Camden Professionals

Important Warning to Tradies, Contractors and Builders from the ATO

The Australian Taxation Office (ATO) has announced its latest compliance focus areas, placing the property and construction industry—including tradies, builders, and contractors—under increased scrutiny.

Also under the microscope are professional service providers in engineering, design, IT, consulting, and related technical fields. The ATO says it’s continuing to identify recurring issues, whether due to honest mistakes, misunderstandings, or deliberate non-compliance. Businesses caught doing the wrong thing risk audits, penalties, and interest charges.

What the ATO is Looking For

While most small businesses aim to meet their tax obligations, the ATO has flagged several common issues across the construction and professional services sectors:

Incorrect R&D claims – claiming the Research & Development tax incentive for ineligible activities.
Under-reported income – omitting business income or failing to include earnings from related entities.
Incorrect business expense claims – including private expenses or not properly splitting personal vs business use.
GST non-compliance – failing to register for GST when required.
Lack of independent advice – especially in subcontracting and head contractor arrangements.

How to Stay Compliant

ATO Assistant Commissioner Angela Allen said audits are ongoing and penalties will apply where necessary. Her message to businesses is clear: get it right, and seek help if you’re unsure.

Here’s what you can do to avoid trouble:

Report All Assessable Income

Include all income related to your business, including cash payments and bank deposits into personal or business accounts.
If your income mainly comes from your skills and effort, Personal Services Income (PSI) rules may apply—make sure to complete the relevant sections of your tax return.

Accurately Report Expenses and Deductions

Claim only genuine business expenses directly related to your operations.
If an expense relates to both private and business use (e.g. vehicle or home office), apportion it correctly.
Keep detailed records to support every deduction.

Don’t Ignore Tax Problems

If you’re struggling to meet obligations, speak with a registered tax agent, a business adviser, or contact the ATO directly. Ignoring issues will only make things worse.

Case Study: ATO Audit in Action

Business: Biophilix Build Pty Ltd (Construction contractor)
Issue: Failure to report subcontractor payments and under-reporting income

Liam, the director of Biophilix Build, paid $85,000 to subcontractor Maya in the 2024 income year. However, he:

Failed to submit a Taxable Payments Annual Report (TPAR) by the 28 August deadline
Omitted these payments from his records
Under-reported income from contract work

The ATO identified the discrepancy through data-matching and conducted an audit. The outcome:

A $1,650 penalty for failing to lodge the TPAR
An amended tax assessment with a $180,000 tax shortfall
A 50% base penalty ($90,000) for making false/misleading statements
Interest charges

Subcontractor Maya also faced an audit and was found to have under-reported her income:

$25,500 tax shortfall
$12,720 penalty
Interest charges

ATO Checklist: How to Get it Right

To stay compliant and avoid penalties:

Report all business income:

Include cash income and bank deposits (even to private accounts)
Consider PSI rules if income is from your personal efforts

Correctly report expenses and deductions:

Apportion shared expenses between business and personal use
Claim only business-related expenses
Keep receipts and documentation

The ATO updates its small business focus areas each quarter, offering a helpful guide to what’s under review. Staying informed—and compliant—can save you serious time, money, and stress.

Source: Australian Taxation Office (ATO)

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General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

Camden Professionals

Understanding BAS Late Penalties and How to Avoid Them

Falling behind on your Business Activity Statement (BAS) lodgements can feel overwhelming — particularly when the Australian Taxation Office (ATO) begins to apply penalties and interest. For small business owners already juggling cash flow, a missed BAS deadline or unpaid GST can snowball into a bigger financial problem if not addressed quickly.

The good news? The ATO offers pathways to help businesses catch up and, in some cases, avoid or reduce penalties. This guide explains how BAS late penalties work, what interest charges you might face, and what steps you can take to stay compliant.

What Happens if You Lodge Your BAS Late?

When your BAS is lodged after the due date, the ATO may apply a Failure to Lodge (FTL) penalty. This penalty is calculated in penalty units — and the longer the delay, the more units you’ll owe.

1 penalty unit is applied for every 28-day period (or part thereof) that your BAS is overdue.
A maximum of 5 penalty units can be applied per late BAS.

As of July 2025, the value of one penalty unit is $330. That means a maximum penalty of $1,650 could be applied for a single late BAS.

These penalties can quickly eat into operating capital — funds better spent on growth or wages. Staying on top of lodgement dates is a simple but critical part of financial health.

Interest Charges on Unpaid BAS Amounts

Even if you’ve lodged your BAS on time, if you haven’t paid the amount owing, the ATO will charge General Interest Charge (GIC) on the outstanding balance.

GIC is calculated daily and compounds over time.
The interest rate typically sits around 8–10% per annum, although this is adjusted quarterly. For example, the GIC rate for the September 2025 quarter is 10.46% annually or 0.02865% daily.

This interest can grow quickly, especially if you’re experiencing cash flow difficulties.

The ATO is strict when it comes to GIC — remissions are only considered in very limited situations, such as:

Natural disasters
Serious illness
Systemic issues beyond your control (e.g., ATO system outages)

Can You Apply for Penalty or Interest Remissions?

Yes. The ATO allows businesses to request a remission of penalties or interest charges — but you’ll need to provide a reasonable explanation and, ideally, have a good lodgement history.

