The Commissioner has been successful in denying service fee deductions to a property group which did not have sufficient evidence it had incurred the expenses. However, this has been followed by a number of ATO losses, including a large scale farmland development which was held to be a pre-CGT capital gain.  The ATO has issued a draft compliance guideline outlining property development arrangements that may attract ATO review under Part IVA, as well as rulings to support the Pay Day Super regime.

 LEGISLATION UPDATE

PayDay Superannuation

Reminder—PayDay Super to start 1 July 2026

The new Payday Super Guarantee (SG) regime will commence from 1 July 2026. From this date:

• If employee contributions are not received by their super fund within 7 business days of payday, or a longer period in certain circumstances, a SG charge can be assessed.
• The SG charge can be uplifted for notional earnings; an administrative penalty; and choice loadings (if fund choice rules are breached). If charges remain unpaid, further penalties can apply. Employers can voluntarily disclose shortfalls before the ATO issues an assessment to reduce penalties.
• Late payments and the SG charge will both be tax deductible.

Administrative penalties

Treasury Laws Amendment (Payday Superannuation) Regulations 2026 have been introduced to support the Payday Super reforms. These outline the various reductions that may apply to the 60% administrative uplift penalty. A full reduction can apply if an employer makes a voluntary disclosure before the ATO takes compliance action, or where there were exceptional circumstances beyond its control.

Division 296—Superannuation Tax

Legislation to implement the new Division 296 tax measure has been passed and received Royal Assent with no amendments. The rules will commence from 1 July 2026 (refer Tax Bulletin—January 2026).

Beneficiary TFN reporting

Treasury Laws Amendment (Delivering an Efficient and Trusted Tax System) Bill 2026 has been introduced.

 This Bill includes changes to the reporting of beneficiary TFNs by the trustees of closely held trusts. This will change the TFN reporting requirement from one month after the quarter in which a beneficiary quotes their TFN to the earlier of the lodgment date and due date of the trust's tax return.

This measure will apply in relation to income years starting on or after 1 July 2026.  

LAW COMPANION RULINGS & PRACTICE COMPLIANCE GUIDELINES

Payday Super

A number of draft Law Companion Rulings have been issued to set out how the Payday Super provisions operate. LCR 2026/D4 confirms that super contributions made by an employer after 28 July 2026 will only be applied against Payday Super liabilities. If an employer has unpaid contributions relating to the 2026 income year or earlier, they will still need to lodge a SG statement and pay the SG charge.

Key point: If a employer inadvertently pays their June 2026 quarter obligations late, these contributions will be carried forward and an additional payment will then need to be made to satisfy the SG charge. 

Main Residence Exemption & Deceased Estates

The ATO has updated PCG 2019/5 on extending the 2-year period in which a deceased’s dwelling must be sold in order to qualify for a full main residence exemption. Where the reasons for delay in selling the house do not fall within one of the safe harbours in the guideline it is necessary to request the Commissioner to exercise his discretion to extend this period.

The update requires the request to be made by sending a letter to the ATO, rather than the previous    process of requesting a private binding ruling.

 PCG 2026/D2—Property Development Arrangements

PCG 2026/D2 outlines when the ATO is more likely to devote compliance resources to consider if Part IVA applies to property development arrangements. The guideline focusses on related party structures which result in development losses being used elsewhere in a group whilst income recognition is deferred:

• Green zone (low risk) arrangements— income is recognised progressively either by the developer entity or the landowner.
• Red zone (high risk) arrangements—there is no invoicing or progress payments, developer losses are utilised, and this is replicated across multiple projects in the same economic group. These are treated as indicators that the structure may have been chosen to secure a tax advantage rather than   reflecting the commercial substance.

Key point: Many arrangements would fall somewhere between these zones. This results in uncertainty as to whether these are at risk of review, and taxpayers should take care when utilising these structures. 

