It is important to note that the land tax amount is not deductible in the year you pay it. Instead, deductions must be taken in the respective income years to which the land tax liabilities related to. It’s crucial to understand that your liability for land tax is determined by the usage of the property within a given year, regardless of when the tax assessment is actually issued.

When you pay land tax for past years (known as paying “in arrears”), you can’t deduct this payment from your income for the year in which you make the payment. Instead, you can only claim a deduction for the land tax in the years that the tax was originally due for.

For an example – Imagine it’s 2024, and John receives a bill for land tax for the years 2022 and 2023 that he hasn’t paid yet. Even though John pays this bill in 2024, he can’t claim the deduction on his 2024 tax return. Instead, he should claim the deduction for the 2022 land tax on his 2022 tax return, and the deduction for the 2023 land tax on his 2023 tax return, because those are the years the tax relates to, even though he paid it later.

You can claim land tax as a tax deduction for your investment properties. However, you cannot claim land tax as an immediate deduction if your property is not generating rental income or if you are using the property for personal use.

You are eligible to deduct expenses including interest on loans, local council, water and sewerage rates, land taxes, and emergency services levies incurred during the period of renovating a property intended for rental. It’s important to note, however, that your eligibility for these deductions ceases once your intentions for the property change, such as deciding to use it for personal purposes instead.

According to GSTR 2012/6 Airbnb doesn’t fall under commercial residential premises. The definition of ‘commercial residential premises’ in section 195-1 includes the following seven paragraphs, none of which indicate anything similar to Airbnb. This distinction is crucial for understanding the regulatory and tax implications associated with offering or operating Airbnb properties.

• a hotel, motel, inn, hostel or boarding house. 
• premises used to provide accommodation in connection with a school; 
• a ship that is mainly let out on hire in the ordinary course of a business of letting ships out on hire. 
• a ship that is mainly used for entertainment or transport in the ordinary course of a business of providing ships for entertainment or transport. 
•  a marina at which one or more of the berths are occupied, or are to be occupied, by ships used as residences. 
•  a caravan park or a camping ground; or 
•   anything similar to residential premises described in paragraphs (a) to (e). 

Check out our Comprehensive Guide To Converting Your Long-Term Investment Property To Airbnb Or Short-Term Rental for further information. 

Reference – https://www8.austlii.edu.au/au/other/rulings/ato/ATOGSTR/2012/GSTR20126.pdf

The goods and services tax (GST) does not apply to residential rents, so Airbnb hosts do not have to pay it. This also means that you can’t get a GST credit for the costs that go along with it. This is applied even if your sales are more than $75,000, which is the GST threshold.

Please check feel free to check out our Tax Consequence guide for Airbnb. 

Starting your investment journey, whether as an employee or a business owner, requires careful consideration of two critical aspects: tax planning and asset protection. These are not just checkboxes on a list; they are foundational pillars that seasoned investors prioritise from the outset. The goal is not merely to accumulate assets but to do so in a way that ensures their longevity and protection.

Asset protection is all about creating a secure environment for your investments. It’s the practice of arranging your assets in a way that minimizes the risk of loss, whether through legal challenges, business debts, or other financial liabilities. The essence of asset protection lies in the foresight to anticipate potential risks and to structure your investments in a way that those risks are mitigated before they can even arise.

Transferring existing property and assets to a trust or company for asset protection purposes is possible, but it must be done carefully and in compliance with the law. Such transfers can have tax consequences, including capital gains tax (CGT) and stamp duty. CGT may apply if the transfer results in a capital gain, and stamp duty may be levied depending on your jurisdiction. Additionally, anti-avoidance provisions are in place to prevent tax evasion through asset transfers. It’s crucial to seek legal and tax advice before proceeding to understand the implications and ensure compliance with tax laws and regulations. Each case is unique, and a tailored approach is essential to address both asset protection and tax considerations.

The 5-year clawback period, often associated with bankruptcy law, refers to a period of time preceding a debtor’s bankruptcy filing, typically starting from the date of the bankruptcy filing. During this period, a bankruptcy trustee has the authority to review, and potentially reverse certain transactions made by the debtor, such as preferential payments to specific creditors or fraudulent asset transfers. The purpose is to prevent debtors from attempting to shield assets from creditors by engaging in questionable financial transactions shortly before declaring bankruptcy.

While it is possible to transfer properties and assets to a trust or a company, doing so with the intent to evade legitimate creditors or legal claims can have serious legal consequences. Transfers made with the intent to hinder, delay, or defraud creditors are typically considered fraudulent and can be challenged by creditors or the court. Australia, like many jurisdictions, has laws in place to prevent fraudulent asset transfers. It’s essential to consult with legal professionals to ensure any asset protection or restructuring measures are done within the bounds of the law and do not violate legal obligations to creditors or the court.

No, asset protection strategies cannot provide absolute protection from all types of legal claims or creditors. Certain legal claims, such as child support, alimony, or government obligations, may not be shielded by asset protection measures. Additionally, fraudulent or improper transfers intended to evade legitimate creditors can be challenged and deemed ineffective. Asset protection is best used as a proactive strategy to minimize risks rather than as a guarantee against all possible legal challenges. Consultation with legal and financial experts is crucial for tailored asset protection planning.

Asset protection is entirely legal when done within the boundaries of the law and regulatory requirements. It involves prudent financial planning and the use of legal mechanisms to protect assets from unforeseen risks. Engaging in fraudulent activities or hiding assets to evade legitimate creditors is illegal and can result in severe legal consequences.

Asset protection refers to strategies and legal mechanisms investors and businesses use to safeguard their assets from potential creditors, lawsuits, or financial risks. It’s crucial because it helps protect your hard-earned assets from being seized or depleted in the event of legal disputes, bankruptcy, or unforeseen financial challenges, ensuring the preservation of your wealth.

A bare trust in a Self-Managed Super Fund (SMSF) is a popular structure used to hold an asset, typically a property, when a SMSF implements a Limited Recourse Borrowing Arrangement (LRBA) strategy. A bare trust is a fundamental form of trust arrangement where a trustee is designated to hold property or assets solely on behalf of a clearly identified beneficiary. In this instance, the Self-Managed Super Fund (SMSF) is the ultimate beneficiary. In this type of trust arrangement, the trustee’s role is notably minimal and straightforward, primarily involving the safeguarding and eventual transfer of the trust property to the beneficiary once the loan is paid off, upon the beneficiary’s request.

The trustee, in this context, does not possess discretionary powers or extensive duties beyond this basic obligation. The essence of a bare trust lies in the absolute entitlement of the beneficiary’s’ to both the capital and the income generated by the trust’s assets. For CGT purposes, any disposal of the assets of the trust by a bare trustee will be treated as a disposal by the beneficiary i.e. the SMSF.

Source – ATO – Absolute entitlement 

Yes, it is highly recommended to seek legal advice when setting up a Bare Trust for SMSF property investment. Legal professionals can ensure the trust structure complies with all relevant regulations and help draft the necessary legal documents.

When selling the property, the proceeds will typically go back to the SMSF, as it holds the beneficial ownership. According to the SMSF’s investment strategy, the funds can then be reinvested or used for retirement benefits.

Yes, there are rules and restrictions to be aware of:
• The property held in the Bare Trust must meet the sole purpose test of providing retirement benefits to SMSF members.
• The Bare Trust cannot hold more than one property
• The Bare Trust must not be used for any purpose other than holding the property for the SMSF.
• The SMSF is the only entity that can benefit from the property held in the Bare Trust.

While the Bare Trustee holds the legal title, the SMSF has control over property management and decision-making. The SMSF trustee has the authority to make decisions about the property, including leasing, selling, and maintaining it, in line with superannuation laws.

Yes, you can use a Bare Trust for both residential and commercial property investments. However, the same rules and restrictions apply, including compliance with the sole purpose test and other SMSF regulations.

A Bare Trust is commonly used in SMSF property investment to comply with superannuation and legal regulations. It separates the legal ownership (held by the Bare Trustee) from the beneficial ownership (held by the SMSF), ensuring that the property investment aligns with SMSF rules.

A Bare Trust, often used in Self-Managed Super Fund (SMSF) property investments, is a legal arrangement where a trustee holds property or assets on behalf of the SMSF. It is a transparent trust structure where the SMSF holds the beneficial ownership of the property, while the Bare Trustee holds the legal title.

Choosing a company or trust structure for your business over a sole trader or partnership offers several advantages. These structures provide limited liability, protecting your personal assets from business debts, making them appealing for risk management. Trusts, particularly discretionary trusts, offer tax efficiency through income distribution among beneficiaries. They also serve well for asset protection and estate planning, allowing for the orderly transfer of assets. Companies, with separate tax rates and perpetual existence, are attractive to investors and convey professionalism, while also facilitating business continuity and scalability. Depending on your specific business goals, legal requirements, and financial situation, consulting with experts such as accountants or legal advisors can help determine the most suitable structure for your needs.

Yes, it is possible to have multiple business structures for different aspects of your business, such as a company for one division and a trust for another. Each structure will have its own legal and tax implications.

Tax implications vary by structure. Sole traders report business income on their individual tax return. Companies pay tax on their profits at the corporate tax rate. Partnerships and trusts distribute profits to partners or beneficiaries who report them on their individual tax returns.

The most common business structure in Australia is the sole trader structure, followed by companies, Trust and partnerships. The choice of structure depends on factors like liability, taxation, and business goals.

Choosing the right structure depends on factors like the nature of your business, liability preferences, tax implications, and future growth plans. Consult with a business advisor or accountant for personalized advice.

When Australian residents (for tax purposes) sell property valued at $750,000 or more and don’t provide a clearance certificate by settlement, 12.5% of the property purchase price must be withheld by the purchaser and paid to the ATO. This is known as the Foreign Resident Capital Gains Withholding (FRCGW) amount.

To avoid this withholding, Australian residents must obtain a ‘clearance certificate’ to prove they are not foreign residents. It is the vendor’s responsibility to secure the clearance certificate and provide it to the purchaser at or before settlement. To prevent any unforeseen delays and ensure the certificate is valid when presented to the purchaser, vendors should apply for the clearance certificate through the online form as early as possible in the sale process. 

The main reasons a clearance certificate hasn’t been obtained before the settlement date are because clients:

• Don’t allow enough time to make an application before settlement (the standard processing time is 28 days).
• Have tax records that aren’t up to date.
• Haven’t needed to lodge tax returns for several years (e.g., when returns were not necessary).

If this happens to you, you must lodge a tax return to claim the credit that was withheld, even if your income is below the threshold to lodge. Obtain the ‘payment confirmation’ from the purchaser. When completing the tax return, be sure to:

• Declare your Australian assessable income, including any capital gain or loss from the disposal of the asset.
• Claim a ‘Credit for foreign resident capital gains withholding amounts’ taken from the sale proceeds.

The withheld amount will be refunded in full if:

• There are no tax debts.
• There’s no CGT payable on the sale of the property.

No, you cannot claim a full Capital Gains Tax (CGT) exemption if you purchase a home with an existing lease agreement. Your primary residence is typically exempt from capital gains tax (CGT). For CGT purposes, this exemption applies from the time you acquire your home, as long as you move in as soon as practicable. 

There are specific circumstances that can affect when your property qualifies as your main residence for CGT purposes:

• Delays Due to Illness or Unforeseen Circumstances: If moving in is delayed due to illness or other unexpected events, your home remains exempt from CGT, provided you move in as soon as the cause of the delay is resolved (e.g., upon recovery from illness).
• Property Rented to Someone Else: If you cannot move in immediately because the property is rented out, it will not be considered your main residence until you actually move in.
• Owning Two Homes: If you buy a new home before selling your old one, you can designate both properties as your main residence for up to 6 months.

Example: 

Emily signed a contract to buy a house in February. She took possession when settlement occurred in March. 

We have provided two different scenarios below to explain what is considered practicable after settlement.

Scenario 1: Moving in as soon as practicable due to interstate work assignment

In early March, Emily’s employer assigned her to an interstate project for 5 months. She moved into the house when she returned in August.

Emily’s interstate assignment was unforeseen at the time she bought the house. She moved in as soon as practicable after the settlement of the contract. Therefore, she can treat the house as her main residence from the date she acquired it.

Scenario 2: Not practicable due to tenancy agreement

Alternatively, the house had an existing tenancy agreement that would not end until September, 6 months after the settlement. Due to this tenancy agreement, Emily could not move into the house until the lease ended in September.

In this case, Emily cannot treat the house as her main residence until she moves in. The property will only be exempt from CGT from the time she actually moves in, as it was not practicable for her to move in due to the existing tenancy agreement.

For Capital Gains Tax (CGT) purposes, your home qualifies for the main residence exemption from the time you acquire it, provided you move in as soon as practicable. 

If you acquire a new home before you dispose of your old one, you can treat both properties as your main residence for up to 6 months under certain conditions.

You can claim this exemption if all of the following are true:

1. You lived in your old home as your main residence for a continuous period of at least 3 months in the 12 months before you disposed of it.
2. You did not use your old home to produce income (such as rent) during any part of that 12 months when it was not your main residence.
3. The new property becomes your main residence.

If it takes longer than 6 months to dispose of your old home, the main residence exemption applies to both homes only for the last 6 months before you dispose of your old home. For the period before this, when you owned both homes, you can choose which home to treat as your main residence. The other property will be subject to CGT for that period.

Reference :

ATO – Moving to a new main residence 

Transferring 50% Property: Navigate Capital Gian Tax Impact

When you sell, transfer, or gift a portion of your investment property to your spouse or partner, you are subject to capital gains tax. However, an exception exists: if the transfer involves your Principal Place of Residence (PPOR), you are exempt from capital gains tax obligations.

Empty Home Revival: Selling After 6 Years – Unleash CGT

If you are not treating any other property as your Principal Place of Residence (PPOR), you can continue to treat this property as your primary residence indefinitely after you have stopped residing in it.

Empower Your Quest: CGT Concession in Small Business

You are considered a CGT Concession Stakeholder in a company or trust if you are:

• A significant individual in that company or trust.
• The spouse of a significant individual and have a small but more than zero percent stake in the company or trust.

You can own this stake either directly or through other entities. To calculate your stake, use the same method as the significant individual test.

You’re a significant individual in a company or trust if you own at least 20% of it. This 20% can include both your direct ownership and indirect ownership through other entities.

Special Note – A spouse of a significant individual must have a participation percentage greater than zero in the business entity.

Small Business CGT Concession and Roll-Over Rules:

CGT Event J5 occurs if, after choosing a roll-over for a capital gain, you haven’t acquired a new asset or improved an existing one by the end of the allotted time. Additionally, this event happens if:

• The new or improved asset isn’t actively used in your business anymore (like if you’ve sold it, it’s now part of your trading stock, or it’s no longer used in your business operations).
• If the new asset is a share in a company or a trust interest, and it fails the 80% test (unless this failure is only temporary).
• You or a related entity aren’t significant stakeholders in the company or trust.
• The stakeholders in the company or trust don’t have a significant (at least 90%) investment in your business. When CGT Event J5 happens, you’ll have to recognize a capital gain. This is the same amount you initially didn’t have to pay tax on because of the small business roll-over. The capital gain is counted at the end of the time you were supposed to get or improve the asset.

Example: CGT event J5
In September 2020, Luke made a capital gain of $80,000 on an active asset. He met the maximum net asset value test.

Luke disregarded the whole capital gain under the small business roll-over.

In September 2022 (the end of the 2-year period), Luke did not have any replacement or capital improved assets. CGT event J5 happens, and Luke makes a capital gain of $80,000 in September 2022.

Source – ATO/ Small Business Rollover

While you can technically sell a property for $1, several crucial considerations apply. Tax authorities and legal entities typically assess property transactions based on market value, potentially resulting in tax obligations based on the property’s actual worth, despite the nominal sale price. Stamp duty, capital gains tax, and legal and financial implications, particularly if there are existing mortgages or loans, should be thoroughly evaluated.