The ATO will consider:

Serious illness or natural disasters
Technology issues that prevented timely lodgement
Genuine mistakes where you acted quickly to fix the problem
Past compliance (a clean record increases your chances)

You can apply for a remission:

Via the ATO Business Portal
By calling the ATO directly
Through your registered tax or BAS agent

What to Do If You’re Behind on Your BAS

If you’ve missed a BAS deadline, act fast. Here’s what you should do:

Lodge your BAS ASAP, even if you can’t pay the full amount right away.
Contact the ATO to explain your situation — you may be eligible for a payment plan.
Keep the lines of communication open. Ignoring ATO notices can result in escalated penalties or compliance action.
Seek help from your accountant or BAS agent. They can advise on your options and may be able to negotiate on your behalf.

Tips to Avoid BAS Penalties

To stay compliant and protect your business from financial stress:

Use accounting software that sends reminders before BAS is due (e.g., Xero, MYOB).
Mark BAS due dates in your calendar — generally the 28th day after the end of each quarter.
Outsource to a BAS agent or bookkeeper if lodging yourself is too time-consuming.
Keep cash flow reserves for upcoming tax obligations.
Stay informed by subscribing to ATO small business newsletters or updates.

The ATO takes BAS lodgement and payment seriously — and late penalties or interest can impact your bottom line. But small businesses aren’t without options. If you fall behind:

Lodge as soon as possible
Contact the ATO for a payment arrangement
Apply for penalty remissions if there are valid reasons

Staying on top of your BAS is not just about avoiding fines — it’s about maintaining control of your business finances and reducing stress.

Useful Resources:

Source: ATO

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Camden Professionals

When Someone Dies – The Tax To-Do List

Managing the affairs of someone who has passed away is a deeply emotional responsibility — and it also comes with legal and financial duties, including settling their tax obligations with the Australian Taxation Office (ATO).

If you’re acting as the executor or administrator of an estate, you may need to manage tax returns, settle outstanding liabilities, deal with superannuation, or wind up a business. This guide outlines the key tax steps, including your role as a legal personal representative (LPR), and provides a helpful checklist to support you through the process.

Establish Your Role With the ATO

The first step is formally notifying the ATO of the death and confirming your authority to act on the deceased person’s behalf.

You’ll need to:

Provide a death certificate, and
Lodge either a grant of probate (if there is a will), or letters of administration (if there is no will).

You must also establish your identity with the ATO as the legal personal representative (LPR). This role is typically the executor named in the will, or an administrator appointed by the Supreme Court.

🔗 More on notifying the ATO when someone dies – ATO Website

Understand Your Responsibilities as LPR

As the LPR, you are responsible for:

Lodging the deceased’s final (date of death) tax return
Paying outstanding tax debts
Cancelling tax registrations (e.g. ABNs, GST)
Lodging a trust tax return for the estate if it earns income
Managing any tax refunds or credits owed
Ensuring all tax obligations are met before distributing estate assets

Failure to complete these responsibilities can result in personal liability for unpaid tax.

Determine if the Deceased Was Running a Business

If the person was a sole trader, had a business partnership, or held an ABN, there may be further responsibilities, including:

Lodging a final business activity statement (BAS)
Paying GST or capital gains tax (CGT) on the sale of business assets
Cancelling the ABN and other registrations

In these situations, professional tax or legal advice is highly recommended.

Lodging the Final Tax Return (“Date of Death” Return)

The LPR must lodge a “date of death” tax return, covering the period from 1 July of the financial year up to the date of death. This return is similar to a standard individual tax return, but must be marked as a final return.

The ATO may also help you determine whether previous years’ tax returns are outstanding, and assist in accessing the deceased’s tax records.

Lodging the Estate (Trust) Tax Return

If the estate continues to generate income (e.g. from rental properties, shares, dividends, or bank interest) after the date of death, it becomes a trust for tax purposes. You must then:

Apply for a TFN for the deceased estate
Lodge annual trust tax returns
Pay any tax liabilities owed by the estate

The estate can usually be treated as a trust for up to three years without special trust tax rates being applied.

Cancelling Tax Registrations

Once all returns are lodged and taxes paid, you must:

Cancel the deceased’s TFN
Cancel their ABN, GST, and any business registrations if applicable

ATO Deceased Estate Tax Checklist

Use this checklist as a reference when managing the tax obligations of someone who has died:

Before You Start

✔ Notify the ATO of the death
✔ Confirm your role as legal personal representative (LPR)
✔ Obtain a death certificate and grant of probate or letters of administration
✔ Access the deceased’s tax file number and history via myGov or ATO

Finalising Personal Tax Affairs

✔ Lodge outstanding individual tax returns (previous years if necessary)
✔ Lodge final “date of death” tax return
✔ Pay any outstanding tax debts
✔ Cancel tax registrations (TFN, ABN, GST, etc.)

