining broad entry rights for cleaning, servicing, and operational control.

TR 2025/D1 – Rental Property Income & Deductions

The ATO’s has replaced its existing guidance on rental properties with a new ruling, together with 2 practical compliance guidelines. These look at determining if amounts received are assessable income; if the property is a ‘holiday home’; and apportioning deductions between income-producing and private use.

A deduction will be denied for all costs of owning a holiday home (rates, land tax, interest, insurance and maintenance) unless its main use is to produce assessable rental income. This is based on section 26-50 (leisure facilities) which has not previously been applied by the ATO for this purpose. If the section applies, all ownership deductions are denied even if the property is partially rented. A property’s main use may not be for rent if the owners uses it for personal use during periods of peak demand such as school holidays or summer where there is little demand for the property during other periods.

If a property is not a holiday home, but has periods of being used partly for private purposes, deductions are able to be apportioned.

PCG 2025/D7 – ATO Compliance Approach for Holiday Homes

This guideline outlines how the ATO will allocate compliance resources when applying deduction denial for holiday homes. High-risk indicators include uncommercial or inconsistent advertising patterns, private blocking of high-demand dates, long unoccupied periods, and refusals to rent without reasonable grounds.

Due to this being a change in the ATO published view, it will only apply to existing arrangements from the 2027 income year, and new arrangements entered into from 12 November 2025.

PCG 2025/D6 – Apportionment of Rental Property Deductions

Where a rental property is not a holiday home, this guideline outlines acceptable methods for apportioning expenses. Where there are periods a property is not occupied, it is necessary to evidence it was available and genuinely held for rent to be eligible for deductions. If the property is not advertised broadly, the rental terms are not comparable to other properties or rental requests are not actively monitored, the property may not be genuinely available.

Key points: Individuals with properties rented out via sharing platforms should consider their potential risk now in preparation for 2027. As the ruling and PCGs only apply to properties held by individuals it is unclear how the ATO would apply these principles to trusts or companies.

Expected publications in 2026

The ATO is expected to issue the following draft tax determinations and guidelines in early 2026:

• Guideline on when the ATO may apply compliance resources to consider the application of Part IVA to an arrangement that comprises multiple CGT rollovers.
• Taxation Determination on how the CGT provisions apply where there are back-to-back CGT rollovers under Subdivision 122-A (from a trust or individual to a wholly-owned company) and Subdivision 124-M (scrip-for-scrip rollover)
• Compliance guideline on long-term construction contract arrangements in the property and construction industry.
• Tax determination on identifying which shares or interest in shares a ‘position’ is in relation to for the purpose of the franking credit integrity rules (45 day holding period rule).

 CASE LAW UPDATE

Sunna v FCof T—Deferred settlements and amending assessments

The taxpayer entered into a contract for the sale of a property in June 2019. He received a deposit in the 2020 income year and the balance on settlement in 2023. He reported capital gains in his 2020 and 2023 income tax based on the proceeds received. After an audit, the Commissioner issued amended assessments to include the total capital gain in 2019 and remove the 2020 and 2023 gains. The Commissioner relied on his power to amend an assessment to give effect to section 104-10(3) which imposes a CGT liability where settlement of a contract occurs in an income year after the contract was entered into.

The taxpayer argued that, as this did not give the Commissioner the power to amend the 2020 NOA, he could not amend the 2019 NOA. The Federal Court agreed that the Commissioner could not amend the 2020 NOA but this did not prevent the 2019 amendment, meaning the capital gain was assessed in both income years. However, the Court noted that the taxpayer could request an extended period in which to lodge an objection to the 2020 assessment to allow the Commissioner to ameliorate this outcome.

Key point: If property is sold under a deferred settlement, a taxpayer must amend their return for the contract income year once settlement has occurred. The ATO policy is not to apply interest for late payment of any tax liability as long as the amendment is requested within a reasonable period of settlement.

ATO UPDATES

Employee guide for work expenses

The ATO has updated its Employees guide for work expenses. The changes confirm that the following   expenses are private in nature and therefore not deductible, even if required for work purposes.

• Dental & Medical expenses
• Passport expenses: The cost relates primarily to the personal right to travel overseas.
• Travel insurance expenses: The cost covers items that are generally private in nature, for example, baggage theft, damage to belongings or medical expenses.

 https://www.ato.gov.au/law/view/document?DocID=SAV/EGWE/00001

Interest and penalty remission requests

The ATO has advised that from 22 January 2026 all requests for remissions of General Interest Charge, Shortfall Interest Charge and Failure to Lodge penalties will need to be submitted using the relevant      remission application form. The new forms will be available to be downloaded from the ATO website by this date and will need to be submitted via practice mail in Online services for agents.

https://www.ato.gov.au/tax-and-super-professionals/for-tax-professionals/tax-professionals-newsroom/changes-to-interest-and-ftl-penalty-remission-requests

CONTACT US

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