Yes, Investax accountants are well-versed in CGT calculations. We can help you accurately determine your capital gain by considering various factors, such as the purchase price, sale price, holding period, and eligible deductions.

Capital gains in Australia are subject to taxation under the Capital Gains Tax (CGT) regime. If you’ve owned the asset for over 12 months, you may qualify for a 50% CGT discount on the gain, with the remaining 50% added to your taxable income and taxed at your marginal rate. Capital losses from other investments can offset capital gains, and any excess losses can be carried forward. There are exemptions for primary residences, concessions for small businesses, and different tax rates for superannuation funds. For accurate guidance in navigating the complexities of CGT, it’s advisable to consult a tax professional or accountant, such as Investax Accountants, as tax laws may change over time.

Capital gain is the financial profit realised when you sell or dispose of an asset, such as stocks, real estate, or valuable possessions, for an amount higher than the original purchase price. It represents the difference between the selling price (proceeds) and the cost basis (purchase price and any associated acquisition costs).

CGT is a tax on the profit made from the sale of an asset, including investment properties. If you sell an investment property for more than you paid for it, you may be subject to CGT. However, there are concessions and strategies available to minimize CGT, such as the 50% CGT discount for assets held longer than 12 months and the main residence exemption if the property was your main home for part of the time.

The rule that a company must have a public officer doesn’t come from the main company law, which is the Corporations Act 2001. Instead, it’s a tax rule. According to Section 252 of the Income Tax Assessment Act 1936, every company that does business in Australia or makes money from property in Australia needs to have a public officer. This public officer represents the company for all tax-related matters. The company itself, or someone with the proper authority from the company, must appoint this public officer.

a company is not required to have a secretary, but it if it does, then that secretary (or at least one of them if there is more than one secretary) must ordinarily be a resident of Australia. Refer S.204A.

No. At least ONE director has to be resident in Australia. Refer S.201A of the Corporations Act 2001.

A Director ID Number is a unique number given to an existing or intending director who has verified their identity with the Registrar.  It is available via the  Australian Business Registry Services (ABRS) website.

• A director ID is issued to a person forever.
• A person will keep their director ID even if they stop being a company director, change their name or move interstate or overseas.
• Director ID is being introduced to provide traceability of a director’s relationships over time, and across companies, to assist regulators and external administrators to investigate a director’s involvement in what may be repeated unlawful activity, including illegal phoenix activity.
• Both existing and new directors will need to apply.

Purchasing property through a company can provide limited liability, protecting your personal assets from the property’s debts or legal issues.

Lenders Mortgage Insurance (LMI) is a one-off, non-refundable, and non-transferable premium added to your home loan. It is calculated based on the size of your deposit and the amount you borrow. The larger your contribution to the purchase price of your property, the lower the LMI cost will be. 

Here are some key points about LMI:

• LMI is typically required if you borrow more than 80% of your home’s value.
• The insurance is designed to protect the lender, not the borrower.
• Arranging LMI is not your responsibility; your lender will handle it for you.
• Increasing your deposit can significantly reduce or even eliminate the need for LMI.

Refinancing:

Refinancing is the process of replacing an existing loan with a new one, typically to secure better terms or lower interest rates. You should consider refinancing when interest rates drop significantly, as it can potentially reduce your monthly payments, save money on interest over the life of the loan, or shorten the loan term to pay off debt faster. Additionally, refinancing may make sense if your credit score has improved since you originally obtained the loan, as this can lead to more favourable terms. However, it’s essential to weigh the costs associated with refinancing, including application fees, and closing costs, against the potential benefits to determine if it’s a financially sound decision.

To increase your likelihood of loan approval:

• Maintain a good credit score by making timely payments.
• Reduce existing debt and manage credit responsibly.
• Save for a down payment or collateral, if required.
• Provide accurate and complete financial documentation.
• Shop around for lenders and loan options.
• Consider a co-signer if your credit is weak.
• Address any discrepancies or issues on your credit report.
• Demonstrate a stable income and employment history.

Credit score:

A credit score is a numerical representation of your creditworthiness. It’s calculated based on your credit history, including factors like your payment history, credit utilisation, length of credit history, and more. Lenders use your credit score to assess the risk of lending to you. A higher credit score typically means better loan terms and lower interest rates, while a lower score might result in less favourable terms or loan denials. It’s crucial to monitor and maintain a good credit score to access affordable loans and financial opportunities.

Difference between fixed-rate and variable-rate loans:

Fixed-rate loans have a constant interest rate throughout the loan term, providing predictable monthly payments. Variable-rate loans, also known as adjustable-rate loans, have interest rates that can change periodically, typically tied to a benchmark index. Fixed-rate loans offer stability, while variable-rate loans may start with lower rates but come with the risk of higher payments if rates rise. The choice depends on your risk tolerance and market conditions

Why Choose a Mortgage Broker Over a Bank Loan?

You might opt to engage a mortgage broker rather than approaching a bank directly because brokers offer several valuable benefits. These independent professionals have access to numerous lenders and loan products, including those from banks, potentially providing you with more favourable terms and rates. Mortgage brokers simplify the loan shopping process, saving you time and effort by researching and comparing various lender offers. They also offer expert advice tailored to your financial situation and goals, helping you navigate complex mortgage terms and conditions. Additionally, brokers may negotiate with lenders on your behalf to secure better terms and can be particularly helpful if you have unique financial circumstances or credit challenges. Their flexibility and convenience in scheduling meetings make the application process smoother. While banks are a valid option, working with a mortgage broker can enhance your choices and provide expert guidance to find the best mortgage for your specific needs.

Refinancing is the process of replacing an existing loan with a new one, typically to secure better terms or lower interest rates. You should consider refinancing when interest rates drop significantly, as it can potentially reduce your monthly payments, save money on interest over the life of the loan, or shorten the loan term to pay off debt faster. Additionally, refinancing may make sense if your credit score has improved since you originally obtained the loan, as this can lead to more favourable terms. However, it’s essential to weigh the costs associated with refinancing, including application fees, and closing costs, against the potential benefits to determine if it’s a financially sound decision.

• To increase your likelihood of loan approval:
• Maintain a good credit score by making timely payments.
• Reduce existing debt and manage credit responsibly.
• Save for a down payment or collateral, if required.
• Provide accurate and complete financial documentation.
• Shop around for lenders and loan options.
• Consider a co-signer if your credit is weak.
• Address any discrepancies or issues on your credit report.
• Demonstrate a stable income and employment history.

A credit score is a numerical representation of your creditworthiness. It’s calculated based on your credit history, including factors like your payment history, credit utilisation, length of credit history, and more. Lenders use your credit score to assess the risk of lending to you. A higher credit score typically means better loan terms and lower interest rates, while a lower score might result in less favourable terms or loan denials. It’s crucial to monitor and maintain a good credit score to access affordable loans and financial opportunities.

Fixed-rate loans have a constant interest rate throughout the loan term, providing predictable monthly payments. Variable-rate loans, also known as adjustable-rate loans, have interest rates that can change periodically, typically tied to a benchmark index. Fixed-rate loans offer stability, while variable-rate loans may start with lower rates but come with the risk of higher payments if rates rise. The choice depends on your risk tolerance and market conditions

You might opt to engage a mortgage broker rather than approaching a bank directly because brokers offer several valuable benefits. These independent professionals have access to numerous lenders and loan products, including those from banks, potentially providing you with more favourable terms and rates. Mortgage brokers simplify the loan shopping process, saving you time and effort by researching and comparing various lender offers. They also offer expert advice tailored to your financial situation and goals, helping you navigate complex mortgage terms and conditions. Additionally, brokers may negotiate with lenders on your behalf to secure better terms and can be particularly helpful if you have unique financial circumstances or credit challenges. Their flexibility and convenience in scheduling meetings make the application process smoother. While banks are a valid option, working with a mortgage broker can enhance your choices and provide expert guidance to find the best mortgage for your specific needs.

Yes, even though you may not have permanent residency or citizenship in Australia, you will still be treated as an Australian resident for tax purposes. Remember, tax residency differs from immigration residency, so don’t let this confuse you. If you are an Australian resident for tax purposes, you can claim the Tax-Free Threshold, which is $18,200. You are eligible to claim it from this payer if one of the following conditions applies:

• You are not currently claiming the tax-free threshold from another payer.
• You are already claiming the tax-free threshold from another payer, but your total income from all sources is expected to be less than $18,200.

The short answer is yes, but it comes with specific conditions. If you are an overseas student who has arrived in Australia to pursue your studies and are enrolled in a course that lasts more than 6 months, you are generally considered an Australian resident for tax purposes. This status affects how you are taxed and what you need to declare in your TFN declaration to your employer.

Yes, even though you may not have permanent residency or citizenship in Australia, you will still be treated as an Australian resident for tax purposes. Remember, tax residency differs from immigration residency, so don’t let this confuse you. If you are an Australian resident for tax purposes, you can claim the Tax-Free Threshold, which is $18,200. You are eligible to claim it from this payer if one of the following conditions applies:

• You are not currently claiming the tax-free threshold from another payer.
• You are already claiming the tax-free threshold from another payer, but your total income from all sources is expected to be less than $18,200.

The short answer is yes, but it comes with specific conditions. If you are an overseas student who has arrived in Australia to pursue your studies and are enrolled in a course that lasts more than 6 months, you are generally considered an Australian resident for tax purposes. This status affects how you are taxed and what you need to declare in your TFN declaration to your employer.

This is an age-old question, and unfortunately, it doesn’t have a straightforward yes or no answer. Generally, novated leases are subject to Fringe Benefits Tax (FBT). When employers provide personal benefits like motor vehicles for personal use, gym memberships, holiday tours, etc., to their employees or their employees’ family members, these are considered fringe benefits. Employers then pay the top marginal tax rate (47%, which includes the 45% top tax rate plus the Medicare Levy of 2%) for these benefits.

Novated leases are often marketed as hassle-free, with claims that employees won’t have to worry about GST, running expenses, and can pay for the lease with post-tax income, as the employer handles the lease payments and FBT. However, complications can arise if you leave employment and are required to pay a significant amount to exit the lease. Additionally, if you wish to own the vehicle after the lease term, you may face a substantial balloon payment from your post-tax salary.

Employers often attempt to reduce FBT by using the Employee Contribution Method (ECM), where a portion of the lease is paid from the employee’s post-tax salary. If too much ECM is applied, the benefits of the lease may diminish, making it less attractive to employees.

For those planning to purchase an electric vehicle, a novated lease can be particularly beneficial, as employers are exempt from FBT, meaning no ECM calculation is required.

To determine if a novated lease is worthwhile for you, consult your accountant. If you don’t have a dedicated accountant, consider reaching out to Investax Tax Specialists for expert advice on these types of questions.

The goods and services tax (GST) does not apply to residential rents, so Airbnb hosts do not have to pay it. This also means that you can’t get a GST credit for the costs that go along with it. This is applied even if your sales are more than $75,000, which is the GST threshold.

Please check feel free to check out our Tax Consequence guide for Airbnb. 

Motor vehicle expenses are among the most commonly claimed deductions by General Practitioners (GPs). Self-employed GPs typically claim these expenses for travel between their practice and a hospital, when making house calls, or when transporting bulky medical equipment. The ATO has issued specific guidelines detailing what GPs can and cannot claim for car expenses. Let’s explore a few crucial points:

❌ What You Can’t Claim

• You can’t claim the cost of everyday trips between home and work or their regular practice, even if you live far away and practice outside regular business hours
• You can’t claim a deduction for parking at or near a regular place of work. You also can’t claim a deduction for tolls you incur for trips between your home and regular place of work/practice.

✅ What You Can Claim

• You can claim the cost of using your car when driving directly between separate jobs on the same day. For example, driving from your main workplace as GP to your second job as a university lecturer.
• Alternate Workplaces: to and from an alternate workplace for the same employer on the same day – for example, travelling to different hospitals or medical centres
• Transporting Bulky Tools or Equipment: In limited circumstances, you can claim the cost of trips between home and work if you carry bulky tools or equipment that are essential for your job. This applies if:
  • The tools or equipment are essential for your work and not carried by choice.
  • The tools or equipment are bulky and awkward to transport, making it necessary to use a car.
  • There is no secure storage for the items at your workplace.

Methods to Claim Car Expenses

• Logbook Method:
  • Keep a valid logbook to track the percentage of work-related use.
  • Maintain written evidence of your car expenses.
• Cents Per Kilometre Method:
  • Show how you calculated your work-related kilometres.
  • Ensure those kilometres were for work-related purposes.

This is an age-old question, and unfortunately, it doesn’t have a straightforward yes or no answer. Generally, novated leases are subject to Fringe Benefits Tax (FBT). When employers provide personal benefits like motor vehicles for personal use, gym memberships, holiday tours, etc., to their employees or their employees’ family members, these are considered fringe benefits. Employers then pay the top marginal tax rate (47%, which includes the 45% top tax rate plus the Medicare Levy of 2%) for these benefits.

Novated leases are often marketed as hassle-free, with claims that employees won’t have to worry about GST, running expenses, and can pay for the lease with post-tax income, as the employer handles the lease payments and FBT. However, complications can arise if you leave employment and are required to pay a significant amount to exit the lease. Additionally, if you wish to own the vehicle after the lease term, you may face a substantial balloon payment from your post-tax salary.

Employers often attempt to reduce FBT by using the Employee Contribution Method (ECM), where a portion of the lease is paid from the employee’s post-tax salary. If too much ECM is applied, the benefits of the lease may diminish, making it less attractive to employees.

For those planning to purchase an electric vehicle, a novated lease can be particularly beneficial, as employers are exempt from FBT, meaning no ECM calculation is required.

To determine if a novated lease is worthwhile for you, consult your accountant. If you don’t have a dedicated accountant, consider reaching out to Investax Tax Specialists for expert advice on these types of questions.

You pay tax on Employee Share Scheme when the shares become unrestricted and vested. Many employees are confused about this because they don’t get taxed when the shares are initially issued. However, when the shares become unrestricted (usually when they vest), that’s when the tax obligation kicks in. Let’s break this down further.

When you receive restricted shares under an Employee Share Scheme (ESS), you typically don’t pay tax immediately because you don’t yet have full ownership rights. These shares are subject to certain conditions, such as staying employed for a few years or meeting performance goals before they “vest.” Once the shares vest, they become unrestricted, and you gain full control. At this point, they’re considered part of your income, and that’s when you’re required to pay tax.

My Payroll Said It Won’t be Taxed when they are Issued? The answer lies in the fact that the shares were not fully yours. Since they were restricted, there was no taxable event, and the value of these shares wasn’t included in your assessable income. But now that they’ve vested, their value is considered taxable income—even if you didn’t sell a single share.

Why does it feel unfair? It’s especially hard to swallow the tax bill if you haven’t sold any of your shares. That’s because you receive the shares, not cash, when participating in the ESS. Yet, when it’s time to pay the tax, you have to come up with cash out of pocket. You can’t just transfer a portion of your shares to the ATO to cover your tax liability.

The takeaway? When you are issued shares under an Employee Share Scheme, try to understand the tax outcome and consult an experienced accountant like Investax. Remember, it’s your income, your tax, and you’re the one who has to ensure you have the cash flow to pay it. Don’t be that person who repeatedly says, “But I don’t have the money!” Plan ahead for the tax bill, and if you do sell your shares, set aside the amount for your marginal tax to cater for the future liability. This is especially important if you haven’t done any prior tax planning with an experienced accountant.