Managing the Estate

✔ Apply for a TFN for the estate (if required)
✔ Identify any income earned by the estate (e.g. rent, interest, dividends)
✔ Lodge trust tax returns for the estate
✔ Claim any tax refunds or franking credits
✔ Seek tax advice on business CGT or asset disposals
✔ Maintain detailed records of all tax transactions

Distributing the Estate

✔ Ensure all tax obligations are finalised before distributing assets
✔ Retain supporting documentation for audit or legal purposes
✔ Keep beneficiaries informed of potential tax outcomes

Conclusion: A Delicate but Important Duty

Handling the tax affairs of someone who has passed is a complex process, and it’s vital to ensure every step is handled with care. From notifying the ATO and establishing your authority to lodging tax returns and closing accounts, the LPR plays a critical role in protecting the integrity of the estate.

The ATO provides guidance for managing a deceased person’s tax affairs, but due to the complexity, especially if the deceased held investments or ran a business, professional advice from a tax agent or estate lawyer is often essential.

Taking the time to plan and follow the proper process helps avoid delays, reduce legal risks, and ensures the estate is distributed smoothly and lawfully.

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Camden Professionals

Why You Shouldn’t Lodge Your Tax Return Too Early in 2025

As the cost of living continues to rise, it’s no surprise that many Australians are eager to lodge their tax returns as soon as the financial year ends. With nearly half the country expecting a refund, it’s tempting to file early and pocket that cash.

But the Australian Taxation Office (ATO) has issued a clear warning: lodging your tax return too early increases the risk of errors — which could delay your refund or even trigger an audit. In fact, early lodgers are twice as likely to make mistakes, according to the ATO.

So before you hit submit on 1 July, here’s what you need to know — and why waiting a few extra weeks could save you time, money, and stress.

ATO: The Risk of Lodging Too Early

In 2024, over 140,000 Australians who lodged their returns in the first two weeks of July either had to make amendments or had their returns corrected by the ATO due to missing or inaccurate information.

Why?

Because many key pieces of data — such as salary and wage information, bank interest, dividends, and health insurance details — aren’t finalised and uploaded until mid-to-late July. The ATO’s pre-fill system, used in both myTax and by registered tax agents, draws information from:

Employers (who have until 14 July to mark income statements as “tax ready”)
Banks and financial institutions
Health funds
Government agencies (e.g. Centrelink)

Lodging before all this data is available can result in incomplete returns — and that’s where the trouble starts.

The ATO’s Official Advice

According to the ATO’s website:

“We recommend you wait until late July before lodging your return. Most information from employers, banks, health funds and government agencies will be automatically pre-filled by then.”
— ATO.gov.au – Tax Time 2025

What Happens If You Lodge Too Early?

If you file before your income statement is marked as “tax ready,” or before banks and insurers report their data, you risk:

Missing income (e.g. from a second job or bank interest)
Incorrect deductions
Delays in your refund
ATO amendments or audits

Even worse — if the ATO identifies income that wasn’t declared, you could face penalties or interest charges.

When Should You Lodge Instead?

The third or fourth week of July is typically the safest time to lodge. By then, most pre-fill data is available, and the ATO has started processing refunds.

But if you expect to owe tax, it may benefit you to hold off until later in the year. If you lodge close to the 31 October deadline (or 15 May if you use a tax agent), your payment won’t be due until your return is processed — giving you more time to manage your cash flow.

Tips for a Smooth Tax Return in 2025

Wait until late July
Ensure your employer has finalised your income statement (check that it’s marked “tax ready” in myGov).

Check your personal details
Make sure your name, address and bank account details are correct with the ATO to avoid refund delays.

Use your own records
Pre-fill is helpful, but don’t rely on it completely. Cross-check with your own payslips, receipts, and statements.

Review ATO occupation guides
Use the ATO occupation and industry guides to ensure you’re claiming legitimate deductions.

Keep supporting documents
Hold onto receipts, work diaries, and other evidence for at least five years in case of audit.

Frequently Asked Questions (FAQs)

Q: What is “pre-fill” and why does it matter?
A: Pre-fill is data the ATO automatically receives from employers, banks, health funds, and other sources. Waiting until late July ensures this data is complete, reducing the risk of mistakes.

Q: Can I still lodge early if I really want to?
A: Yes, but the ATO advises against it. If you lodge before your data is finalised, you may need to amend your return later, which can delay your refund.

Q: What if I realise I made a mistake after lodging?
A: You can amend your return via myGov or through your registered tax agent once the ATO processes your original lodgement.

Q: When does the ATO start issuing refunds?
A: Refunds typically start being processed from the second week of July, but early lodgements may face delays if information is missing.

Q: What’s the deadline to lodge my return?
A: If you lodge your own return, the deadline is 31 October 2025. If you use a registered tax agent, you may have until 15 May 2026.

Conclusion: Don’t Rush — Lodge Smart

Yes, it’s tempting to lodge your tax return early and chase that refund — especially when every dollar counts. But lodging too soon can lead to costly mistakes, amended returns, and delayed payments. The ATO’s clear advice? Wait until late July, when your financial data is more likely to be accurate and complete.

Whether you’re filing yourself or using a tax agent, taking the time to prepare properly ensures your return is right the first time — and keeps your refund flowing without interruption.

If you’re unsure about anything, speak with a registered tax agent or visit ato.gov.au for the latest updates and tools.

