For those involved in the administration and governance of not-for-profit (NFP) organisations, it is essential to remain informed about legislative changes and compliance obligations. Of particular importance are the conditions that apply to NFPs that self-assess as income tax-exempt. Recent changes introduced by the Australian Taxation Office (ATO) impose new annual reporting requirements that must be adhered to in order to retain this tax-exempt status.

Introduction of the Annual NFP Self-Review Return

Commencing with the 2023–24 income year, non-charitable NFPs possessing an active Australian Business Number (ABN) are now required to lodge an annual NFP self-review return with the ATO. This return serves to confirm the organisation’s ongoing eligibility to self-assess as exempt from income tax.

The self-review return comprises three core components:

1. Organisation Details – This section captures standard information relating to the NFP, including its ABN, name, and contact details.
2. Income Tax Self-Assessment – Here, the organisation provides confirmation that it meets all relevant criteria to remain income tax-exempt.
3. Summary and Declaration – A formal declaration acknowledging the accuracy and completeness of the information submitted.

A critical aspect of this process is the requirement for organisations to answer a specific compliance question: Does the organisation have and follow clauses in its governing documents that prohibit the distribution of income or assets to members while it is operating and on winding up? A positive response to this question is mandatory to maintain income tax-exempt status through self-assessment.

Transitional Arrangements and Deadlines

Should an organisation’s governing documents currently lack these required non-distribution clauses, it may still self-assess as income tax-exempt for the 2024 income year, provided it has not in practice distributed any income or assets to members. However, as part of a transitional concession, the ATO has set a compliance deadline: governing documents must be amended to include the required clauses by 30 June 2025. Failure to meet this deadline will render the organisation ineligible to self-assess as tax-exempt from the 2025 income year, and it may consequently be required to lodge a tax return and potentially pay income tax.

Mandatory Clauses in Governing Documents

Governing documents are the legal instruments that define an organisation’s purpose, character, decision-making procedures, operational rules, and dissolution process. In order to self-assess as income tax-exempt, these documents must include:

• A clause that prohibits the distribution of income or assets to members, both during the organisation’s operations and in the event of winding up.
• A clause that stipulates that any surplus assets on winding up must be transferred to another NFP with similar objectives.

In addition to incorporating these clauses, NFPs should implement appropriate governance controls to ensure that members do not receive any financial benefits or property that belongs to the organisation, except where such payments constitute reasonable remuneration for services rendered or reimbursement of legitimate organisational expenses.

It is recommended that governing documents be reviewed annually, or when there is a significant change in the organisation’s structure or operations. Conducting this review during the annual general meeting can be an efficient and practical approach.

Taking proactive steps to comply with these new ATO requirements will safeguard your organisation’s tax-exempt status and reinforce its commitment to sound governance and transparency.

Pitt Martin Group is a firm of Chartered Accountants, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Chartered Accountants Australia and New Zealand (CA ANZ), membership certification of the Australian Society of Certified Practising Accountants (CPA), Registered Australia Tax Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Angela Abejo @ Pitt Martin Tax

As urban expansion continues across Australia’s major cities, more property owners are considering subdivision projects. While these ventures can be financially rewarding, it’s crucial to understand the potential tax consequences before committing. Misunderstanding the tax treatment of subdivisions can lead to costly surprises and significantly impact the profitability of a project.

A common misconception is that tax liabilities on subdivision profits will be minimal. However, the reality is more complex, as there are several important tax considerations that can significantly affect the overall profitability of your project.

For instance, if you purchase a property with the intention of subdividing and selling the lots for a short-term profit, the Australian Taxation Office (ATO) is likely to treat this as a profit-making activity. In this case, your profit is taxed as ordinary income rather than under the Capital Gains Tax (CGT) rules. This means the 50% CGT discount—available for assets held longer than 12 months—won’t apply. You also won’t be able to use any capital losses to reduce the tax payable.

In addition to income tax, GST may also apply to the sale of the subdivided lots. Both taxes can significantly reduce any after-tax profits.

Many individuals underestimate their income tax and GST obligations. By the time they realise the true financial implications, it may be too late to reverse course, and the viability of the project could be jeopardised.

To assist taxpayers, the ATO has updated its guidance on the tax treatment of property transactions. The revised guidance includes a series of real-world examples that demonstrate how income tax and GST rules may apply to different property scenarios, including subdivisions, property flipping, and development.

One example involves a taxpayer who repeatedly buys, renovates, and sells properties. This person conducts thorough market research, seeks professional advice, secures business loans, and undertakes renovations in a structured, business-like manner. The ATO views this activity as the operation of a business, with the primary goal being profit from the resale of properties. Consequently, profits are taxed as ordinary income. The CGT rules, including the discount, do not apply because the properties are treated as trading stock rather than capital assets.

However, GST may not apply unless the properties undergo “substantial renovations”. This is a technical definition and must be carefully assessed in each case.