Australian taxpayers who earn above a certain income threshold and do not have adequate private health insurance are required to pay the Medicare Levy Surcharge

Your income for MLS purposes is the sum of the following items for you (and your spouse, if you have one):

1. Taxable income
2. Reportable fringe benefits
3. Total net investment losses, which include:
   • Net financial investment losses
   • Net rental property losses
4. Reportable super contributions, which include:
   • Reportable employer super contributions (RESC) as shown in your PAYG Payment Summary
   • Deductible personal super contributions

Additionally:

1. If you have a spouse, their share of the net income from a trust on which the trustee is required to pay tax (under section 98 of the Income Tax Assessment Act 1936) and which has not been included in their taxable income.

Your MLS income is calculated by combining your taxable income with all the figures mentioned above.

Super Guarantee Update:

As of 1 July 2024, the Superannuation Guarantee (SG) rate has increased to 11.5%. Employers must account for this change to ensure superannuation guarantee payments are correctly calculated. The SG rate is scheduled to further increase to 12% in July 2025.

Concessional Contribution Update:

The concessional super contributions cap has risen from $27,500 to $30,000 per year, effective from 1 July 2024. This is the maximum amount of before-tax contributions, including employer superannuation guarantee payments, that can be contributed annually without incurring additional tax, subject to any unused concessional cap amounts from previous years.

Non-Concessional Contribution Update:

The non-concessional super contributions cap has increased from $110,000 to $120,000 per year. If your total super balance is equal to or exceeds the general transfer balance cap ($1.9 million from 2023–24) at the end of the previous financial year, your non-concessional contributions cap is nil ($0) for the current financial year.

When claiming tax deductions, proper documentation is crucial. While bank statements can provide a record of transactions, they often do not include the detailed information required by the Australian Taxation Office (ATO) to substantiate your claims under section 900-115 of the Income Tax Assessment Act 1997.

To meet the substantiation requirements, you must obtain documents from the supplier that cover the following information:

1. The name or business name of the supplier.
2. The amount of the expense, expressed in the currency in which it was incurred.
3. The nature of the goods or services.
4. The day the expense was incurred.
5. The day the document is made out.

The document must be in English. However, if the expense was incurred in a country outside Australia, the document can be in the language of that country.

According to the case of Copley and Commissioner of Taxation [2024] AATA 8 (Copley), the Tribunal considered the substantiation requirements under section 900-115 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) and the sufficiency of bank account statements in proving allowable deductions.

In this case, the Commissioner of Taxation issued amended assessments disallowing deductions claimed by the taxpayer under section 8-1 of the ITAA 1997. 

The central issues before the Tribunal were whether the: 

• expenses were incurred in gaining or producing the taxpayer’s assessable income; 

• expenses were of a private or domestic nature; and 

• taxpayer could substantiate the expenses pursuant to the record keeping requirements in Division 28 and Division 900 of the ITAA 1997.

Senior Member Dr. M Evans-Bonner held that the taxpayer did not satisfy the burden of proving that the amended assessments were excessive or incorrect. The decision was based on the fact that the taxpayer failed to meet the substantiation requirements outlined in subsection 900-115(2) of the ITAA 1997, which stipulate the need for specific records such as receipts and invoices to support the expenses claimed.

The Tribunal concluded that bank account transaction statements are insufficient for substantiation purposes as they do not comply with the requirements set out in subsection 900-115(2) of the ITAA 1997. The Copley case underscores the importance of keeping detailed records, such as receipts and invoices, to substantiate expenses claimed as tax deductions.

If you need further assistance understanding substantiation requirements or any other tax-related matters, feel free to contact an Investax Group Tax Specialist for expert guidance and support.

Reference – 

Copley and Commissioner of Taxation 

section 900-115

Understanding the Nature of Legal Fees for Tax Purposes

The deductibility of legal fees hinges on the nature or character of the expense. This determination is guided by the benefit that is sought through incurring the expense.

1. Capital vs. Operational Purpose: 
   • Legal fees incurred to create an asset or secure an enduring benefit are considered capital expenditures. These are not deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), as established in the Sun Newspaper Ltd case (1938). For instance, John purchased a property and incurred legal fees to secure the title deed. Since this legal expense aims to create an asset with an enduring benefit, it is considered a capital expense and is not deductible.

    

   • Conversely, legal fees incurred for operational purposes may be deductible. For example, John, a contractor, sued a client to recover unpaid wages for work completed. Since the sole purpose of the legal action is to recover assessable income, the related legal fees and costs should be deductible.

    

    

2. Employment-Related Legal Fees: 
   • Lost Wages: If the sole purpose of the legal action is to recover unpaid wages, bonus, contract payment, or leave payments that are assessable to the client, then the legal fees and related costs should be deductible. For instance, John lost his employment unfairly, and his employer didn’t pay his annual leave and long service leave. He sued his employer for unfair dismissal to retrieve his annual leave and long service leave. Since the purpose of the legal action is to recover assessable income, the legal fees should be deductible.

    

   • Reinstatement: If an employee incurs legal fees after termination and one of the purposes is to seek reinstatement to their former position, these expenses are generally of a capital nature. According to the Australian Taxation Office (ATO), such fees are not deductible because they aim to secure an enduring benefit (i.e., reinstatement of employment). For instance, if John also sought reinstatement to his job as part of the legal action, the legal fees related to seeking reinstatement would be considered capital expenses and thus not deductible. For further guidance, refer to paragraph 5 of Taxation Determination TD 93/29.

Even if you are not a business owner, you may still be liable for Pay as You Go (PAYG) instalments if you had a tax liability in the previous financial year. This can occur due to several reasons beyond just your employment income.

For instance, you might be an employee with wages, but you also have other sources of income, such as:

• An investment property that earns positive rental income.
• A share portfolio that earns dividend income annually.
• A substantial amount of cash savings that earn interest income.
• Trust distributions from a related trust.
• You are liable for the Medicare Levy Surcharge because you do not have appropriate hospital cover for yourself and your family, and your income is above the threshold.

In these cases, your employer only withholds tax on your employment income. However, when you file your tax return, you will need to account for the additional income from these other sources. This often results in a tax payable situation due to the positive income earned on top of your wages.

To manage this, the ATO may require you to make PAYG instalments throughout the year to cover your expected tax liability, helping you avoid a large tax bill at the end of the financial year. If you anticipate lower income this year compared to last year, you may consider varying your last quarter PAYG instalment to improve your cash flow. Feel free to reach out to Investax Group tax specialists if you need any help with this. 

Division 293 tax is an extra tax on superannuation contributions. It applies to people whose total income and super contributions add up to more than $250,000 in a year. This tax reduces the tax break they get on their super contributions by making them pay an additional 15% tax on top of the regular 15% tax that super contributions usually attract. 

Division 293 tax is an extra 15% tax. It is applied to the smaller amount between the excess income over $250,000 and the taxable super contributions. Check Sarah’s example below for further explanation.

Your ‘Division 293 Notice of Assessment’ will only be sent to you once the ATO receives the contribution information from your super fund.

The income component of the Division 293 tax calculation is based on the same income calculation used to determine the Medicare levy surcharge (MLS), disregarding any reportable superannuation contributions. The components of this income calculation are:

• Taxable income (assessable income minus allowable deductions)
• Total reportable fringe benefits amount
• Net financial investment loss
• Net rental property loss
• Net amount on which family trust distribution tax has been paid
• Super lump sum taxed elements with a zero-tax rate
• Assessable first home super saver released amount

Example for John:

John earns a salary of $190,000, and his employer contributes $25,000 into superannuation for him. John also has a net rental property loss of $10,000.

Taxable Income:

• Salary: $190,000
• Net rental property loss: -$10,000

So, John’s taxable income is $190,000 – $10,000 = $180,000.

Division 293 Income:

• Taxable income: $180,000
• Net rental property loss: +$10,000
• Employer super contributions: +$25,000

John’s Division 293 income is $180,000 + $10,000 + $25,000 = $215,000, which is within the limit of $250,000. Therefore, John’s entire concessional contributions (CCs) would be taxed at 15%, and Division 293 tax does not apply.

Example for Sarah:

Sarah earns a salary of $240,000, and her employer contributions for the year are $30,000. Sarah also has a net rental property loss of $5,000.

Taxable Income:

• Salary: $240,000
• Net rental property loss: -$5,000

So, Sarah’s taxable income is $240,000 – $5,000 = $235,000.

Division 293 Income:

• Taxable income: $235,000
• Net rental property loss: +$5,500
• Employer super contributions: +$27,500

So, Sarah’s Division 293 income is $235,000 + $5,500 + $27,500 = $268,000. Since Sarah’s income exceeds the threshold of $250,000, she will pay 15% contributions tax on her employer contributions and will also be liable for Division 293 tax. Division 293 taxable contributions are the lesser of Division 293 super contributions ($27,500) or the amount above the $250,000 threshold ($18,000). Sarah will pay additional 15% tax on $18,000. 

She can choose to pay this tax personally, or she can choose to release the tax from her super fund.

ATO Reference – Div 293

If you are unemployed, claiming deductions for self-education expenses—including related travel and accommodation costs—can be challenging. Usually, you need to be employed and the courses should be related to your job to qualify for these deductions.

The ATO in TR 2023/D1 should corroborate this at paragraph 67 when it states:

“67. To be deductible, the expenses must be relevant to your income-earning activities at the time you incur the expense. A deduction is not available if, at the time you incur the expense, you are not undertaking income-earning activities to derive assessable income, either by employment, carrying on a business or by other means”.

Apart from that, the ATO ruling doesn’t seem to suggest it’s possible to argue that the self-education costs are deductible due to the legacy of a previous role.

Yes, you may be able to claim car expenses if you travel for work-related purposes. This includes using your car to perform tasks directly related to your job, such as visiting clients, attending meetings, or traveling between different work locations. Keep accurate travel records, including travel distances and related expenses, to support your claims. Remember that personal trips, such as commuting from home to your regular workplace, are generally not eligible for tax deductions.

Yes, you can claim deductions for expenses related to working from home if you meet the eligibility criteria. The ATO introduced a simplified method, which allows you to claim a fixed rate for each hour worked from home.

If you miss the October 31st deadline and you’re not using a tax agent, you might face penalties and interest on any tax owing. It’s best to lodge your return as soon as possible to avoid these additional charges.

Yes, if you’ve paid more tax than you owe, you can receive a tax refund. This usually happens when your employer withholds more tax than necessary from your wage, you’ve made excess payments throughout the year, or you have large investment losses/negative gearing.

In most cases, yes. If you are an Australian resident for tax purposes, you generally need to declare your worldwide income on your Australian tax return. However, certain exemptions and credits might be available based on international tax agreements.

The usual deadline for filing your individual income tax return in Australia is October 31st. However, if you are using a registered tax agent, you might be eligible for an extended deadline, generally up to May 15th of the following year.

Include all rental-related income as you receive it, get your expenses right by only claiming for periods when the property was used to earn income, and keep detailed records to prove all income and expenses​​.

Our expertise in various asset classes, including shares, managed funds, index funds, and cryptocurrencies, is the cornerstone of our services. We possess an in-depth knowledge of the regulatory landscape and the ever-evolving world of cryptocurrencies and blockchain technology. Additionally, we have a deep understanding of various share transactions, ranging from standard activities such as dividends and dividend reinvestment plans (DRP) treatment to more complex transactions like share buybacks and their impact on the cost base for dividend reinvestment plans (DRP).
Furthermore, we provide guidance to clients on various ownership structures, such as Discretionary Family Trusts and company structures, especially when managing large portfolios. Our expertise is designed to ensure that you receive comprehensive support and insights across a broad spectrum of financial assets, allowing you to make informed decisions and optimize your investments.

The frequency of your tax payments in Australia depends on various factors, including your income source, business structure, and tax obligations. Here’s a breakdown:
1. Individuals: Most individuals in Australia pay their income tax through the Pay as You Go (PAYG) system, which deducts tax from their wages or salary. This is done on each payday, meaning tax is paid regularly throughout the year. If you have additional income sources, such as investments, you may need to make quarterly or annual payments. At the end of the financial year, you are required to file an annual tax return. You have the option to complete it independently or enlist the services of an accountant, such as Investax Group, to assist in filing your annual tax return.
2. Businesses: Business owners have different tax payment schedules depending on their business structure. If you operate as a sole trader, you will have an annual tax liability, which is typically charged on a quarterly basis through PAYG instalments. On the other hand, if your business operates under a company or trust structure, you will have an annual tax return liability. If your business’s income exceeds $75,000, you will also be required to register for GST, and if you have employees, you must register for PAYG withholding tax. In the case of GST, your tax liability frequency (monthly or quarterly) will be determined by your GST turnover and PAYG withholding tax obligations. Additionally, if your business provides personal benefits to employees, you will be liable for Fringe Benefit Tax (FBT), and an annual FBT return must be submitted each year.
3. Property Owners: If you earn rental income from investment properties, you’ll need to declare this income in your annual tax return.
4. Self-Managed Superannuation Funds (SMSFs): SMSFs generally pay tax on investment income at the concessional rate of 15%. This tax is paid throughout the year, and the fund’s obligations include annual tax returns and potentially quarterly PAYG instalments.
It’s essential to keep accurate records of your income and expenses to ensure you meet your tax obligations promptly and accurately. Consulting with a tax professional like Investax Group can provide personalized guidance on your specific payment schedule and obligations based on your financial situation and business structure.

Investax offers a proactive tax reminder service to our existing clients, sending out 3-4 reminders throughout the year to ensure you stay informed about important tax deadlines. Our clients typically benefit from extended deadlines, often until the following May. To receive these essential reminders, we recommend subscribing to our newsletter to stay up-to-date with crucial tax information and deadlines.

The straightforward answer is ‘Yes,’ as long as the trust deed allows it. However, there are significant tax implications you should consider before you start living in a property owned by a trust or think of purchasing your home through a trust for asset protection.

The first hit comes in the form of losing tax deductions. Expenses related to the property, such as mortgage interest and maintenance costs, may not be deductible if the property isn’t generating rental income. This could affect the trust’s tax position.

If you, as a beneficiary, live in a trust-owned property rent-free or at a discounted rate, the trust may be liable for Fringe Benefits Tax (FBT), as this arrangement could be considered a fringe benefit.

The principal place of residence (PPR) exemption, which typically allows homeowners to avoid capital gains tax (CGT) on their main residence, usually doesn’t apply to properties owned by trusts. Therefore, any capital gain from the sale of the property will be subject to CGT.

Lastly, even though you are living in the property owned by the trust, you may still be liable to pay annual land tax to the state revenue office.

Many property investors miss out on claiming borrowing expenses or claim them incorrectly. Borrowing expenses include the fees associated with obtaining a loan, such as bank fees, legal fees, title search fees, and Lenders Mortgage Insurance (LMI), which are incurred when borrowing funds to purchase a property. These expenses are tax-deductible; however, they cannot be claimed as a full deduction in the year they’re incurred. Instead, they must be spread out (or amortised) over five years or the term of the loan, whichever is shorter.

A frequent mistake among investors is to continue using the original borrowing expense schedule even after refinancing. However, if you refinance, you are not required to maintain the previous five-year amortisation schedule. Instead, you can claim the remaining balance of the borrowing expense immediately in the year you refinance. This can provide a helpful tax deduction boost, as it allows you to recoup the unclaimed portion of the original borrowing expenses in a single tax year following the refinance.

If you rent out your home, you may be eligible to claim tax deductions on the interest portion of your home loan, even if the loan is still classified as an owner-occupied loan. The key factor that determines tax deductibility is how the loan funds are used. If your property is generating rental income, you can typically claim the interest on the loan as a tax deduction, because the borrowed funds are being used to produce assessable income.

For example, even if your home loan was initially for an owner-occupied property and you didn’t convert it to an investment loan, the interest becomes deductible once the property is rented out. The Australian Taxation Office (ATO) allows deductions based on the usage of the property rather than the original classification of the loan. However, you must ensure the property is either rented out or genuinely available for rent to claim these deductions.