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Everything You Need to Know About Inheritance Tax

When a loved one passes away, the emotional toll can be overwhelming, and the last thing you may want to focus on is taxes. However, navigating the tax implications is a crucial part of administering an estate. While Australia does not impose a death tax, there are other important tax considerations that may arise, including capital gains tax and income tax.

For instance, if the deceased owned property, capital gains tax may be applicable on the sale of that property. Similarly, income-producing assets, such as investments that continue to generate income during the administration of the estate, may have associated income tax implications.

Given the complexity of these matters, it is essential to seek professional guidance from both a legal practitioner and a tax agent. Below is a basic overview of the key tax considerations related to deceased estates in Australia, to help you better understand the process and how it may apply to your specific situation.

What is a Deceased Estate?

A deceased estate refers to the property and assets left by an individual upon their death, including both tangible assets and any outstanding liabilities. The executor of the estate is responsible for managing the administration process and ensuring that the assets are distributed according to the deceased’s wishes, as outlined in their will.

A deceased estate may also include a superannuation death benefit, which is a payment made by a superannuation fund to a dependent beneficiary or to the estate’s trustee when the fund member passes away.

The executor has a fiduciary duty to ensure that all outstanding debts and taxes owed by the deceased are settled before distributing the remaining assets to the beneficiaries. Until distribution occurs, the executor holds the estate’s assets, including any income generated posthumously, in a trust.

Does a Deceased Estate Pay Tax in Australia?

In Australia, there is no death tax. However, that does not mean a deceased estate is exempt from tax obligations.

For example, if the estate includes income-generating assets, income tax may be applicable on the income produced during the administration of the estate. Additionally, if the executor is required to sell any capital gains tax (CGT) assets, the sale could trigger a CGT liability. Furthermore, consideration should be given to whether the deceased had already satisfied tax obligations on specific components, such as superannuation death benefits, which may impact the estate’s overall tax responsibilities.

How Does Income Tax Apply to Deceased Estates?

Settling a deceased estate can be a complex and time-consuming process, often taking 6 to 12 months—sometimes even longer. During this time, it’s not uncommon for income to still flow into the deceased person’s estate.

For example, the investment property might still generate rental income, or the estate may receive a dividend from shares the deceased held.

If this is the case, the estate is treated as a trust for tax purposes and the executor must report the deceased estate income to the Australian Tax Office (ATO).

What are the Deceased Estate Tax Rates?

Based on the deceased estate tax rules that the ATO proposes, if the estate generates income while the administration process is underway, the executor must lodge an income tax return for each financial year that it takes to finalise and distribute the estate.

The taxable component of superannuation death benefits can significantly impact the tax obligations for beneficiaries and the estate. Understanding the rules around the taxable component is crucial for managing potential tax liabilities.

Generally, an executor won’t have to lodge a tax return if the total income of the estate is less than the tax-free threshold, which is currently $18,200.

In most cases, the ATO taxes undistributed income in a trust at the top marginal tax rate, but when the executor or trustee lodges the first tax return for the deceased, they can apply for a concessional tax rate—the same as the individual income tax rates.

The concessional tax rate will only apply for the first three years. If the estate is finalised later, different tax rates will apply. It’s also worth noting that deceased estates can’t benefit from tax offsets such as the low-income tax offset, and the Medicare levy won’t be payable.

Example

Meagan passed away on 2 May 2022. Her estate’s first income year will run from 3 May 2022 to 30 June 2022.

The second income year for Meagan’s estate will run from 1 July 2022 to 30 June 2023, and the third income year will be from 1 July 2023 to 30 June 2024.

If Meagan’s deceased estate earns less than $18,200 taxable income during these years, the estate won’t have to pay any tax or file a tax return. If she doesn’t benefit from the full tax-free threshold, her individual income tax rates will apply.

When Does Capital Gains Tax Apply?

Capital Gains Tax (CGT) is levied on the profit made from the sale or disposal of an asset. The capital gain is the difference between the cost of acquiring the asset and the proceeds received upon its disposal. If the asset is sold for a profit, CGT is applied to that gain.

In addition to CGT, it is important to consider the tax implications related to superannuation death benefits. The tax obligations associated with inheriting superannuation assets depend on several factors, including the beneficiary’s dependency status, the nature of the benefit (whether a lump sum or income stream), and whether the superannuation is taxable or tax-free.

Typically, assets from a deceased estate will be transferred to a beneficiary in accordance with the deceased’s wishes. The Australian Taxation Office (ATO) allows the executor to disregard CGT on any capital gain (or loss) if the asset passes:

To the executor;
To a beneficiary; or
From the executor to the beneficiary.

As a result, the beneficiary will not be required to pay CGT on their inheritance unless the asset is sold more than two years after acquisition. However, various rules apply to CGT on inherited property, so it is advisable to consult with a tax professional to understand the specific obligations.

If an asset within the deceased estate is sold by the executor, rather than transferred directly to a beneficiary, to distribute the proceeds, this will trigger a CGT event for tax purposes. In this case, the standard CGT rules will apply, and the estate may be liable for CGT.

Frequently Asked Questions (FAQs)

Do I need to pay tax on inherited money in Australia?

In Australia, there is no inheritance tax. The federal inheritance tax was abolished in 1979, meaning beneficiaries are not required to pay tax on the value of assets or money inherited from a deceased person’s estate.

