Practice Update – January/February 2025
CGT withholding measures now law
The Government recently passed legislation making changes to the foreign resident capital gains withholding laws (among other changes).
Foreign resident capital gains withholding is relevant for all vendors selling certain taxable real property (ie. Australian land).
Even Australian residents can be caught by these laws because, if they do not have a valid 'clearance certificate' issued by the Australian Taxation Office (ATO) at, or before settlement, tax must be withheld from the sale proceeds by the purchaser and paid to the ATO.
The new legislation increases the foreign resident capital gains withholding rate to 15% (from 12.5%), and completely removes the threshold (currently $750,000) before which withholding applies.
This means that all disposals of taxable real property are potentially subject to foreign residents' capital gains withholding requirements regardless of the market value of the CGT asset.
These amendments take effect from 1 January 2025.
ATO debunks Division 7A 'myths'
The ATO has recently published a document 'debunking' various Division 7A 'myths'.
Division 7A of the tax legislation is intended to prevent profits or assets being provided to shareholders or their associates tax free.
A payment or other benefit provided by a private company to a shareholder or their associate can be treated as a dividend for income tax purposes under Division 7A, even if the participants treat it as some other form of transaction (such as a loan, advance, gift or writing off a debt).
Division 7A can also apply if a trust has allocated income to a private company but has not actually paid it (ie. an unpaid present entitlement), and the trust has provided a payment or benefit to the company's shareholder or their associate (as well as in other circumstances).
| Myth | ATO response |
|---|---|
| 1: If I own a company, I can use the company money any way I like. | 1: A company is a separate legal entity, and there will be consequences every time the taxpayer takes money or accesses other benefits from their private company. |
| 2: Division 7A only applies to the shareholders of my private company. | 2: Division 7A applies to both shareholders and their 'associates'. The definition of an 'associate' is broad, and can include relatives and group entities. |
| 3: I don't need to keep records when my private company makes payments, loans or provides other benefits to other entities. | 3: Taxpayers are legally required to keep records of all transactions relating to their tax affairs when they are running a business. |
| 4: I can avoid Division 7A by temporarily repaying my loan before the private company lodges its tax return, and using the company’s money to make my repayments. | 4: A repayment made on a loan may not be taken into account if similar or larger amounts are reborrowed from the same company after making the repayment. |
| 5: There are no tax consequences if I use my private company's money to fund another business or income earning activity. | 5: Division 7A may apply to any loan a private company makes to its shareholders or their associates, regardless of what the loan recipient uses the amounts for. |
ATO's notice of rental bond data-matching program
The ATO will acquire rental bond data from State and Territory rental bond regulators bi-annually (ie. twice a year) for the 2024 to 2026 income years, including details of the landlord and tenant, managing agent identification details, and rental bond transaction details.
The objectives of this program are to (among other things) identify and educate individuals and businesses who may be failing to meet their registration or lodgment obligations.
The ATO expects to collect data on approximately 2.2 million individuals each financial year.
Study/training loans — What's new?
The indexation rate for study and training loans is now based on the Consumer Price Index (CPI) or Wage Price Index — whichever is lower.
This change has been backdated to indexation applied from 1 June 2023 for all HELP, VET Student Loan, Australian Apprenticeship Support Loan, and other study or training support loan accounts.
Consequently, indexation rates for 2023 and 2024 have changed to:
- 3.2% for 1 June 2023 (reduced from 7.1%); and
- 4.0% for 1 June 2024 (reduced from 4.7%).
Individuals who had a study loan that was indexed on 1 June 2023 or 1 June 2024 do not need to do anything.
Individuals whose study loan is in credit after the adjustment may receive a refund for the excess amount to their nominated bank account, if they have no outstanding tax or Commonwealth debts.
When to lodge SMSF annual returns
All trustees of SMSFs with assets (including super contributions or any other investments) as at 30 June 2024 need to lodge an SMSF annual return (SAR) for the 2023/24 financial year.
The SAR is more than a tax return — it is required to report super regulatory information, member contributions, and pay the SMSF supervisory levy.
However, not all SMSFs have the same lodgment due date:
- Newly registered SMSFs and SMSFs with overdue SARs for prior financial years (excluding deferrals) should have lodged their SAR by 31 October 2024.
- All other self-preparing SMSFs need to lodge their SAR by 28 February 2025 (unless the ATO has asked them to lodge on a different date).
- For SMSFs that lodge through a tax agent, the due date for lodgment of their SAR is generally 15 May or 6 June 2025.
SMSFs that have engaged a new tax agent need to nominate them to confirm they are the authorised representative for the fund.
SMSF trustees must appoint an approved SMSF auditor no later than 45 days before they need to lodge their SAR. Before they lodge, they must ensure that their SMSF's audit has been finalised and the SAR contains the correct auditor details.
If you need assistance with these or any other SMSF issues, please contact our office.
Threshold for tax-free retirement super increases to $2m
The amount of money that can be transferred to a tax-free retirement account will increase to $2 million on 1 July 2025.
The transfer balance cap (TBC) - the amount that can be transferred to a tax-free retirement account – is indexed to the CPI released each December. If inflation goes up, the general TBC is indexed in increments of $100,000 at the start of the financial year.
In December 2024, the inflation rate triggered an increase in the cap from $1.9 million to $2 million.
Everyone has an individual transfer balance cap. If you have started a retirement income stream, when indexation occurs, any increase only applies to your unused TBC.
If you are considering retiring, either fully or partially, indexation of the TBC provides a one-off opportunity to increase the amount of money you can transfer to your tax-free retirement account. That is, if you start taking a retirement income stream for the first time in June 2025, your TBC will be $1.9 million but if you wait until July 2025 your transfer balance cap will be $2 million, an extra $100,000 tax-free.
If you are already taking a retirement income stream, indexation applies to your unused TBC - so, you might not benefit from the full $100,000 increase on 1 July 2025.
Where can I see what my TBC is?
Your superannuation fund reports the value of your superannuation interests to the ATO. You can view your personal transfer balance cap, available cap space, and transfer balance account transactions online through the ATO link in myGov.
Does the TBC impact other superannuation caps?
The increase in TBC does flow through to other super caps and thresholds. Importantly, the total super balance (TSB) cap thresholds impacting the non concessional contribution (NCC) cap. The increase in the thresholds are summarised in this table:
| TSB as at 30 June | Maximum NCC cap | Maximum available NCC period | 1 July 2025 thresholds |
|---|---|---|---|
| <$1.66m | $360,000 | 3 Year | <$1.76m |
| $1.66 - <$1.78m | $240,000 | 2 Year | $1.76m - <$1.88m |
| $1.78m - <$1.9m | $120,000 | 1 Year | $1.88m - <$2m |
| $1.9m or more | Nil | N/A | $2m or more |
The increased TSB thresholds will allow some clients to make larger non concessional contributions than they otherwise could under current thresholds, but this will not change the NCC cap of $120,000 per annum.
Federal Court judgement of $13.6m penalties for false R&D claims
A joint investigation involving the ATO found that, between 2014 and 2017, a Sydney business coach promoted unlawful tax schemes encouraging clients to lodge over-inflated, inaccurate or unsubstantiated research and development (R&D) tax incentive claims.
The Federal Court recently handed down judgment against the business coach, his company co-director (and former tax agent), and their related companies, ordering that the business coach pay a penalty of $4.5 million, in addition to $9 million in penalties for the related companies.
The company co-director was also ordered to pay $100,000 for their role in promoting the schemes.
Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.
Liability limited by a scheme approved under Professional Standards Legislation