Keep in mind that if a portion of the loan is used for personal purposes, you will need to apportion the interest and only claim deductions on the portion related to the income-generating rental activity.

If you would like to know more about this topic feel free to read our Article Owner Occupied vs Investment Loan: Is Owner-Occupied Loan Tax Deductible?

For specific advice tailored to your situation, particularly regarding converting your home to an investment property, consult with a tax specialist.

From 1 July 2019, deductions are limited for losses or outgoings that relate to holding vacant land. Broadly, subsection 26-102(1) denies a deduction for losses or outgoings relating to holding land on which there is no substantial and permanent structure in use or available for use.

Subsection 26-102(1) clarifies that any interest or borrowing costs to acquire land are included as a cost of holding land. Examples of other costs of holding land include council rates, land taxes and maintenance costs.

In the context of section 26-102, we do not consider the costs of constructing a substantial and permanent structure on the land, or any interest or borrowing costs (to the extent they are associated with construction), to be a loss or outgoing related to holding land.

Some exclusions apply. This draft Ruling explains the Commissioner’s view of the application and the exclusions of section 26-102 of the Income Tax Assessment Act 1997. The examples used in this draft Ruling all assume that the losses or outgoings described would be deductible if section 26-102 did not apply. 

Ruling Example – Giovanna takes out a mortgage to purchase a vacant block of land in September 2019. Giovanna intends to build a house on the land (which she will rent out). Giovanna does not carry on a business. Giovanna takes out a separate loan for the construction of the house. Giovanna will not be able to claim a deduction for her interest expense which relates to acquiring the land until the house is lawfully able to be occupied and leased or available for lease. If a deduction is otherwise available for the construction loan interest expense, Giovanna will not be prevented from deducting the expense by section 26-102.

Let’s break down the ruling:

1. Initial Situation:
   • Giovanna buys a vacant block of land in September 2019.
   • She intends to build a house on the land to rent out, but she does not carry on a business (so she’s not considered to be operating as a property developer).
   • She takes out a mortgage to buy the land and then takes out a separate loan for the construction of the house.
2. Interest Deduction Rules:
   • The interest on the mortgage for the land cannot be deducted as an expense until the house is completed and is legally able to be occupied or is available for lease.
   • This means that until the house is ready to be rented out, the interest expense related to the purchase of the land does not qualify as a tax deduction.
3. Construction Loan Interest:
   • The ruling also mentions the construction loan interest.
   • It says that if Giovanna meets the general conditions to deduct the construction loan interest, section 26-102 of the tax law will not prevent her from doing so.

Explanation of the Last Two Lines:

• “If a deduction is otherwise available for the construction loan interest expense”: This means that if, under normal tax rules, Giovanna would be allowed to deduct the interest on the construction loan (for example, because the property is used to generate income), then she can claim that deduction.
• “Giovanna will not be prevented from deducting the expense by section 26-102”: Section 26-102 is a part of the tax law that limits deductions for interest expenses on vacant land. However, this section will not stop Giovanna from claiming the interest on the construction loan as a deduction, provided she qualifies for it under the general rules.

Summary:

• Giovanna can only claim a deduction for the interest on the land mortgage once the house is ready for occupation and available for rent.
• The interest on the construction loan can be deducted as long as it meets the general criteria for deductibility, and section 26-102 will not disallow this deduction.

You are allowed to claim 100% of the interest incurred on the loan used to purchase the investment property, even though the loan is in joint names with your spouse. The fact that the loan is in both names does not prevent you from claiming the full interest as a rental property expense.

As a general rule, rental income and expenses should be reported in the tax return of the legal owner of the property—that is, the person whose name is on the property’s registered title. According to Taxation Ruling TR 93/32, rental property income and expenses are normally split between the owners based on their legal interest in the property. While the outcome can differ if equitable interests in the property are different from the legal interests, the ATO generally assumes that legal and equitable interests are the same when the parties are related, such as between spouses.

Although clear public guidance on this specific scenario is limited, there have been private rulings where the ATO allowed one spouse to claim the full deduction for interest expenses, even when the loan was in joint names. This was typically permitted because the borrowed funds were used solely to acquire an income-producing asset held by that spouse. However, it’s important to note that private rulings issued to other taxpayers cannot be relied upon as a precedent for your situation.

In summary, you should be able to claim 100% of the loan interest on your rental property, as you are the sole legal owner, and the loan was used entirely to purchase the income-producing investment property.

Reference – https://community.ato.gov.au/s/question/a0J9s0000001DwwEAE/p00029929 

When Australian residents (for tax purposes) sell property valued at $750,000 or more and don’t provide a clearance certificate by settlement, 12.5% of the property purchase price must be withheld by the purchaser and paid to the ATO. This is known as the Foreign Resident Capital Gains Withholding (FRCGW) amount.

To avoid this withholding, Australian residents must obtain a ‘clearance certificate’ to prove they are not foreign residents. It is the vendor’s responsibility to secure the clearance certificate and provide it to the purchaser at or before settlement. To prevent any unforeseen delays and ensure the certificate is valid when presented to the purchaser, vendors should apply for the clearance certificate through the online form as early as possible in the sale process. 

The main reasons a clearance certificate hasn’t been obtained before the settlement date are because clients:

• Don’t allow enough time to make an application before settlement (the standard processing time is 28 days).
• Have tax records that aren’t up to date.
• Haven’t needed to lodge tax returns for several years (e.g., when returns were not necessary).

If this happens to you, you must lodge a tax return to claim the credit that was withheld, even if your income is below the threshold to lodge. Obtain the ‘payment confirmation’ from the purchaser. When completing the tax return, be sure to:

• Declare your Australian assessable income, including any capital gain or loss from the disposal of the asset.
• Claim a ‘Credit for foreign resident capital gains withholding amounts’ taken from the sale proceeds.

The withheld amount will be refunded in full if:

• There are no tax debts.
• There’s no CGT payable on the sale of the property.

Yes, it is possible for a Self-Managed Super Fund (SMSF) to own property jointly with other investors, including related parties. This is a common practice, and there are a few ways it can be structured.

Joint Ownership with Other Investors or Related Parties

An SMSF can hold property assets jointly with other entities such as family trusts, companies, or even the SMSF members personally. Typically, this joint ownership is structured as tenants in common, which means that each party’s ownership interest in the property is distinct and can be clearly identified on the property title.

Important Considerations

1. Title and Ownership: The property title must clearly state the ownership percentages of each party involved.
2. Income and Expenses: Income generated from the property and any expenses incurred need to be apportioned according to the ownership percentages of each party.
3. Tenants in Common Agreement: It is usually recommended to have a formal ‘tenants in common agreement’ in place. This agreement outlines each party’s rights and obligations, ensuring clarity and avoiding potential disputes.

Alternative Ownership Structures

Another way an SMSF can invest in property is through a Unit Trust or Company. In this scenario:

1. Buying Shares or Units: The SMSF can purchase shares in a related company or units in a related trust.
2. Property Acquisition: The related entity (trust or company) then uses these funds to acquire the property.
3. Funding Flexibility: This structure allows other related parties, individuals, or relatives to also buy shares or units in these entities. This collective investment can help fund the property purchase more quickly.

Newly constructed property without obtaining an Occupancy Certificate (OC): Renting out a newly built or substantially renovated premises without an occupancy certificate (OC) is generally not permissible. For a property, whether residential or commercial, to be considered ready for use or rental, it must be “lawfully able to be occupied.” This legal occupancy typically is confirmed when an occupancy certificate or a similar approval from the local council is issued.

While there might be brief periods when a property is not available for lease due to minor maintenance or repairs, the fundamental requirement is that the premises must meet all legal and safety standards to be occupied. If a council, relevant authority, or qualified professional deems the property unsafe, it cannot be occupied or rented out.

It’s important to note that the property must adhere to these occupancy standards at all times, whether it’s being leased, hired, licensed, or made available for such arrangements. Compliance with these regulations ensures that the property owner can legally rent out the premises and potentially qualify for certain tax deductions related to the property.

It is important to note that the land tax amount is not deductible in the year you pay it. Instead, deductions must be taken in the respective income years to which the land tax liabilities related to. It’s crucial to understand that your liability for land tax is determined by the usage of the property within a given year, regardless of when the tax assessment is actually issued.

When you pay land tax for past years (known as paying “in arrears”), you can’t deduct this payment from your income for the year in which you make the payment. Instead, you can only claim a deduction for the land tax in the years that the tax was originally due for.

For an example – Imagine it’s 2024, and John receives a bill for land tax for the years 2022 and 2023 that he hasn’t paid yet. Even though John pays this bill in 2024, he can’t claim the deduction on his 2024 tax return. Instead, he should claim the deduction for the 2022 land tax on his 2022 tax return, and the deduction for the 2023 land tax on his 2023 tax return, because those are the years the tax relates to, even though he paid it later.

You can claim land tax as a tax deduction for your investment properties. However, you cannot claim land tax as an immediate deduction if your property is not generating rental income or if you are using the property for personal use.

You are eligible to deduct expenses including interest on loans, local council, water and sewerage rates, land taxes, and emergency services levies incurred during the period of renovating a property intended for rental. It’s important to note, however, that your eligibility for these deductions ceases once your intentions for the property change, such as deciding to use it for personal purposes instead.

According to GSTR 2012/6 Airbnb doesn’t fall under commercial residential premises. The definition of ‘commercial residential premises’ in section 195-1 includes the following seven paragraphs, none of which indicate anything similar to Airbnb. This distinction is crucial for understanding the regulatory and tax implications associated with offering or operating Airbnb properties.

• a hotel, motel, inn, hostel or boarding house. 
• premises used to provide accommodation in connection with a school; 
• a ship that is mainly let out on hire in the ordinary course of a business of letting ships out on hire. 
• a ship that is mainly used for entertainment or transport in the ordinary course of a business of providing ships for entertainment or transport. 
•  a marina at which one or more of the berths are occupied, or are to be occupied, by ships used as residences. 
•  a caravan park or a camping ground; or 
•   anything similar to residential premises described in paragraphs (a) to (e). 

Check out our Comprehensive Guide To Converting Your Long-Term Investment Property To Airbnb Or Short-Term Rental for further information. 

Reference – https://www8.austlii.edu.au/au/other/rulings/ato/ATOGSTR/2012/GSTR20126.pdf

The goods and services tax (GST) does not apply to residential rents, so Airbnb hosts do not have to pay it. This also means that you can’t get a GST credit for the costs that go along with it. This is applied even if your sales are more than $75,000, which is the GST threshold.

Please check feel free to check out our Tax Consequence guide for Airbnb. 

Incur Stamp Duty: Transferring 100% Property to Partner

Transfers between family members are liable to transfer duty, however some transfers may qualify for an exemption or concession. No transfer/stamp duty is payable where a transfer of residential land is between a married couple, or de facto partners and the property being transferred is either:

• the family home (principal place of residence)
• vacant land, which is intended to be used as the site of the family home.

Following the transfer, the property must be jointly owned, with each partner holding an equal 50% share. It’s important to note that a complete transfer of ownership, where 100% of the property is transferred, will incur stamp duty charges.

De facto couples must be living together for at least two years before applying for this exemption.

Empty Home Revival: Selling After 6 Years – Unleash CGT

If you are not treating any other property as your Principal Place of Residence (PPOR), you can continue to treat this property as your primary residence indefinitely after you have stopped residing in it.

For your investment property, the ability to claim a deduction for repairs and maintenance while the property is not rented hinges on specific circumstances:

• The property must have been rented out right before the need for repairs arose.
• The damage necessitating repairs must have happened during a period when the property was generating rental income.

It’s essential to understand that if the property is intended for your personal use following the repairs and maintenance, to be eligible for a deduction, the property should have
produced rental income in the same financial year in which the repair costs were incurred. Thus, the timing of the rental period relative to the repairs is a critical factor for tax
deduction eligibility.

When it comes to your investment property, if you find yourself needing to undertake repairs and maintenance tasks straight away after the purchase, it’s
important to understand the tax implications. These immediate repairs, often required due to wear or damage that occurred before you acquired the property, are
classified as ‘initial repairs.’; According to tax regulations, specifically Section 25-10, the costs associated with these initial repairs are deemed capital expenditures. As
such, they do not qualify for immediate tax deductions. Instead, they are capitalised and used to form part of the cost base of the property for capital gains tax purposes
when you sell the property.

While you can technically sell a property for $1, several crucial considerations apply. Tax authorities and legal entities typically assess property transactions based on market value, potentially resulting in tax obligations based on the property’s actual worth, despite the nominal sale price. Stamp duty, capital gains tax, and legal and financial implications, particularly if there are existing mortgages or loans, should be thoroughly evaluated.

Changing the property investment structure after purchase is possible but can be complex and may have legal and tax implications such as stamp duty and Capital Gain. Consult with legal and Tax experts before making any changes to your property ownership structure.

In a property investment partnership, two or more individuals or entities pool their resources to purchase and manage a property. Partnerships can have varying structures, and profits and losses are typically distributed according to the partnership agreement.

Trusts offer flexibility in distributing income and can provide tax advantages. For example, discretionary trusts allow income to be distributed among beneficiaries, potentially reducing the overall tax liability. Additionally, trusts are often used for asset protection and estate planning purposes.

Purchasing property through a company can provide limited liability, protecting your personal assets from the property’s debts or legal issues.

Joint tenants and tenants in common are two common ways to co-own property. Joint tenants have an equal share in the property, and if one owner passes away, their share automatically transfers to the surviving joint tenant(s). In contrast, tenants in common can have unequal shares, and if one owner passes away, their share is passed on according to their will or intestacy laws, not necessarily to the co-owners.

Capital gains in Australia are subject to taxation under the Capital Gains Tax (CGT) regime. If you’ve owned the asset for over 12 months, you may qualify for a 50% CGT discount on the gain, with the remaining 50% added to your taxable income and taxed at your marginal rate. Capital losses from other investments can offset capital gains, and any excess losses can be carried forward. There are exemptions for primary residences, concessions for small businesses, and different tax rates for superannuation funds. For accurate guidance in navigating the complexities of CGT, it’s advisable to consult a tax professional or accountant, such as Investax Accountants, as tax laws may change over time.

Capital gain is the financial profit realised when you sell or dispose of an asset, such as stocks, real estate, or valuable possessions, for an amount higher than the original purchase price. It represents the difference between the selling price (proceeds) and the cost basis (purchase price and any associated acquisition costs).

Yes, obtaining a depreciation schedule can often be worth the cost and effort for several reasons, such as maximise deduction, long term tax benefit for a one-off cost and compliant documentation for audit.

To get a depreciation schedule, you typically engage a qualified Quantity Surveyor. They will assess your investment property, identify all depreciable assets within it, and determine their respective values. The Quantity Surveyor will then prepare a detailed report, known as a depreciation schedule, which outlines the deductions you can claim for both Division 40 (Plant and Equipment) and Division 43 (Capital Works).

Yes, you can claim deductions for expenses related to repairs and maintenance of your investment property. However, substantial improvements or renovations that enhance the property’s value may need to be depreciated over time, rather than claimed in full as an immediate deduction.

If you use a loan to buy an investment property, you can generally claim a deduction for the interest on that loan. However, you need to ensure that the loan is specifically used for the investment property and that you keep proper records to support your claim.

CGT is a tax on the profit made from the sale of an asset, including investment properties. If you sell an investment property for more than you paid for it, you may be subject to CGT. However, there are concessions and strategies available to minimize CGT, such as the 50% CGT discount for assets held longer than 12 months and the main residence exemption if the property was your main home for part of the time.

As of my last update in September 2021, travel expenses for inspecting your investment property are generally not deductible. However, some limited exceptions may apply, such as if the property is a commercial property.