However, while there is no inheritance tax, other tax implications may arise depending on the nature of the inherited assets. For instance, if you inherit property and later sell it, you may be subject to capital gains tax (CGT) on any profit made from the sale.

What happens to the deceased’s debts?

Debts do not disappear when a person passes away. The executor of the estate is responsible for settling any outstanding debts using the assets of the estate before distributing the remaining assets to the beneficiaries, in accordance with the deceased’s will.

The typical process for settling debts involves:

Identifying all outstanding debts, including mortgages, loans, and credit card balances.
Notifying creditors of the death and providing them with the required documentation.
Paying off debts using the estate’s assets, starting with secured debts (e.g., mortgages) and moving to unsecured debts (e.g., credit card balances).
If the estate does not have sufficient assets to cover all debts, the executor may need to sell assets or negotiate with creditors.
Once all debts are settled, the remaining assets can be distributed to beneficiaries.

The executor must manage debts properly to ensure the estate is administered correctly and beneficiaries receive their entitlements.

How long does it take to settle a deceased estate in Australia?

The time it takes to settle a deceased estate in Australia can vary significantly based on factors such as:

The size and complexity of the estate
The clarity and validity of the deceased’s will
The number and location of beneficiaries
Any disputes or challenges to the will
The efficiency of the executor in managing the estate

On average, it takes around 6 to 12 months to settle a deceased estate, but in more complex cases, such as when there are multiple properties, international assets, or many beneficiaries, the process may extend to several years.

The main stages of settling a deceased estate typically include:

Obtaining a grant of probate or letters of administration
Identifying and valuing the estate’s assets
Paying any outstanding debts and taxes
Distributing the remaining assets to beneficiaries
Finalising the estate and providing a final accounting to beneficiaries

Executors should keep beneficiaries informed throughout the process and seek professional advice from legal practitioners and tax agents to ensure the estate is administered in compliance with Australian laws.

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SMSF Capital Gains Tax: How To Minimise or Eliminate Tax

SMSF capital gains tax can vary significantly based on how your SMSF is structured and how long the asset being sold was owned. By understanding the application of SMSF capital gains tax, you can manage the sale of assets within your SMSF in a way that minimises tax – or even eliminates it.

The factors that determine capital gains tax within a self-managed superannuation fund (SMSF) include whether the SMSF is in accumulation phase or pension phase, how long the asset was owned and any capital losses that can be applied against the capital gain. The capital gains tax in super is actually the same for all types of superannuation funds, not just SMSFs.

SMSF Tax Rate

The SMSF tax rate on investment earnings depends on whether the SMSF balance is in accumulation phase or pension phase.

If the SMSF is partly in accumulation phase and partly in pension phase (or retirement phase), the earnings tax rate applied will be:

If the SMSF runs a pooled investment strategy: Proportionate based on the ratio of the SMSF balance pension phase and accumulation phase; OR
If the SMSF runs a segregated investment strategy: The phase that the investment relates to will be the tax rate that applies.

SMSF Tax Rate – Accumulation Phase

The SMSF tax rate on investment earnings, including realised capital gains, within the accumulation phase, is 15%. This is a flat rate, regardless of your age or employment status. However, if an investment sold within the accumulation phase was owned for longer than 12-months, the general SMSF CGT discount will apply.

SMSF Tax Rate – Pension Phase

The SMSF tax rate on investment earnings, including realised capital gains, within the pension phase is 0%. This is a flat rate, regardless of your age or employment status.

SMSF CGT Discount

The SMSF CGT discount applied to investments sold that had been owned for longer than 12 months is a 1/3rd discount. That is, the realised capital gain is reduced by 1/3rd before the 15% tax is applied.

It is often said that the tax rate on realised capital gains resulting from the sale of an asset owned for longer than 12 months is 10% – due to the 1/3rd discount. But this is not always the case, as any capital losses (or carried forward losses) will first be applied against the capital gain, before the 1/3rd discount and before the 15% tax rate applies, which means the effective rate may be different to 10%.

Do SMSFs Pay Capital Gains Tax?

Yes, a SMSF pays capital gains tax when an asset held within the SMSF is sold and a gain is realised, unless the SMSF is wholly in retirement pension phase.

A self-managed superannuation fund is a tax-paying entity and is therefore responsible for the payment of income taxes and capital gains taxes. The onus of tax payments resulting from the sale of investments within a SMSF does not fall on the member personally but is effectively paid out of the member’s super balance.

What Happens When You Sell a Property in a SMSF?

If a property is sold within a SMSF, the proceeds are paid into the bank account of the SMSF. The sale of the property is considered a CGT event. If the sale of the property resulted in a capital gain, then capital gains tax may be payable, depending on whether the asset was held wholly in accumulation phase, pension phase or a combination of both.

If the sale of the property resulted in a capital loss, the loss can be used to reduce capital gains resulting from the sale of other assets in the same year, or carried forward to offset losses in future financial years, until completely used up.

SMSF Property Sale CGT Example

An example of capital gains tax resulting from the sale of property would be as follows:

Let’s say your SMSF purchased a property 4 years ago for $500,000 and sold it this year for $800,000 (you little property guru, you!). This would be a realised capital gain of $300,000.