CASE LAW UPDATE

SNA Group Pty Ltd & Anor v FCofT—Deductibility of service fees

The taxpayers were trading companies within a property group which had transferred their rent rolls and  key managerial staff to separate trusts. Written agreements had initially been entered into for the use of assets and staff, with service fees calculated by reference to a rate of return, but these had since lapsed. Following an audit, the Commissioner issued amended assessments across 5 income years disallowing deductions of over $18m with 50% penalties (reduced to 25% by the Federal Court).

The Full Federal Court found there was no direct evidence of communication between the parties that the taxpayers had accepted a legal obligation to pay the fees. Simply making regular payments and recording them in the books was not sufficient. The payments also lacked consistency, which made it difficult to infer an annual contractual obligation to pay ‘service fees’.

Key point: Service fees between related parties should be set out in signed agreements, entered into contemporaneously, to ensure entitlement to deductions. The methodology for determining fees should also be clearly set out and followed by the parties.  

Baya Casal v FCofT—Genuine redundancy payment

The Full Federal Court has held that a taxpayer had been made genuinely redundant when choosing not to accept a new role which involved a material reduction in her hours and remuneration. The Commissioner had ruled that a termination payment was not for a genuine redundancy as the employer still had a job that it wished the employee to perform which required similar skills and duties.

The Court held that a reduction in remuneration could support a conclusion that a position had become   redundant where this resulted from a change to the scope of the responsibilities or duties to be performed, the scale of the tasks to be carried out or the location of the role.

Morton v FCT— Property Development - Sale of Developed Farmland

The taxpayer had farmed a pre-CGT parcel of land which was rezoned as residential. He entered into a property development agreement with a developer to subdivide the land and sell it as individual allotments in a housing estate. Under the agreement the developer was appointed power of attorney, the land would not be used as security and the return was structured as a percentage of sale proceeds.

The Full Federal Court held that the sale proceeds were not assessable income. The taxpayer was not taking on the risk of the commercial success of the property development and played little active role. The taxpayer was not engaged in a business of land subdivision and development. 

Key point: Although fact specific, the decision conflicts with the ATO view that large scale developments of this nature are generally on revenue account, regardless of the terms of the development agreement or that the owner has no history of development.

 Shaw v FCT—Reasonable travel allowance and deductions

The taxpayer was employed as a long-haul trucker driver. He did a ‘big shop’ to stock food before going on the road each week, with additional supplies purchased on route and paid for in cash due to lack of banking facilities. He relied on the substantiation exemption and claimed a deduction for meal expenses based on the maximum daily travel allowance of $105.75. The ATO reduced this to $19/day on the basis that the bulk of expenses were private in nature.

The Federal Court held that the evidence provided, being logbooks, fatigue diaries and bank statements, were sufficient to support the expenses being incurred.

Key point: Travel allowance claims are a recent focus of the ATO. Although receipts are not required to be held a taxpayer must still be able to provide reasonable evidence that the expenses were incurred.

OTHER UPDATES

Tax ombudsman review– GIC remission

Following a review into the ATO’s management of GIC remission, the Tax Ombudsman has called on the ATO to offer fairer interest charge relief, and has made a range of recommendations. These include:

• ATO to conduct a post-implementation review of the recent remission changes
• Updated internal guidance and training for officers
• Explore greater use of partial remission (and publish the factors it may consider); and options for upfront agreement of full or partial GIC remission for taxpayers repaying their debts.
• Improve the level of detail in its letters to explain how its decisions were reached 
• Improve visibility of the options for reconsideration and review of GIC remission decisions,

The ATO has stated that it agrees with all the recommendations and has already implemented changes. The ATO will publish the outcomes of its broader review later in 2026. 

Trust reporting

As part of the ‘Modernising Tax Administration Systems’ changes, a number of changes will be made to trust data reporting and tax returns. These include:

• From 1 July 2026, the ATO will use trust statement of distribution data to pre-fill income tax returns for individual beneficiaries:
• For 2027 tax time, pre-fill will expand to non-individual entities, giving tax agents access to trust distribution data as lodgments occur.
• The 2027 trust tax return will require the details of the specified individual named in family trust and interposed entity elections to be included

CONTACT US

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