You can claim a range of expenses as deductions, including interest on your investment property loan, property management fees, council rates, property insurance, repairs and maintenance costs, and depreciation on eligible assets within the property.

Negative Gearing occurs when the expenses of owning an investment property, including loan interest, exceed the rental income received. This creates a loss, which you can offset against other income to reduce your overall taxable income.

For instance, consider Alex, who purchases an investment property, earning $25,000 annually in rent, but incurs $18,000 in loan interest and $10,000 in other expenses like maintenance and management fees, totalling $28,000 in costs. This scenario leaves Alex with a $3,000 loss due to his expenses exceeding his rental income, a situation known as negative gearing. Alex can then deduct this $3,000 investment property loss from his other taxable income, say a salary of $80,000, effectively reducing it to $77,000 and lowering his overall tax liability.

You only need one depreciation schedule per investment property. We encourage our clients to obtain the report soon after the property settlement. If you make significant changes to the property at a later date, the schedule may need to be updated.

A depreciation report for an investment property, also known as a tax depreciation schedule, is a comprehensive document that outlines the depreciation allowances a property investor is entitled to claim for the wear and tear of their property and its fixtures over time. It typically includes a forecast, often for up to 40 years, of all depreciable assets, the depreciation methods applicable (prime cost or diminishing value), and the calculated depreciation deductions. This report is used to maximise tax deductions related to the property’s decline in value each financial year and must comply with the Australian Taxation Office (ATO) regulations.

o Keep all records from the start, including purchase contracts signed by the vendor, settlement statement, legal fee invoice, stamp duty payment record, Buyer’s Agent fee invoice, loan contract and the loan settlement statement​.
o Keep all the records related to the sale, including signed sale contract, agent fee invoice, settlement statement for the property and the closing statement for your investment loan.

You may need to pay capital gains tax and will need records such as the contract of sale, settlement statement, sale of property fees to calculate your capital gain tax.

Keep all records from the start, including purchase contracts signed by the vendor, settlement statement, land title deed, legal fee invoice, stamp duty payment record, Buyer’s Agent fee invoice, loan contract/offer and the loan disbursement statement​.

No, the current state legislation only covers residential property. Please consult with your accountant before applying this exclusion.

Yes, as a foreigner with an investment property in Australia, you are generally required to lodge an Australian tax return. The Australian Taxation Office (ATO) has specific rules and obligations for non-resident property owners. You will need to declare your rental income, and depending on your circumstances, you may be eligible for certain tax deductions related to your property expenses. It’s advisable to consult with a tax professional, such as Investax, or the ATO to ensure you comply with Australian tax laws and benefit from any available tax concessions.

Every state has its own land tax regulations. Below, we clarify some of the more confusing aspects of land tax rules related to the principal place of residence (PPOR) for those planning to be away from their primary residence.

Unoccupied Land Intended to be the Principal Place of Residence (PPOR) – 4-Year Rule

Unoccupied land refers to vacant land or land where an existing building is set to be renovated, demolished, and rebuilt. A tax exemption applies for up to four tax years under the following conditions:

• The land was purchased during the year, or
• The year in which significant steps were taken to enable building work to physically commence on the land, provided that no one other than the owner has occupied the land after its acquisition.

According to Revenue NSW, building work is considered to have physically commenced when demolition has begun, footings are excavated, or other preparatory work is undertaken. However, the preparation and lodgement of plans and development applications do not qualify as the physical commencement of building work.

We have encountered extreme cases where a house was destroyed by fire, and Revenue NSW regarded this as the physical commencement of building work. If you find yourself in a similar situation where your property is damaged or destroyed, and you are unable to occupy the land within four years, we recommend contacting Revenue NSW immediately to discuss your specific circumstances.

Change to principal place of residence – 6 Months 

You might be able to get a PPOR exemption for two homes if you’ve bought a new home but haven’t sold or moved out of your old one by the tax date (31 December before each tax year). Both homes can be exempt for the same tax year if these conditions are met:

• Your old home was your main residence on the tax date or the previous tax date.
• You bought the new home within the 6 months leading up to the tax date.
• You move into and live in the new home as your main residence by the next tax year’s tax date.
• You don’t earn any income from the old home before the tax date during the time you own it.
• This exemption for two properties only applies for one tax year.

Absent from your PPOR – 6 Years 

You can be away from your main residence for up to six years and still keep your PPOR exemption for NSW land tax. For example, an owner may be absent during an extended holiday, or the owner may have taken an employment opportunity in another city. 

You’ll still be considered as living in your home during your absence if:

• You lived in the home for at least six months before leaving.
• You don’t own, live in, or occupy another home during your absence.
• You can rent out your home while you’re away, as long as it’s for no more than six continuous months or up to 182 days in the year before each tax date. Each overnight stay counts as one day.

If you rent out your home for longer, it might become liable for land tax the following year unless the rental income only covers basic expenses like council rates, water and energy bills, and regular maintenance (not mortgage repayments).

Basic maintenance includes things like lawn mowing, window cleaning, pool upkeep, and minor repairs. It doesn’t cover bigger jobs like repainting, replacing a water heater, or renovating a kitchen or bathroom.

Reference – Revenue NSW 

The Land Tax Surcharge is an additional tax imposed on foreign persons who own residential land in New South Wales (NSW).

Here are the key details:

• Applicability:
  • The surcharge is specifically for foreign persons who own residential land in NSW.
  • It is charged in addition to any regular land tax that the property owner may already be paying.
  • Even if a foreign owner does not owe the standard land tax, they may still be required to pay this surcharge.

• Definition of a Foreign Person:
  • You are generally considered a foreign person unless:
    • You are an Australian citizen, or
    • You have lived in Australia for 200 days or more in the 12 months prior to the taxing date of 31 December and are a permanent resident of Australia.
• Taxing Date:
  • The surcharge is assessed based on the taxable value of all residential land owned as at 31 December each year.

• No Tax-Free Threshold:
  • Unlike standard land tax, there is no tax-free threshold for the foreign owner surcharge. This means the surcharge applies to the entire taxable value of the residential land.
• Surcharge Rate:
  • Starting from the 2023 land tax year, the surcharge rate is 4% of the taxable value of the residential land.

By understanding these points, foreign owners of residential land in NSW can better navigate their tax obligations and ensure compliance with local regulations.

It is important to note that the land tax amount is not deductible in the year you pay it. Instead, deductions must be taken in the respective income years to which the land tax liabilities related to. It’s crucial to understand that your liability for land tax is determined by the usage of the property within a given year, regardless of when the tax assessment is actually issued.

When you pay land tax for past years (known as paying “in arrears”), you can’t deduct this payment from your income for the year in which you make the payment. Instead, you can only claim a deduction for the land tax in the years that the tax was originally due for.

For an example – Imagine it’s 2024, and John receives a bill for land tax for the years 2022 and 2023 that he hasn’t paid yet. Even though John pays this bill in 2024, he can’t claim the deduction on his 2024 tax return. Instead, he should claim the deduction for the 2022 land tax on his 2022 tax return, and the deduction for the 2023 land tax on his 2023 tax return, because those are the years the tax relates to, even though he paid it later.

You can claim land tax as a tax deduction for your investment properties. However, you cannot claim land tax as an immediate deduction if your property is not generating rental income or if you are using the property for personal use.

Motor vehicle expenses are among the most commonly claimed deductions by General Practitioners (GPs). Self-employed GPs typically claim these expenses for travel between their practice and a hospital, when making house calls, or when transporting bulky medical equipment. The ATO has issued specific guidelines detailing what GPs can and cannot claim for car expenses. Let’s explore a few crucial points:

❌ What You Can’t Claim

• You can’t claim the cost of everyday trips between home and work or their regular practice, even if you live far away and practice outside regular business hours
• You can’t claim a deduction for parking at or near a regular place of work. You also can’t claim a deduction for tolls you incur for trips between your home and regular place of work/practice.

✅ What You Can Claim

• You can claim the cost of using your car when driving directly between separate jobs on the same day. For example, driving from your main workplace as GP to your second job as a university lecturer.
• Alternate Workplaces: to and from an alternate workplace for the same employer on the same day – for example, travelling to different hospitals or medical centres
• Transporting Bulky Tools or Equipment: In limited circumstances, you can claim the cost of trips between home and work if you carry bulky tools or equipment that are essential for your job. This applies if:
  • The tools or equipment are essential for your work and not carried by choice.
  • The tools or equipment are bulky and awkward to transport, making it necessary to use a car.
  • There is no secure storage for the items at your workplace.

Methods to Claim Car Expenses

• Logbook Method:
  • Keep a valid logbook to track the percentage of work-related use.
  • Maintain written evidence of your car expenses.
• Cents Per Kilometre Method:
  • Show how you calculated your work-related kilometres.
  • Ensure those kilometres were for work-related purposes.

No, you cannot claim a full Capital Gains Tax (CGT) exemption if you purchase a home with an existing lease agreement. Your primary residence is typically exempt from capital gains tax (CGT). For CGT purposes, this exemption applies from the time you acquire your home, as long as you move in as soon as practicable. 

There are specific circumstances that can affect when your property qualifies as your main residence for CGT purposes:

• Delays Due to Illness or Unforeseen Circumstances: If moving in is delayed due to illness or other unexpected events, your home remains exempt from CGT, provided you move in as soon as the cause of the delay is resolved (e.g., upon recovery from illness).
• Property Rented to Someone Else: If you cannot move in immediately because the property is rented out, it will not be considered your main residence until you actually move in.
• Owning Two Homes: If you buy a new home before selling your old one, you can designate both properties as your main residence for up to 6 months.

Example: 

Emily signed a contract to buy a house in February. She took possession when settlement occurred in March. 

We have provided two different scenarios below to explain what is considered practicable after settlement.

Scenario 1: Moving in as soon as practicable due to interstate work assignment

In early March, Emily’s employer assigned her to an interstate project for 5 months. She moved into the house when she returned in August.

Emily’s interstate assignment was unforeseen at the time she bought the house. She moved in as soon as practicable after the settlement of the contract. Therefore, she can treat the house as her main residence from the date she acquired it.

Scenario 2: Not practicable due to tenancy agreement

Alternatively, the house had an existing tenancy agreement that would not end until September, 6 months after the settlement. Due to this tenancy agreement, Emily could not move into the house until the lease ended in September.

In this case, Emily cannot treat the house as her main residence until she moves in. The property will only be exempt from CGT from the time she actually moves in, as it was not practicable for her to move in due to the existing tenancy agreement.

For Capital Gains Tax (CGT) purposes, your home qualifies for the main residence exemption from the time you acquire it, provided you move in as soon as practicable. 

If you acquire a new home before you dispose of your old one, you can treat both properties as your main residence for up to 6 months under certain conditions.

You can claim this exemption if all of the following are true:

1. You lived in your old home as your main residence for a continuous period of at least 3 months in the 12 months before you disposed of it.
2. You did not use your old home to produce income (such as rent) during any part of that 12 months when it was not your main residence.
3. The new property becomes your main residence.

If it takes longer than 6 months to dispose of your old home, the main residence exemption applies to both homes only for the last 6 months before you dispose of your old home. For the period before this, when you owned both homes, you can choose which home to treat as your main residence. The other property will be subject to CGT for that period.

Reference :

ATO – Moving to a new main residence 

Buying your Principal Place of Residence (PPOR) in a Trust may initially seem like a strategic move for asset protection or tax planning. However, there are several significant drawbacks and complications that typically outweigh the potential benefits. Here are key reasons why you shouldn’t buy your PPOR in a trust:

1. Loss of Main Residence CGT Exemption

When you sell your principal place of residence, any capital gain is generally exempt from Capital Gains Tax (CGT) under the main residence exemption. If the property is held in a trust, this exemption is not available, meaning any capital gain realized on the sale of the property would be subject to CGT, potentially resulting in a significant tax liability.

2. No Land Tax Exemption

In most Australian states, your principal place of residence is exempt from land tax. However, this exemption does not apply if the property is owned by a trust. Consequently, you could be liable for land tax, which can be a substantial annual expense depending on the value of the property and the rates in your state.

3. Complexity and Costs

Setting up and maintaining a trust involves legal and administrative costs. Trusts require formal documentation, regular compliance, and annual financial reporting, all of which incur ongoing expenses without generating income from the property. This complexity adds an extra layer of management that is often unnecessary for a principal place of residence.

4. Financing Difficulties

Obtaining a mortgage for a property held in a trust can be more challenging than for a property held in an individual’s name. Lenders often view trust arrangements as higher risk and may require additional documentation, or larger deposits, making it more difficult and expensive to secure financing.

6. Personal Use Restrictions

A property held in a trust is generally considered a trust asset, which can complicate matters if you wish to make personal use of the property. Trust laws and the trust deed may restrict how the property can be used.

In conclusion, while there are scenarios where holding property in a trust can be beneficial, these are typically not applicable to a principal place of residence. The loss of significant tax exemptions, increased costs, and complexities usually make it an unattractive option for most homeowners. For tailored advice, it’s always best to consult with Investax Property Tax Specialists who can consider your specific circumstances.

References and Further Reading

• ATO Website: Main residence exemption from CGT
• Revenue NSW: Land Tax Exemptions

Home Sale Move: Capital Gains Tax Liability After 6 Months?

If you get a new home before selling your old one, you can actually treat both as your main residence or principal place of residence (PPOR) up to 6 months. 

This applies under the following conditions:

1. The old property must have been your main residence continuously for at least 3 months within the 12-month period prior to its sale.
2. During any period in those 12 months when the old property was not your primary residence, it must not have been used to generate income (so property cannot be rented).
3. The new property must become your primary residence.

This way, you can take your time moving without worrying about the capital gain tax. 

Source – Moving to a new main residence  

Stamp Duty Impact: Transferring 50% Property to Partner

Transfers between family members are liable to transfer duty, however some transfers may qualify for an exemption or concession. No transfer/stamp duty is payable where a transfer of residential land is between a married couple, or de facto partners and the property being transferred is either:

• the family home (principal place of residence)
• vacant land, which is intended to be used as the site of the family home.

As a result of the transfer, the property must be held equally (50-50) by both partners.

De facto couples must be living together for at least two years before applying for this exemption.

Source – Revenue NSW 

The main residence exemption under the CGT rules cannot generally apply to properties owned by a trust
The main residence exemption can generally only apply when the dwelling is owned by an individual – refer to section 118-110 ITAA 1997. There are some very limited exceptions to this including:

• Where the property is held by a special disability trust.
• Where the property was owned by an individual just before they died and is now held in a deceased estate or testamentary trust, there are some special rules which
  can potentially enable the main residence exemption to apply; or
• Where the occupier of the property is absolutely entitled to the property as against the trustee.

Starting in July 2024, there will be changes to various superannuation rates and caps including the contribution caps. To ensure you have all the necessary updates at your fingertips, we’ve compiled a detailed table outlining the new parameters.

The amount you need for a comfortable retirement varies based on factors like your lifestyle, location, and health. A common rule of thumb is to aim for a retirement savings equivalent to 70-90% of your pre-retirement income. However, individual circumstances differ, and it’s essential to assess your specific needs and goals. Working with a financial planner can help you determine an appropriate retirement savings target.

Retirement planning involves several key components:

Financial Assessment: Evaluate your current financial situation, including savings, investments, and debts.
Retirement Goals: Define your retirement lifestyle and financial goals, such as travel, healthcare, and living arrangements.
Budgeting: Create a budget that outlines your anticipated retirement expenses and income sources.
Investment Strategy: Develop an investment strategy that aligns with your risk tolerance and long-term financial objectives.
Superannuation and Pension Planning: Explore options for your retirement income, including superannuation, pensions, and other savings vehicles.
Tax Planning: Understand the tax implications of your retirement income and investment choices.
Estate Planning: Consider how you want to distribute your assets and plan for potential healthcare needs.