If the total balance of the SMSF (i.e. all member accounts) was in the retirement pension phase (not TTR pension), the whole capital gain would be received completely tax-free.

If the total balance of the SMSF was in the accumulation phase, the whole capital gain would receive a 1/3rd CGT discount ($100,000), because the asset was owned for longer than 12 months. Therefore $200,000 would be taxed at 15% ($30,000 CGT).

If half of the SMSF balance was in pension phase and half in accumulation phase and you were running a pooled investment strategy, then half of the $300,000 ($150,000) would be received completely tax-free and the other half ($150,000) would receive a 1/3rd discount ($50,000) and the remaining $100,000 would be taxed at 15% ($15,000 CGT).

If you had not owned the property for more than 12-months, then the 1/3rd CGT discount would not be applied – the full realised capital gain would be taxed at 15%.

Contact our office if you need assistance with SMSF tax planning

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Why Australian Taxpayers Should Avoid Lodging Their Tax Return in July

As the financial year wraps up on June 30, many Australian taxpayers are eager to lodge their tax returns in July, hoping for a quick refund. However, rushing to submit your tax return as soon as possible may not be the best strategy. Here are several reasons why you might want to consider delaying your tax return lodgement.

Incomplete Information

One of the main reasons to hold off on lodging your tax return in July is the potential for incomplete or inaccurate information. By early July, many third-party providers, such as employers, banks, and health funds, may not have finalized their reporting to the Australian Taxation Office (ATO). Lodging your return too early increases the risk of omitting crucial details or including incorrect figures, which can lead to processing delays or the need for amendments later on.

Avoiding Amendments

Amending a tax return can be a tedious process, often resulting in additional paperwork and prolonged waiting times for your refund. By waiting until August or even September, you can ensure that all the necessary information has been reported to the ATO and pre-filled in your return. This minimizes the chances of errors and reduces the likelihood of having to submit an amendment, saving you time and hassle in the long run.

Maximising Deductions

Taking your time to lodge your tax return also allows for a thorough review of potential deductions. Rushing the process may cause you to overlook eligible deductions, such as work-related expenses, charitable donations, or investment property costs. By giving yourself ample time, you can gather all relevant receipts and documentation, ensuring that you claim every deduction you’re entitled to and potentially increasing your refund.

Professional Assistance

Tax agents and accountants are often swamped with clients in July, making it difficult to get an appointment or the level of attention your return might require. Waiting until the initial rush subsides in August or September can give you better access to professional advice, ensuring your return is accurately completed and optimized for deductions. Additionally, tax agents are more likely to be up-to-date with any new tax laws or changes implemented by the ATO, which can further benefit your tax outcome.

ATO Processing Times

While lodging early might seem like a way to get your refund faster, the ATO’s processing times can be longer in July due to the high volume of returns submitted. By waiting a few weeks, you may actually receive your refund faster, as the ATO’s workload begins to stabilize.

Conclusion

While the temptation to lodge your tax return in July for a swift refund is understandable, taking a more measured approach can have significant advantages. Waiting until August or September allows for the accurate completion of your return with all necessary information, maximizes potential deductions, and provides better access to professional advice. By delaying your lodgement, you can avoid amendments, reduce stress, and potentially receive your refund more quickly once the ATO’s initial rush has passed. For a smoother and more beneficial tax return experience, consider postponing your submission until later in the year

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What’s ahead for 2024-25?

Will 2024-25 be another year of volatility or a return to stability?

As you may know (especially after a $40 million public education campaign), personal income tax cuts took effect on 1 July 2024. Simultaneously, the superannuation guarantee (SG) rate increased by 0.5% to 11.5%.

For employers, it’s crucial to ensure your payroll system and all related processes, such as salary sacrifice agreements, are reviewed and updated accordingly. Your PAYG withholding obligations will also be affected.

Additionally, the ATO has recently emphasized the importance of meeting your super guarantee obligations:

Correct Recipients: Ensure you are paying SG to the right individuals. The definition of an employee for SG purposes is broad, including temporary residents, backpackers, some company directors working in the business, family members working in the business, and certain contractors. Verify that your employee classifications for SG purposes are accurate.
Fund Details: Confirm that the employee’s super fund details and tax file number are correctly provided to the super fund. It’s the employer’s responsibility to direct SG to the correct super fund account.
Payment Deadlines: Make sure SG payments are made into the employee’s fund by the quarterly due date (the next SG payments are due by 28 July). Missing the deadline incurs the super guarantee charge (SGC), which consists of the outstanding SG, 10% interest per annum from the start of the quarter, and an administration fee. Unlike regular SG contributions, SGC amounts are not deductible.

Wages

On 1 July 2024, the national minimum wage increased by 3.75% to $24.10 per hour, or $915.90 per week. This increase applies from the first full pay period starting on or after 1 July 2024. Historically, there is no direct correlation between increases in minimum wages and inflation.

In the private sector, annual wage growth slightly declined to 4.1% in the March quarter of 2024, down from 4.2% in December 2023. This marks the first decline since the September quarter of 2020, indicating that wage growth is beginning to stabilise.