The earlier you start retirement planning, the better. Ideally, it’s best to begin in your 20s or 30s. Starting early allows you to take advantage of compound interest and build a substantial retirement nest egg over time. However, it’s never too late to start planning, even if you’re closer to retirement age. The key is to create a plan that aligns with your current financial situation and goals.

Engaging a financial planner for retirement planning is essential due to their expertise in navigating complex financial matters and markets. They create personalized retirement strategies tailored to your unique financial situation, goals, and risk tolerance, ensuring your plan aligns with your desired retirement lifestyle. Financial planners also help manage risks, optimize tax efficiencies, and address estate planning considerations. Their ongoing monitoring and adjustments to your plan adapt to changes in your financial situation and market conditions, providing peace of mind and maximizing your retirement income. With their guidance, you can confidently navigate retirement complexities and make informed financial decisions to secure a comfortable retirement.

Retirement planning is the process of setting financial and lifestyle goals for your retirement years and creating a strategy to achieve them. It’s important because it ensures you have the financial resources and plans in place to maintain your desired lifestyle and cover expenses after you stop working. Proper retirement planning can help you avoid financial stress during retirement and make the most of your post-work years.

The 1st Quarter BAS is generally due on 28 October. However, if you engage a registered tax agent, you’ll receive an extra four weeks to lodge. Like many small business owners, you may not always be ready to sit down and go through your records to verify GST and PAYG information by 28 October. While hiring a tax agent involves a fee, it offers significant benefits for small businesses and business owners:

1. Extra Time for Small Businesses: Gain an additional four weeks to lodge, providing breathing room for busy business owners.
2. Bookkeeping Accuracy: Take the opportunity to meet with your accountant and ensure your bookkeeping is accurate, avoiding costly errors for your business.
3. Micro Tax Planning for Business Owners: Have a quick tax consultation with a qualified accountant to optimise your business’s tax strategy.
4. Tax-Deductible Accounting Fees: The cost of engaging a tax agent is tax-deductible, benefiting your small business at tax time.

Don’t let your BAS return be just another chore. Use it as a strategic opportunity to enhance your small business’s financial health and set your business on a path to success.

Super Guarantee Update:

As of 1 July 2024, the Superannuation Guarantee (SG) rate has increased to 11.5%. Employers must account for this change to ensure superannuation guarantee payments are correctly calculated. The SG rate is scheduled to further increase to 12% in July 2025.

Concessional Contribution Update:

The concessional super contributions cap has risen from $27,500 to $30,000 per year, effective from 1 July 2024. This is the maximum amount of before-tax contributions, including employer superannuation guarantee payments, that can be contributed annually without incurring additional tax, subject to any unused concessional cap amounts from previous years.

Non-Concessional Contribution Update:

The non-concessional super contributions cap has increased from $110,000 to $120,000 per year. If your total super balance is equal to or exceeds the general transfer balance cap ($1.9 million from 2023–24) at the end of the previous financial year, your non-concessional contributions cap is nil ($0) for the current financial year.

Distinguishing between an employee and an independent contractor is vital for compliance with tax and superannuation laws. A simple contract label is not enough; the actual work relationship and duties performed are what define the status. Below, we outline the key differences to help you understand where you or your workers may stand. Just because an agreement states that a worker is an independent contractor, this does not mean that they are a contractor for tax and superannuation purposes, new guidance from the ATO warns. 

Where there is a written contract, the rights and obligations of the contract need to support that an independent contracting relationship exists. The fact that a contractor has an ABN does not necessarily mean that they have genuinely been engaged as a contractor. The ATO mentions – 

“at its core, the distinction between an employee and an independent contractor is that:

• an employee serves in the business of an employer, performing their work as a part of that business.
• an independent contractor provides services to a principal’s business, but the contractor does so in furthering their own business enterprise; they carry out the work as principal of their own business, not part of another.”

Here are the basic differences as pointed out by the ATO:

Reference: https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors#ato-Employeeorindependentcontractor 

Empower Your Quest: CGT Concession in Small Business

You are considered a CGT Concession Stakeholder in a company or trust if you are:

• A significant individual in that company or trust.
• The spouse of a significant individual and have a small but more than zero percent stake in the company or trust.

You can own this stake either directly or through other entities. To calculate your stake, use the same method as the significant individual test.

You’re a significant individual in a company or trust if you own at least 20% of it. This 20% can include both your direct ownership and indirect ownership through other entities.

Special Note – A spouse of a significant individual must have a participation percentage greater than zero in the business entity.

Small Business CGT Concession and Roll-Over Rules:

CGT Event J5 occurs if, after choosing a roll-over for a capital gain, you haven’t acquired a new asset or improved an existing one by the end of the allotted time. Additionally, this event happens if:

• The new or improved asset isn’t actively used in your business anymore (like if you’ve sold it, it’s now part of your trading stock, or it’s no longer used in your business operations).
• If the new asset is a share in a company or a trust interest, and it fails the 80% test (unless this failure is only temporary).
• You or a related entity aren’t significant stakeholders in the company or trust.
• The stakeholders in the company or trust don’t have a significant (at least 90%) investment in your business. When CGT Event J5 happens, you’ll have to recognize a capital gain. This is the same amount you initially didn’t have to pay tax on because of the small business roll-over. The capital gain is counted at the end of the time you were supposed to get or improve the asset.

Example: CGT event J5
In September 2020, Luke made a capital gain of $80,000 on an active asset. He met the maximum net asset value test.

Luke disregarded the whole capital gain under the small business roll-over.

In September 2022 (the end of the 2-year period), Luke did not have any replacement or capital improved assets. CGT event J5 happens, and Luke makes a capital gain of $80,000 in September 2022.

Source – ATO/ Small Business Rollover

For comprehensive information and expert guidance on Division 7A, we recommend reaching out to Investax accountants. We specialise in taxation matters and can provide you with the most up-to-date and tailored advice to ensure compliance with Division 7A rules. You can also visit the Australian Taxation Office (ATO) website for additional resources and information, but consulting with an Investax accountant can offer you personalised guidance specific to your situation.

To avoid Division 7A implications, private companies should ensure that loans and financial arrangements with shareholders or associates are structured in accordance with the Div 7A loan requirements. You can take out dividends and wages to avoid Div 7A Loan.

A Division 7A loan refers to a loan or financial arrangement made by a private company to a shareholder or their associate, where the terms and conditions of the loan are not at arm’s length or are less favourable than what would be available in a commercial transaction. Such loans are subject to Division 7A rules.

Accounting software streamlines financial tasks, automates processes, and enhances accuracy. It helps businesses manage invoicing, expense tracking, payroll, and financial reporting more efficiently.

Accurate and up-to-date records are essential for effective tax reporting and compliance. It enables you to track income, expenses, and financial transactions, making it easier to report to the ATO accurately. Good record-keeping also helps you identify potential discrepancies, support your claims, and demonstrate your business’s financial position.

If your small business has an aggregated turnover of less than $10 million (since 1 July 2016), you are generally eligible to use the simplified depreciation rules. However, eligibility criteria and thresholds can vary based on the financial year and specific circumstances.

The instant asset write-off allows eligible small businesses to immediately deduct the cost of eligible assets up to a certain threshold. This deduction is claimed in the year the asset is first used or installed ready for use. It allows businesses to reduce their taxable income by deducting the cost of assets such as equipment, vehicles, and machinery.

The simplified depreciation method is a streamlined approach designed for small businesses in Australia. It includes an instant asset write-off for eligible assets and a general small business pool for assets that don’t qualify for immediate deduction. This method simplifies the calculation of depreciation deductions, reducing administrative complexity for small business owners.

In Australia, a small business for tax purposes, is generally defined as one with an annual turnover of less than $10 million. This threshold applies to various tax concessions and benefits, including the Small Business Income Tax Offset, simplified depreciation rules, and the Small Business Capital Gains Tax concessions.

To ensure valid deductions, make sure that your claimed expenses are directly related to your business operations. Keep all necessary evidence, such as receipts, invoices, and documentation, to support your claims. Consulting your tax professional can help you determine which deductions are eligible and provide guidance on proper documentation.

Yes, it is possible for a Self-Managed Super Fund (SMSF) to own property jointly with other investors, including related parties. This is a common practice, and there are a few ways it can be structured.

Joint Ownership with Other Investors or Related Parties

An SMSF can hold property assets jointly with other entities such as family trusts, companies, or even the SMSF members personally. Typically, this joint ownership is structured as tenants in common, which means that each party’s ownership interest in the property is distinct and can be clearly identified on the property title.

Important Considerations

1. Title and Ownership: The property title must clearly state the ownership percentages of each party involved.
2. Income and Expenses: Income generated from the property and any expenses incurred need to be apportioned according to the ownership percentages of each party.
3. Tenants in Common Agreement: It is usually recommended to have a formal ‘tenants in common agreement’ in place. This agreement outlines each party’s rights and obligations, ensuring clarity and avoiding potential disputes.

Alternative Ownership Structures

Another way an SMSF can invest in property is through a Unit Trust or Company. In this scenario:

1. Buying Shares or Units: The SMSF can purchase shares in a related company or units in a related trust.
2. Property Acquisition: The related entity (trust or company) then uses these funds to acquire the property.
3. Funding Flexibility: This structure allows other related parties, individuals, or relatives to also buy shares or units in these entities. This collective investment can help fund the property purchase more quickly.

We get this question quite often: When can I access my super? Generally, access to your super is possible only if:

• You retire and are 60 or older; or
• You turn 65 (regardless of whether you’re still working).

Early access to superannuation is possible only under very limited circumstances such as terminal illness, permanent incapacity, and severe financial hardship, and there are very strict protocols to follow before any funds are paid out.

When you have a Self-Managed Super Fund (SMSF), members have full access to the superfund, and it can sometimes become tempting for members to access these funds during a financial crisis. If you access your superannuation simply due to financial strains without meeting the early access requirements, the transaction becomes illegal.

There are two common ways illegal early access occurs:

• When the trustees (or their business) are in financial distress, and they use the superannuation account for a short-term loan; or
• A promoter offers access through a scheme—often getting people to establish an SMSF and roll over their superannuation into the SMSF.

In the context of a Self-Managed Super Fund (SMSF), a “related party” encompasses a broad range of individuals and entities that have a close association with the members of the SMSF. The definition of a related party for an SMSF, as outlined by the Australian Taxation Office (ATO), includes:

1. Members of the SMSF: Every individual who is a member of the Self-Managed Super Fund.
2. Relatives of Members: This includes a wide array of family relations such as spouses, parents, grandparents, children, grandchildren, siblings, aunts, uncles, nieces, nephews, and the equivalent relations by marriage or de facto partnerships.
3. Standard Employer-Sponsors: An employer who contributes to the SMSF for a member under an arrangement between the employer and the trustees of the fund.
4. Partnerships: Where a member or a relative of a member is a partner.
5. Trusts: Where a member or a relative of a member controls the trust.
6. Companies: Where a member or a relative of a member has a significant influence over the company, typically through a substantial shareholding.

The rules around related parties in a Self-Managed Superfund (SMSF) are designed to safeguard the superannuation system.  Essentially, these rules make sure that SMSFs are always working to help members reach their retirement goals, keeping everything fair and above board.

Source – ATO 

An in-house asset for a Self-Managed Superfund (SMSF) typically refers to an investment or asset that is related to, or involves, a member of the SMSF or their related parties. According to the Australian Taxation Office (ATO) regulations, an in-house asset can be:

• a loan to, or an investment in, a related party of your fund
• an investment in a related trust of your fund
• an asset of your fund that is leased to a related party.

The ATO instructs that in-house assets must not exceed 5% of the total market value of the Self-Managed Super Fund’s (SMSF) assets.

This rule is designed to ensure that SMSFs are primarily used for the purpose of providing retirement benefits to their members, and to prevent the misuse of superannuation funds for personal or related party financial dealings. Therefore, the investments and transactions made by an SMSF need to comply with this rule, among others, to meet the sole purpose test and ensure the fund is being used appropriately for retirement savings.

Source – ATO 

In the context of a Self-Managed Super Fund (SMSF), a “related party” encompasses a broad range of individuals and entities that have a close association with the members of the SMSF. The definition of a related party for an SMSF, as outlined by the Australian Taxation Office (ATO), includes:

1. Members of the SMSF: Every individual who is a member of the Self-Managed Super Fund.
2. Relatives of Members: This includes a wide array of family relations such as spouses, parents, grandparents, children, grandchildren, siblings, aunts, uncles, nieces, nephews, and the equivalent relations by marriage or de facto partnerships.
3. Standard Employer-Sponsors: An employer who contributes to the SMSF for a member under an arrangement between the employer and the trustees of the fund.
4. Partnerships: Where a member or a relative of a member is a partner.
5. Trusts: Where a member or a relative of a member controls the trust.
6. Companies: Where a member or a relative of a member has a significant influence over the company, typically through a substantial shareholding.

The rules around related parties in a Self-Managed Superfund (SMSF) are designed to safeguard the superannuation system.  Essentially, these rules make sure that SMSFs are always working to help members reach their retirement goals, keeping everything fair and above board.

Source – ATO

An in-house asset for a Self-Managed Superfund (SMSF) typically refers to an investment or asset that is related to, or involves, a member of the SMSF or their related parties. According to the Australian Taxation Office (ATO) regulations, an in-house asset can be:

• a loan to, or an investment in, a related party of your fund
• an investment in a related trust of your fund
• an asset of your fund that is leased to a related party.

The ATO instructs that in-house assets must not exceed 5% of the total market value of the Self-Managed Super Fund’s (SMSF) assets.

This rule is designed to ensure that SMSFs are primarily used for the purpose of providing retirement benefits to their members, and to prevent the misuse of superannuation funds for personal or related party financial dealings. Therefore, the investments and transactions made by an SMSF need to comply with this rule, among others, to meet the sole purpose test and ensure the fund is being used appropriately for retirement savings.

Source – ATO 

Reclaim Excess Funds: SMSF Overpayment Withdrawal

Contributions generally cannot be returned to a member because:

• they regret making the contribution.
• they or their agents made an error in their decision to contribute.

Contributions may only be refunded in circumstances tightly prescribed by legislation.

In the context of your Self-Managed Superfund (SMSF), your transfer balance cap represents the upper limit on the total amount of accumulated superannuation funds you
can move into retirement phase accounts, which enjoy tax-free earnings. This cap is not a one-time figure; it’s a lifetime limit that applies to all transfers you make over the course of
your life into retirement phase pensions.

With the commencement of your retirement phase income stream within your SMSF, your personal transfer balance cap will be equivalent to the prevailing general transfer balance
cap at that juncture.

Please note that since the 1st of July 2021, the general transfer balance cap is indexed with inflation, tracked by the consumer price index, and is adjusted in $100,000 increments. This
indexation can potentially increase your transfer balance cap over time, enhancing the amount you can shift into your SMSF retirement phase account, thereby maximizing your
superannuation’s tax-effective potential.

Source: ATO – Transfer Balance Cap Explanation

A Limited Recourse Borrowing Arrangement (LRBA) in a Self-Managed Superannuation Fund (SMSF) is a financial structure that enables the SMSF to borrow funds to acquire assets, typically property. The primary motivation behind using an LRBA in your SMSF is to expand your investment portfolio and accumulate wealth for retirement. Through LRBA, your SMSF can diversify its investments, particularly into property, which may be otherwise unaffordable without borrowed funds. This strategy potentially offers rental income and capital growth as part of your retirement savings. Additionally, it can provide tax advantages, although it comes with complexities and risks. Assets acquired through LRBA are held in a separate Bare Trust structure, ensuring compliance with superannuation laws and protecting other SMSF assets from legal claims. However, navigating this strategy requires careful consideration of loan terms, interest rates, and compliance rules, making it crucial to seek guidance from SMSF and LRBA experts to use LRBA effectively and within legal boundaries.

A Bare Trust is a crucial element of many SMSF property investments, primarily because it ensures compliance with superannuation laws, such as the “sole purpose test.” This legal requirement mandates that superannuation funds exist primarily to provide retirement benefits to members. By using a Bare Trust, you separate the legal ownership of the property from the SMSF trustee, reducing compliance risks and protecting assets. The Bare Trustee holds legal ownership but has limited powers and must follow the SMSF trustee’s instructions, minimizing their involvement and liability.

An SMSF can be beneficial for several reasons, including unique features that set it apart from other superannuation structures:

• Control: An SMSF provides you with greater control over your retirement savings, allowing you to make investment decisions that align with your financial goals and risk tolerance.
• Tailored Investments: You have the flexibility to invest in a wide range of assets, including property, shares, cash, and other investments, enabling you to diversify your portfolio.
• Cost Efficiency: For some individuals, an SMSF can be more cost-effective than retail superannuation funds, especially when the fund balance grows.
• Estate Planning: SMSFs offer estate planning options, including the ability to nominate beneficiaries and create a comprehensive strategy for the distribution of assets upon your passing.
• Tax Benefits: Depending on your circumstances, an SMSF can provide tax advantages, including potentially lower tax rates on investment income and capital gains.
• Asset Protection: In certain situations, SMSFs can offer additional asset protection benefits, although these should not be the primary reason for establishing one.
• Property Investment: An important distinction of SMSFs is the ability to use Limited Recourse Borrowing Arrangements (LRBA) to purchase property. This means an SMSF can borrow money to buy property, making it the only superannuation structure where this option is available. LRBA allows you to leverage your superannuation to invest in property, potentially accelerating wealth growth within your fund.

An SMSF is a private superannuation fund that individuals manage themselves. It allows members to have control over their retirement savings, make investment decisions, and manage compliance with superannuation laws. SMSFs are regulated by the Australian Taxation Office (ATO) and are subject to specific rules and regulations.

Borrowing within an SMSF for property investment, known as a Limited Recourse Borrowing Arrangement (LRBA), comes with several risks, including:

• Higher Costs: SMSF property loans can be more expensive than other property loans.
• Cash Flow: Ensuring your fund has enough liquidity to cover expenses, including loan repayments and property-related costs.
• Loan Balance: Planning for loan repayment in the event of member illness, disability, death, or rental vacancy.
• Unwinding Challenges: Difficulty in reversing the arrangement if loan documents aren’t correctly structured, potentially resulting in substantial losses.
• Tax Limitations: You cannot offset tax losses from the property against your taxable income outside the fund.
• Alteration Restrictions: Significant property alterations are restricted until the SMSF property loan is fully repaid.

When investing in property through a Self-Managed Super Fund (SMSF), you must adhere to several crucial rules:
• The property’s primary purpose should be to provide retirement benefits to fund members (Sole Purpose Test).
• You cannot acquire property from a related party of a fund member.
• The property cannot be lived in by a fund member or their related parties.
• Renting the property to a fund member or their related parties is also not allowed.

Yes, it is possible for a Self-Managed Super Fund (SMSF) to own property jointly with other investors, including related parties. This is a common practice, and there are a few ways it can be structured.

Joint Ownership with Other Investors or Related Parties

An SMSF can hold property assets jointly with other entities such as family trusts, companies, or even the SMSF members personally. Typically, this joint ownership is structured as tenants in common, which means that each party’s ownership interest in the property is distinct and can be clearly identified on the property title.

Important Considerations

1. Title and Ownership: The property title must clearly state the ownership percentages of each party involved.
2. Income and Expenses: Income generated from the property and any expenses incurred need to be apportioned according to the ownership percentages of each party.
3. Tenants in Common Agreement: It is usually recommended to have a formal ‘tenants in common agreement’ in place. This agreement outlines each party’s rights and obligations, ensuring clarity and avoiding potential disputes.

Alternative Ownership Structures

Another way an SMSF can invest in property is through a Unit Trust or Company. In this scenario:

1. Buying Shares or Units: The SMSF can purchase shares in a related company or units in a related trust.
2. Property Acquisition: The related entity (trust or company) then uses these funds to acquire the property.
3. Funding Flexibility: This structure allows other related parties, individuals, or relatives to also buy shares or units in these entities. This collective investment can help fund the property purchase more quickly.

Starting in July 2024, there will be changes to various superannuation rates and caps including the contribution caps. To ensure you have all the necessary updates at your fingertips, we’ve compiled a detailed table outlining the new parameters.

In the context of a Self-Managed Super Fund (SMSF), a “related party” encompasses a broad range of individuals and entities that have a close association with the members of the SMSF. The definition of a related party for an SMSF, as outlined by the Australian Taxation Office (ATO), includes:

1. Members of the SMSF: Every individual who is a member of the Self-Managed Super Fund.
2. Relatives of Members: This includes a wide array of family relations such as spouses, parents, grandparents, children, grandchildren, siblings, aunts, uncles, nieces, nephews, and the equivalent relations by marriage or de facto partnerships.
3. Standard Employer-Sponsors: An employer who contributes to the SMSF for a member under an arrangement between the employer and the trustees of the fund.
4. Partnerships: Where a member or a relative of a member is a partner.
5. Trusts: Where a member or a relative of a member controls the trust.
6. Companies: Where a member or a relative of a member has a significant influence over the company, typically through a substantial shareholding.

The rules around related parties in a Self-Managed Superfund (SMSF) are designed to safeguard the superannuation system.  Essentially, these rules make sure that SMSFs are always working to help members reach their retirement goals, keeping everything fair and above board.

Source – ATO 

An in-house asset for a Self-Managed Superfund (SMSF) typically refers to an investment or asset that is related to, or involves, a member of the SMSF or their related parties. According to the Australian Taxation Office (ATO) regulations, an in-house asset can be:

• a loan to, or an investment in, a related party of your fund
• an investment in a related trust of your fund
• an asset of your fund that is leased to a related party.

The ATO instructs that in-house assets must not exceed 5% of the total market value of the Self-Managed Super Fund’s (SMSF) assets.

This rule is designed to ensure that SMSFs are primarily used for the purpose of providing retirement benefits to their members, and to prevent the misuse of superannuation funds for personal or related party financial dealings. Therefore, the investments and transactions made by an SMSF need to comply with this rule, among others, to meet the sole purpose test and ensure the fund is being used appropriately for retirement savings.

Source – ATO 

In the context of a Self-Managed Super Fund (SMSF), a “related party” encompasses a broad range of individuals and entities that have a close association with the members of the SMSF. The definition of a related party for an SMSF, as outlined by the Australian Taxation Office (ATO), includes:

1. Members of the SMSF: Every individual who is a member of the Self-Managed Super Fund.
2. Relatives of Members: This includes a wide array of family relations such as spouses, parents, grandparents, children, grandchildren, siblings, aunts, uncles, nieces, nephews, and the equivalent relations by marriage or de facto partnerships.
3. Standard Employer-Sponsors: An employer who contributes to the SMSF for a member under an arrangement between the employer and the trustees of the fund.
4. Partnerships: Where a member or a relative of a member is a partner.
5. Trusts: Where a member or a relative of a member controls the trust.
6. Companies: Where a member or a relative of a member has a significant influence over the company, typically through a substantial shareholding.

The rules around related parties in a Self-Managed Superfund (SMSF) are designed to safeguard the superannuation system.  Essentially, these rules make sure that SMSFs are always working to help members reach their retirement goals, keeping everything fair and above board.

Source – ATO

An in-house asset for a Self-Managed Superfund (SMSF) typically refers to an investment or asset that is related to, or involves, a member of the SMSF or their related parties. According to the Australian Taxation Office (ATO) regulations, an in-house asset can be:

• a loan to, or an investment in, a related party of your fund
• an investment in a related trust of your fund
• an asset of your fund that is leased to a related party.

The ATO instructs that in-house assets must not exceed 5% of the total market value of the Self-Managed Super Fund’s (SMSF) assets.

This rule is designed to ensure that SMSFs are primarily used for the purpose of providing retirement benefits to their members, and to prevent the misuse of superannuation funds for personal or related party financial dealings. Therefore, the investments and transactions made by an SMSF need to comply with this rule, among others, to meet the sole purpose test and ensure the fund is being used appropriately for retirement savings.

Source – ATO 

Tax Benefits of an ABP

Typically, any investment income or capital gains accumulated in a pension account, such as an Account-Based Pension (ABP), are not subject to tax. This means that the returns generated from the assets within the ABP are tax-free.

However, it’s important to understand that there are exceptions. Certain types of income, including taxable contributions and dividends from some private companies, remain taxable even when they are earned through a pension fund.

General Transfer Balance Cap in 2024

Source: ATO/General Transfer Balance Cap

In most cases, a Bare Trust itself does not generate income or require the lodgement of a separate tax return. Instead, the income and tax obligations associated with the assets held in the Bare Trust are attributed to the beneficiary of the trust. The beneficiary is responsible for including any income earned from the trust’s assets in their own tax return. It’s essential to consult with a tax professional or legal advisor to ensure compliance with tax regulations and understand any specific reporting requirements related to the Bare Trust.

The tax treatment of SMSF pension payments depends on various factors, including the member’s age and the components of the pension payment. Generally, pension payments received by members aged 60 and over are tax-free. Members aged between their preservation age and 59 receive a tax offset on their pension payments. However, tax may apply to certain components of the pension, such as taxable elements in the payment.

The age requirement to start an SMSF pension depends on the type of pension. For an account-based pension, the member must have reached their preservation age, which is currently between 55 and 60, depending on the member’s birthdate. For a transition to retirement income stream (TRIS), the member can commence the pension once they reach their preservation age, even if they are still working.

When engaging an auditor to review an LRBA within your Self-Managed Superannuation Fund (SMSF), you should provide a comprehensive set of documents for examination. The exact requirements may vary depending on your specific LRBA and fund’s circumstances, but generally, you should include: Loan Agreement, Bare Trust Deed, property title deed, current market value of the property, lease agreement etc.

An SMSF must undergo an annual audit by an independent auditor. This audit is conducted at the end of each financial year and is a mandatory requirement to ensure compliance with superannuation laws and regulations.

An SMSF audit is a comprehensive review of the fund’s financial records, transactions, and compliance with superannuation laws. Key components include verifying the fund’s financial statements, assessing investment strategies, confirming contributions and benefit payments, checking for compliance with regulatory limits, and ensuring proper record-keeping. The audit also examines the fund’s compliance with the sole purpose test, the in-house asset rules, and other legal requirements.

The deadline for lodging an SMSF tax return is typically 28 February following the end of the financial year. However, SMSFs with a registered tax agent may have extended deadlines, which can vary. It’s essential to consult with your tax agent and ensure timely submission to avoid penalties.

Yes, an SMSF (Self-Managed Superannuation Fund) is required to lodge an annual tax return with the Australian Taxation Office (ATO). The tax return for an SMSF is known as the Self-Managed Superannuation Fund Annual Return (SMSFAR) and is submitted to report the fund’s financial activities, income, expenses, contributions, and deductions. It is an essential compliance requirement, and failure to lodge the annual tax return on time can result in penalties and the potential loss of tax concessions. SMSFs must also undergo an annual audit by an independent auditor as part of the compliance process.

A Taxable Payments Annual Report (TPAR) is a report that certain businesses need to lodge with the ATO. It includes details of payments made to contractors for services provided. Industries such as construction, cleaning, and courier services are required to lodge a TPAR.

Our expertise in Self-Managed Superfund (SMSF) Tax Returns is a cornerstone of our services. We maintain a dedicated team of professionals specialising in SMSF taxation matters, well-versed in the unique tax rules and regulations governing SMSFs. Beyond tax returns, our comprehensive SMSF knowledge extends to accounting, auditing, and financial statement preparation to ensure compliance with regulatory requirements. We remain up to date with evolving SMSF legislation, providing proactive tax planning to optimise your fund’s financial outcomes while offering transparent and efficient service throughout the process. Our tailored SMSF strategies are designed to align with your specific circumstances and investment goals, making the SMSF tax return process seamless and effective.
Moreover, we utilize state-of-the-art software, such as Class Super, which automatically feeds all your share transactions into the system, ensuring seamless SMSF tax return and audit processes. Notably, this technology eliminates the need for you to incur additional expenses for providing annual market valuations of SMSF properties, as our software provides this crucial information, further streamlining the SMSF management process. Our goal is to offer a comprehensive SMSF solution that combines professional expertise with cutting-edge tools, making your SMSF management as efficient and hassle-free as possible.

Distinguishing between an employee and an independent contractor is vital for compliance with tax and superannuation laws. A simple contract label is not enough; the actual work relationship and duties performed are what define the status. Below, we outline the key differences to help you understand where you or your workers may stand. Just because an agreement states that a worker is an independent contractor, this does not mean that they are a contractor for tax and superannuation purposes, new guidance from the ATO warns. 

Where there is a written contract, the rights and obligations of the contract need to support that an independent contracting relationship exists. The fact that a contractor has an ABN does not necessarily mean that they have genuinely been engaged as a contractor. The ATO mentions – 

“at its core, the distinction between an employee and an independent contractor is that:

• an employee serves in the business of an employer, performing their work as a part of that business.
• an independent contractor provides services to a principal’s business, but the contractor does so in furthering their own business enterprise; they carry out the work as principal of their own business, not part of another.”

Here are the basic differences as pointed out by the ATO:

Reference: https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors#ato-Employeeorindependentcontractor 

Funding options include personal savings, loans, grants, venture capital, angel investors, crowdfunding, and government programs like the Entrepreneurs’ Program.

Yes, there are grants and incentives for start-ups, including the Research and Development (R&D) Tax Incentive, Export Market Development Grants (EMDG), and the Entrepreneurs’ Program.

While not mandatory, a business plan is highly recommended. It helps outline your business strategy, market analysis, financial projections, and goals.

Start-ups need to consider taxes like Goods and Services Tax (GST), income tax, and payroll tax. GST is usually compulsory for businesses earning over $75,000 per year.

Yes, most businesses in Australia require an ABN. It simplifies tax and business dealings. You can apply for an ABN online through the Australian Business Register (ABR) website.

Protect IP through trademarks, patents, copyrights, and confidentiality agreements. Consult an IP lawyer for advice.

Registering a trademark provides legal protection and exclusive rights to use that mark for your goods or services. It helps prevent others from using a similar mark, which can protect your brand identity and reputation.

Yes, it’s advisable to have a separate business bank account for financial transparency and to manage business transactions effectively.

The first step is to choose a suitable business structure, such as a sole trader, partnership, company, or trust. Register your business name and obtain any required licenses or permits.

Many small to medium-sized business owners ponder the complexity of offering employee benefits such as gym memberships. Apart from keeping employees happy and motivated to work for the business, it can create certain tax liabilities that may be viewed as a benefit for your business. Offering gym memberships to your employees falls under the category of an Entertainment Fringe Benefit. If the annual cost of the gym membership exceeds the minor benefit exemption amount, which is $300 or more per employee, you will need to apply the Fringe Benefit Tax.

Tax Outcome 

• Report Fringe Benefit in the FBT Return 
• Report FBT in Employees PAYG payment Summary report. 

Tax Benefit

The business can claim:

• An income tax deduction and GST credits for the cost of gym memberships 
• An income tax deduction for the Fringe Benefit Tax (FBT) paid. 

If you miss the due dates for super payments, you could face penalties and consequences. The Australian Taxation Office (ATO) takes non-compliance with super obligations seriously.

Super contributions for your employees must be paid by the 28th day following the end of each quarter. The due dates are January 28, April 28, July 28, and October 28.

Reporting through STP is integrated into your regular payroll process. You need to use payroll software that is STP-enabled to send the required information to the ATO each time you process payroll. The software will generate and send the necessary reports directly to the ATO.