Interest rates and cost of living

(RBA) Governor Michelle Bullock has emphasized that inflation, rather than interest rates, is the primary driver of cost of living pressures. Interest rates are the RBA’s “blunt instrument” for controlling inflation. With inflation easing more slowly than expected, the RBA is keeping all options on the table, as the future path of interest rates will depend on the measures needed to bring inflation back to target.

Inflation has decreased from its peak of 7.8% in December 2022 to 3.6% in the March quarter, but it rose again to 4% in May, reducing expectations for an imminent interest rate reprieve.

Business confidence

The latest NAB business survey paints a grim picture, showing that business confidence fell back into negative territory in May as conditions continued to gradually weaken. With forward orders declining for eight consecutive months, businesses are understandably cautious about the future. GDP saw only marginal growth in the March quarter, and per capita consumption continued to decline.

On a brighter note, labor market conditions remain strong, with unemployment holding steady at 4% in May. The Treasury forecasts a slight improvement in economic growth (GDP) to 2% in 2024-25—modest, but credible.

Migration & labour

Our immigration levels surged post-pandemic with the return of international students, working holidaymakers, and an influx of temporary skilled labor to address shortages. For the year ending 30 June 2023, overseas migration added a net gain of 518,000 people to Australia’s population, marking the largest net overseas migration estimate on record.

The 2024-25 Federal Budget projects net migration will decrease to 260,000. While the demand pressures from migration, especially on housing, have been widely publicized, the positive impact was on supply. Post-COVID, Australia faced severe labor shortages that hindered the return and growth of supply.

Starting 1 January 2025, student visa numbers will be capped. According to University of Melbourne Deputy Vice-Chancellor Professor Michael Wesley, student visa grants were already down 34% in March 2024 compared to the same period in 2023.

The Government is shifting focus to skilled migration, with employer-sponsored places increasing by 7,175, though skilled independent visas will decrease by 13,475. Additionally, the minimum salary requirement to sponsor an employee (Temporary Skilled Migration Income Threshold) will rise to $73,150 on 1 July 2024.

What now?

Businesses often fail or struggle due to a lack of understanding and monitoring of critical aspects within the business. Managers must keep track of key metrics to identify and address issues early. Knowing the key drivers of your business is essential, and assistance is available to help with this.

A lack of profit can weaken a business, but insufficient cash flow can be fatal. Effective cash management, including planning, tracking, and measuring cash flow, is crucial. This involves closely monitoring debtor collections and inventory, and maintaining a rolling three-month cash flow projection to detect potential problems early.

Key elements of business management include cash flows, operating budgets, cost control, and debt management. Maintaining control over these aspects reduces risk.

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Managing Cash Flow in a Higher Interest Rate Environment

As interest rates rise, property investors must adapt to new challenges in managing cash flow. This era of shifting financial landscapes requires strategic approaches and insights into market changes. From practical cash flow techniques to understanding the forecasted market trends, we’ve got you covered.

Understanding Cash Flow

Before diving into strategies, let’s revisit the basics – what is cash flow in the context of investment properties? Cash flow is the net relationship between the income generated and the expenses incurred. It’s the financial heartbeat of your investment, determining whether your property produces a surplus (positive cash flow) or operates at a deficit (negative cash flow).

Typical Income Sources

Rent: The primary source of income for most investment properties is rent. Tenants pay rent to use the property, providing a steady stream of income for the property owner. The rental amount, typically agreed upon in the lease agreement, is a fundamental component of positive cash flow.

Typical Expenses

Interest: Interest payments on loans associated with the investment property are significant expenses. This includes the mortgage interest used to purchase the property. Monitoring interest rates and choosing favourable financing terms can impact the property’s overall cash flow.
Property Management: Hiring a property management company is a common practice for real estate investors. Property management fees cover services such as tenant screening, rent collection, and property maintenance. While an expense, professional management ensures the property is well-maintained and tenants are satisfied.
Council Charges: Local councils often impose charges for services provided to the property, such as waste removal, water, and other municipal services. These charges contribute to the overall operational expenses of the property.
Land Tax: Land tax is a state-imposed tax on the value of the land you own. It’s important to be aware of the land tax rates in your area, as they can vary. This expense is crucial in determining the property’s overall cash flow.
Insurance: Insurance is essential for protecting your investment property. It typically covers property damage, liability, and loss of rental income. While insurance is an added cost, it provides financial security and mitigates potential risks.
Repairs and Maintenance: Properties require ongoing maintenance and occasional repairs. Setting aside funds for routine maintenance and unforeseen repairs is essential for preserving the property’s value and ensuring tenant satisfaction.

Managing Cash Flow in a Higher Interest Rate Environment

PAYG Withholding Variation Form: One effective technique in managing cash flow is utilising the PAYG (Pay As You Go) withholding variation form. This form allows you to adjust the amount of tax withheld from your regular salary or wage income, providing more immediate access to funds. By tailoring your tax withholding, you can improve your monthly cash flow.

Using Equity for Buffers: In a higher interest rate environment, financial buffers become crucial. Consider tapping into the equity built up in your property portfolio. This can act as a financial cushion, allowing you to weather fluctuations in interest rates without compromising your overall financial stability.

Offset Accounts to Reduce Interest: Leverage the power of offset accounts to minimize interest payments. These accounts are linked to your mortgage, and the balance is offset against your loan, reducing the interest payable. This not only aids in interest reduction but also enhances your overall cash flow.

Investing Sooner Rather than Later: While rates are forecasted to come down at the end of 2024, the relief might also bring increased competition to the market. Investing sooner rather than later could provide a strategic advantage. By securing properties before the market heats up, you position yourself for potential capital growth and improved overall returns.

Interest only loans: You may be consider refinancing to an interest-only investment loan to reduce the monthly repayments. Check the pros and cons before going ahead. Make sure you can afford higher repayments at the end of the interest-only period.

On an interest-only home loan (mortgage), your repayments only cover interest on the amount borrowed (the principal). For a set period (for example, five years), you pay nothing off the amount borrowed, so it doesn’t reduce.

At the end of the interest-only period, the loan will change to a ‘principal and interest’ loan. You’ll start repaying the amount borrowed, as well as interest on that amount. That means higher repayments. It can be a shock when the interest-only period ends and your repayments go up. Here are some tips to help you manage the switch to principal and interest.

Gradually increase your loan repayments
Get a better deal on your loan. If your lender won’t give you a better deal, consider switching home loans.
If you’re worried you can’t afford the new repayments, talk to your lender to discuss your options.

Conclusion

As interest rates ebb and flow, strategic cash flow management becomes a pivotal skill for property investors. From utilising tax variations to leveraging equity and offset accounts, these techniques provide a comprehensive toolkit to manage cash flow and seize opportunities in the ever-evolving property market. By adopting these strategies, investors can navigate higher interest rates while maintaining financial stability and positioning themselves for future growth.

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What are your tax obligations if you own cryptocurrency

What is Cryptocurrency?

Cryptocurrency, commonly referred to as crypto, is a digital or virtual currency. Unlike traditional currencies, it is not controlled by any central authority, and there are no physical coins or notes involved. Transactions are purely digital, making crypto distinct from conventional money. Since crypto is considered an asset, it is subject to different tax regulations compared to money. What are your tax obligations if you own cryptocurrency?

How is Cryptocurrency Tracked?

Cryptocurrency transactions are recorded in a blockchain, a digital ledger that stores all transactions across multiple copies worldwide. This ledger is decentralized, meaning it is not managed by any bank, government, or company. Each copy of the ledger contains the same transaction history, ensuring transparency and security.

Given the Australian Taxation Office (ATO) has been focusing on crypto in recent years, it’s crucial to understand the tax implications of owning cryptocurrencies. If you have sold, bought, or earned interest from crypto during the financial year (1 July – 30 June), you must declare these transactions on your next tax return.

How is Crypto Taxed in Australia?

An important term to understand for your tax return is “dispose.” This means to sell, gift, trade, exchange, convert, or use your crypto to buy things. Any such transaction is considered a disposal of cryptocurrency.

The ATO taxes cryptocurrency as a “capital gains tax (CGT) asset.” This requires you to declare all transactions where you traded, sold, or used crypto. The ATO does not classify crypto as money or foreign currency but as property, which makes it subject to capital gains tax.

How Does the ATO Know About Your Crypto?

If you have an account with any Australian cryptocurrency provider, the ATO likely already has your data, possibly dating back to 2014. The ATO collects information from crypto exchanges and wallet providers and continues to expand its data sources. Using foreign exchanges does not exempt you from ATO scrutiny.

How Much Tax Do You Pay on Crypto Gains?

A crypto gain, or “capital gains event,” occurs when you dispose of your cryptocurrency. A capital gain is the difference between the value when you acquired the crypto and when you disposed of it. If the proceeds exceed your cost, you have a capital gain. The cost base includes the purchase price and any related acquisition or disposal fees. The tax amount depends on your individual tax circumstances.

What Happens If You Made a Loss?

Even if you incur a loss, you must report it on your tax return. Reporting losses can benefit you by potentially reducing your overall crypto taxes through capital loss claims. Consulting a registered tax agent is advisable to ensure accurate reporting and avoid costly mistakes.

Are Crypto-to-Crypto Trades or Swaps Taxed?

Yes, any swap or exchange of cryptocurrencies is a taxable event in Australia. For instance, exchanging Bitcoin for Ripple is treated as a disposal of Bitcoin at its market price at the time of the exchange.

Do You Have to Pay Tax if You Transfer Crypto Between Wallets?

Transferring crypto between your own wallets does not incur tax, provided you own both wallets. However, you must maintain records of the original cost of the transferred coins. Personal transfers do not affect your capital gains or losses records.

How to Prepare Your Cryptocurrency Tax Return

To lodge your crypto tax return, you will need:

A record of all crypto purchases, sales, and interest earned.
A crypto tax report from your provider (e.g., Koinly or Crypto Tax Calculator) showing your profit/loss and capital gains for the financial year.
Records of original costs for coins transferred between your wallets.
All personal income tax items for your tax return.

Crypto tax can be complex, so it’s best to seek advice from a tax expert to ensure you keep accurate records throughout the financial year and correctly lodge your tax return.

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How can we help? if you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.

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What’s ahead for 2024-25?

Managing Cash Flow in a Higher Interest Rate Environment

What are your tax obligations if you own cryptocurrency