All employers, regardless of their business size, are required to use Single Touch Payroll to report their employees’ salary, wages, PAYG withholding, and superannuation contributions to the ATO. This includes businesses, not-for-profit organisations, and government entities.

FBT is calculated based on the taxable value of the fringe benefits provided. Employers are required to report and pay FBT annually on their FBT return, which is usually lodged by 21 May each year.

An Instalment Activity Statement (IAS) is used by businesses to report and pay their Pay as You Go (PAYG) income tax instalments, Goods and Services Tax (GST) instalments, and other tax liabilities more frequently than the BAS. It’s often used by businesses that do not have a GST turnover.

The frequency of lodging a BAS depends on the size and turnover of the business. Generally, businesses lodge their BAS monthly or quarterly. However, there are also options for annual lodgement for certain small businesses.

Australian taxpayers who earn above a certain income threshold and do not have adequate private health insurance are required to pay the Medicare Levy Surcharge

Your income for MLS purposes is the sum of the following items for you (and your spouse, if you have one):

1. Taxable income
2. Reportable fringe benefits
3. Total net investment losses, which include:
   • Net financial investment losses
   • Net rental property losses
4. Reportable super contributions, which include:
   • Reportable employer super contributions (RESC) as shown in your PAYG Payment Summary
   • Deductible personal super contributions

Additionally:

1. If you have a spouse, their share of the net income from a trust on which the trustee is required to pay tax (under section 98 of the Income Tax Assessment Act 1936) and which has not been included in their taxable income.

Your MLS income is calculated by combining your taxable income with all the figures mentioned above.

If you rent out your home, you may be eligible to claim tax deductions on the interest portion of your home loan, even if the loan is still classified as an owner-occupied loan. The key factor that determines tax deductibility is how the loan funds are used. If your property is generating rental income, you can typically claim the interest on the loan as a tax deduction, because the borrowed funds are being used to produce assessable income.

For example, even if your home loan was initially for an owner-occupied property and you didn’t convert it to an investment loan, the interest becomes deductible once the property is rented out. The Australian Taxation Office (ATO) allows deductions based on the usage of the property rather than the original classification of the loan. However, you must ensure the property is either rented out or genuinely available for rent to claim these deductions.

Keep in mind that if a portion of the loan is used for personal purposes, you will need to apportion the interest and only claim deductions on the portion related to the income-generating rental activity.

If you would like to know more about this topic feel free to read our Article Owner Occupied vs Investment Loan: Is Owner-Occupied Loan Tax Deductible?

For specific advice tailored to your situation, particularly regarding converting your home to an investment property, consult with a tax specialist.

To maximize tax benefits in Testamentary Trust, individuals should:

Structure the trust to legally reduce generational wealth taxes.

• Structure the trust to legally reduce generational wealth taxes.
• Carefully select beneficiaries to optimise capital gains tax distribution.
• Work with an accountant well-versed in trust tax outcomes.

Maximizing Centrelink Benefits: Testamentary Trust Impact

If a beneficiary has control over the trust, Centrelink may consider both the trust’s assets and income as belonging to the beneficiary, potentially affecting their eligibility for Centrelink benefits. The trust’s control and the “control test” are factors in this assessment.

Costly Pitfalls: Testamentary Trust Setup Downsides

Establishing a Testamentary Trust typically incurs higher initial costs compared to a simple will, ranging from $2,500 to $5,000. While there are no ongoing costs until the Testamentary Trust is activated upon the will-maker’s death, it is important to be aware that there will be associated administrative costs for preparing annual tax returns once it is activated.

Maximize Wealth: CGT & Testamentary Trust Tax Benefits

Testamentary trusts offer potential benefits related to CGT. Capital gains can be distributed to beneficiaries with a potential 50% CGT discount, even if the assets were held for less than 12 months by the trust, provided the original owner held them for at least 12 months.

Demystifying Testamentary Trust Income Splitting

A Testamentary Trust allows for income splitting among family members, such as children and grandchildren. This means that beneficiaries can receive income from the trust and be taxed at adult marginal rates, potentially reducing the overall tax burden on trust-generated income.

Empower Minors: Testamentary Trust Tax Advantages

Income distributed to minors from a Testamentary Trust is considered ‘excepted trust income’ and is taxed at standard adult marginal tax rates instead of higher penalty rates, resulting in potential tax savings. Consider a scenario involving beneficiaries Ron and Tracey, who are minors and beneficiaries of a Testamentary Trust. When the trust generates income, distributing it equally between Ron and Tracey can result in substantial tax savings due to the special tax provisions for Testamentary Trusts. They will not be taxed at a penalty rate like the other trusts.

It’s advisable to review your Testamentary Trust deed and Will annually to accommodate life changes and legislative updates, such as new asset purchases or sales.

Power-Pick Trustee for Testamentary Trust: Key Considerations

When selecting a trustee, it’s essential to choose someone financially savvy and trustworthy. In cases with multiple beneficiaries and properties, you can consult with a legal team to have different trustees for multiple Testamentary Trusts.

To establish a Testamentary Trust effectively, you should:

• Understand its purpose and benefits, including tax advantages.
• Consider its impact on future generations.
• Choose a reliable trustee.
• Seek professional legal and accounting advice.
• Keep the trust deed and your Will up to date.

Shield Assets: Testamentary Trust vs. Creditor Claims

Yes, assets within a Testamentary Trust, managed by a trustee, can provide protection against claims by third parties, such as creditors, toward the beneficiaries. The trustee holds the assets for the beneficiaries’ benefit, reducing vulnerability to such claims.

Secure Your Assets: Testamentary Trust and Spouse’s New Partner

A Testamentary Trust can safeguard your assets from being inherited by unintended beneficiaries, such as a new partner or their children, by specifying how the assets are distributed and placing them under the control of a trustee.

Empower Assets: Testamentary Trust and Divorce Impact

Yes, a Testamentary Trust can protect assets from being divided in the event of beneficiary divorces. The trust restricts access to the assets, ensuring they are preserved for the intended beneficiaries, regardless of any divorces.

Shield Assets: Testamentary Trusts and Legal Protection

Assets placed in a Testamentary Trust are legally owned by the trustee, not the beneficiaries. This arrangement can protect the assets from being seized in cases of personal lawsuits or bankruptcy involving the beneficiaries.

Secure Your Legacy: Protect Assets for Exclusive Family Benefit

Establishing a Testamentary Trust allows you to dictate the distribution of your assets, ensuring that only your chosen beneficiaries, such as your children and family, receive the inheritance as per your wishes.

• A Testamentary Trust is a legal arrangement activated upon the death of a Will-maker. It allows assets, including properties, to be distributed to a trustee, who manages and distributes them to beneficiaries according to the terms specified in the Will.

A testamentary trust is a trust that is established through a person’s will and takes effect upon their death. It allows the testator (the person making the will) to specify how their assets will be managed and distributed after their passing. Testamentary trusts are commonly used for various purposes, including providing for the financial needs of beneficiaries, protecting assets from potential creditors, and minimizing tax liabilities. These trusts can be highly customizable, and the terms and conditions are typically outlined in the testator’s will, providing detailed instructions on how the trust is to be administered for the benefit of specific beneficiaries.

The straightforward answer is ‘Yes,’ as long as the trust deed allows it. However, there are significant tax implications you should consider before you start living in a property owned by a trust or think of purchasing your home through a trust for asset protection.

The first hit comes in the form of losing tax deductions. Expenses related to the property, such as mortgage interest and maintenance costs, may not be deductible if the property isn’t generating rental income. This could affect the trust’s tax position.

If you, as a beneficiary, live in a trust-owned property rent-free or at a discounted rate, the trust may be liable for Fringe Benefits Tax (FBT), as this arrangement could be considered a fringe benefit.

The principal place of residence (PPR) exemption, which typically allows homeowners to avoid capital gains tax (CGT) on their main residence, usually doesn’t apply to properties owned by trusts. Therefore, any capital gain from the sale of the property will be subject to CGT.

Lastly, even though you are living in the property owned by the trust, you may still be liable to pay annual land tax to the state revenue office.

Yes, the Trust must have a bank account in the name of the trustee. For example, if your Trust is named XYZ Trust, and the trustee company is ABC Pty Ltd, the Trust bank account is typically created under the name ABC Pty Ltd ATF XYZ Trust. We recommend depositing the $10 Settlor fee as soon as the bank account is opened.

$10 is the sum our legal team suggests. Some court cases (a recent case we have seen is Cumins v FCT [2006] FCA 43) have not questioned a settled sum of $5. Nonetheless, a settled sum of at least $10 is advised.

In General:
a) If there is only one appointor, unless their will says otherwise, the powers of appointment will pass to their legal personal representatives.
b) If there are two or more joint appointors, as each one dies, the powers of appointment will pass to the remaining joint appointors until there is only one left. Then, the powers will pass to that person’s LPRs.
c) If any of the appointors are considered independent (e.g., an accountant or solicitor), then that person will never have the sole power of appointment. In other words, once there is only one family member appointor and the independent appointor remaining, the powers of appointment will pass to the family member’s LPRs upon their death. However, we require specific instructions in this regard to be specified in the schedule to the deed.
d) The appointors may choose not to be joint in the context of survivorship, meaning that upon their death, their own power of appointment will pass to
their own LPRs, rather than to any surviving joint appointors. When a husband and wife are joint appointors, the deed is set up as described in point 2 above.
Finally, an appointor may be automatically removed if they become bankrupt or mentally ill, or if the appointor is acting in the capacity of, or on behalf of, a trustee in bankruptcy, liquidator or administrator, or the Family Court Registrar, but they can resume their position if the condition that caused the Appointor to be removed ends, is reversed or otherwise ceases.

According to our legal team who sets up the trust for Investax it is generally the primary beneficiaries of the Trust become appointors due to the Control Issues.
You must consult with a lawyer or discuss this with your accountant if you would like to nominate a person to be an appointor who is not a primary beneficiary of the trust. A special instruction needs to be in place to inform the establishment team if the non-beneficiary appointor should be a joint appointor or an independent appointor.

Usually, Appointors are considered as a team, called joint appointors, unless we’re told otherwise. With joint appointors, if one person, let’s say Husband, is no longer there, the other person, in this case, Wife, takes over everything related to the trust. It’s like a last-person-standing situation where the surviving appointor becomes the boss of the trust.
In some trusts, there’s a special person called the independent appointor; This person is often an accountant or legal representative. They work alongside two other appointors, who make decisions together. However, once both regular appointors pass away, the independent appointor also steps down from their role.
This rule is in place to make sure that the accountant (or any other independentappointor) and their family don’t end up having complete control over the trust.

the role of the appointor holds paramount significance within the trust structure. This person has a lot of power because they can choose who runs (the trustee) the trust and can also remove them if needed. In other words, Appointors can remove the Trustee of the Trust.

As per our legal team who creates the Trust deed, the potential danger lies in whether the powers of the appointor can be considered as property If they are categorised as such, a trustee in bankruptcy, for instance, might have the ability to acquire and use these powers to appoint a trustee responsible for distributing assets to creditors, among other tasks. Unfortunately, it remains uncertain whether a trustee in bankruptcy has this capability.
However, even if this were possible (which is still unclear), an appointor is expected to exercise their powers in line with their fiduciary duties, meaning they should act in the best interests of all the trust beneficiaries.
Ultimately, this is a complex legal matter that requires specific legal advice. Nonetheless, as per our current deed, the office of an Appointor will be vacated if that Appointor:
(a) becomes bankrupt or seeks relief under bankruptcy laws; or
(b) acts as a trustee in bankruptcy, liquidator, administrator, or the Family Court
Registrar;
This provision is designed to enhance the trust’s security in case an appointor faces legal action.
Furthermore, having an independent appointor, like a trusted family accountant or
solicitor, can also bolster the trust’s security. This is because the deed mandates that appointment decisions must be made jointly, requiring unanimous agreement among the appointors.

Depending on the relevant state, if you are purchasing Residential Property in a trust and do not exclude foreign beneficiaries from the discretionary trust, you may incur a surcharge.
This exclusion is irrevocable for foreign persons. We recommend excluding foreign beneficiaries from your trust if your intention is to purchase residential property, regardless of the state, to avoid any unforeseen surcharges imposed by state legislation.

The Beneficiary of the Trust has beneficial ownership over the Trust property – essentially, it is for their benefit that the Trust has been created and administered.
In a Discretionary/Family Trust, beneficiaries do not have a fixed entitlement to the Trust's assets; instead, the trustee has the discretion to decide which beneficiaries receive Trust assets and the amounts they receive. However, this discretion is subject to the limitations outlined in the Trust Deed. While the trustee holds legal title to Trust property, they also bear equitable obligations to the beneficiaries, as specified in the Trust Deed. Beneficiaries in a Discretionary Trust can be categorized into two groups: Primary (or Specific/Designated) Beneficiaries, who are explicitly named in the Trust Deed, and Secondary (or General) Beneficiaries, who are determined based on their relationship to the Primary Beneficiaries, including certain family members, companies, and trusts controlled by the primary beneficiaries.
If you are setting up a Trust with your partner, both of you can be designated as
primary or named beneficiaries, ensuring equal benefits for both.

Most States and Territories have a rule that requires trusts to end after 80 years at the latest. This rule, known as the ”rule against perpetuities” ensures that assets can’t be tied up in a trust indefinitely. This is generally called vesting date.
South Australia abolished the rule against perpetuities some years ago, but even
there, any beneficiary can request to end the trust after 80 years. In all other States, this rule remains in place. The deed we facilitate has an 80-year vesting date so the trust must come to an end within 80 years.

We recommend a corporate trustee company due to the greater level of asset protection it provides. In contrast with an individual trustee, a corporate trustee allows for greater separation of trust’s assets and the personal assets of the directors and shareholders.
It also offers advantages in terms of lifespan and succession planning. If the directors or shareholders of the corporate trustee change, the entity remains the same, eliminating the need to transfer assets to another entity (avoid both CGT or Stamp Duty for the Transfer). Moreover, a corporate entity provides limited personal liability for its directors and shareholders regarding the company’s actions. In the event the trustee company cannot meet its debts, it may enter into liquidation, but the personal assets of directors and shareholders enjoy better protection. Asset management becomes more straightforward with a corporate trustee, as trust assets and personal assets are held in separate names.

The Settlor is the individual who “settles” a discretionary trust by transferring the settled sum to the Trustee (or Trustees).

The Settlor must also actually transfer the settled sum. If they fail to do so, the Trust will not come into existence. For a trust to be established, there must be trust property. In most situations, this trust property originates from the settled sum.

It’s considered best practice to appoint a close, yet unrelated, family friend as the Settlor. Our Legal team do not allow relatives of the beneficiaries or trustees to act as Settlors. The Settlor should be someone who will never benefit from the Trust. The trust deed specifically prohibits the Settlor from benefiting. This stipulation mainly prevents adverse tax consequences, as indicated in S.102 of the ITAA 1936. It also eliminates the risk of the Trustee inadvertently violating the trust deed by distributing assets to the Settlor.

There have been instances where the legitimacy of an entire trust was challenged because it was discovered that the Settlor (e.g., an accountant) charged a fee for the settled sum. This meant the sum was never genuinely gifted to the Trust, resulting in the absence of trust property, rendering the Trust nonexistent.

The main residence exemption under the CGT rules cannot generally apply to properties owned by a trust. The main residence exemption can generally only apply when the dwelling is owned by an individual – refer to section 118-110 ITAA 1997. There are some very limited exceptions to this including:

• Where the property is held by a special disability trust.
•  Where the property was owned by an individual just before they died and is now held in a deceased estate or testamentary trust, there are some special rules which can potentially enable the main residence exemption to apply; or
• Where the occupier of the property is absolutely entitled to the property as against the trustee.