Another ATO example highlights a different situation. In this case, a taxpayer subdivides their land due to personal hardship—ill health and mounting debts. The subdivision involves minimal activity beyond securing council approval, and there is no clear intention to develop or profit beyond selling a portion of their land. The ATO considers this transaction a “mere realisation” of a capital asset. The proceeds are taxed under CGT rules, and the 50% CGT discount is available if the land has been held for more than 12 months.

However, despite being part of the land where the taxpayer’s main residence is located, the subdivided lot does not qualify for the main residence exemption because it is sold separately from the home itself.

These examples underline the importance of correctly identifying the purpose and scale of a subdivision project from the outset. Small changes in intention, structure, or execution can lead to vastly different tax treatments.

Before starting any subdivision, seek professional tax advice to understand your obligations. A well-informed approach can help avoid unexpected tax bills and ensure your project remains financially viable.

Pitt Martin Group is a firm of Chartered Accountants, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Chartered Accountants Australia and New Zealand (CA ANZ), membership certification of the Australian Society of Certified Practising Accountants (CPA), Registered Australia Tax Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Angela Abejo @ Pitt Martin Tax

In Australia, employers must pay superannuation (super) to their workers. This is called the Superannuation Guarantee (SG). It helps workers save for retirement. While most people know that super is paid to regular employees, the rules are actually much broader. In fact, even some people who don’t seem like employees—such as contractors, gym instructors, or performers—might still be owed super by the people who hire them.

This article will break down the SG rules in simple terms, so you can understand who needs to be paid super, when you need to pay it, and what happens if you don’t.

What Is Superannuation Guarantee (SG)?

Superannuation Guarantee is a legal requirement in Australia. Employers must pay a percentage of an eligible worker’s ordinary time earnings into a super fund. This helps that worker build a retirement savings balance over time.

As of 01 July 2024, the SG rate is 11.5%, and it is set to increase to 12% by 01 July 2025.

Who Is Exempt From SG?

Before diving into who is captured by SG obligations, it’s useful to clarify who is not. Employers are not required to pay SG contributions in the following scenarios:

• Workers under 18 who work fewer than 30 hours per week.
• Private and domestic workers (e.g., nannies, gardeners) who work less than 30 hours per week.
• Non-resident employees working outside Australia.
• Employees temporarily working in Australia under a bilateral agreement.
• Certain foreign executives with specific visa types or entry permits.
• Contractors hired via a company, trust, or partnership.

Even in these cases, caution is advised. For example, Australian employees temporarily working overseas may still be eligible for SG, especially if their host country, such as United States, has a bilateral social security agreement with Australia. In such cases, a certificate of coverage from the ATO can exempt the employer from having to pay super in the foreign jurisdiction.

The Broader Definition of “Employee” Under SG Laws

Section 12 of the Superannuation Guarantee (Administration) Act 1992 outlines an expanded definition of “employee” for SG purposes. This section brings into the fold several categories of workers who may not traditionally be seen as employees:

• Company directors who are paid for their work.
• Contractors whose contract is mainly for their labour (time and skills).
• Certain workers hired by the government.
• People paid to perform or present music, plays, dances, entertainment, sport, or promotional activities. It also includes people who help with these activities or are involved in recordings or broadcasts (like film or TV).

Are Contractors Entitled to SG?

One of the biggest mistake among business owners is that hiring someone with an ABN automatically exempts them from SG contributions. Unfortunately, that’s not the case.

If the contract with the individual is “wholly or principally for their labour and is an employee of the other party to the contract” then that individual is likely to be deemed an employee for SG purposes. The ATO provides clear criteria to help determine this:

• The contractor is paid under a contract primarily for their labour (i.e., more than half the value of the contract is for their time and effort).
• The individual is paid for their personal labour and skills, not for delivering a specific result.
• The work cannot be delegated to another person.

Even more frustrating for business owners is the fact that the language of the contract is not enough to protect you. It doesn’t matter if the agreement explicitly says the contractor is responsible for their own super. If they meet the ATO’s criteria for a deemed employee, you’re legally required to pay SG.

In a recent clarification, the ATO noted that where a contractor uses significant capital assets (like a truck), this may indicate that the contract is not primarily for their labour. However, every case depends on the specific facts.

Do Company Directors Receive Super?

Under SG legislation, company directors who are remunerated for performing duties for the business must also be paid SG contributions. This applies regardless of whether they are employees in the conventional sense. Director remuneration—if paid in return for services—is sufficient to trigger the obligation.

What About Performers, Entertainers, and Sportspeople?

If a performer works through a company, trust or partnership, you normally don’t have to pay super for them. But if they are working as individuals (like a sole trader), then SG usually applies.

Under the SG rules (section 12(8)), you must pay super for someone who is paid to:

• Perform in music, theatre, dance, sports, or similar events.
• Provide services in connection with the activities above (e.g., production staff, technical crew).
• Help with the creation of films, recordings, or broadcasts (TV, radio, etc.).

Here’s how it works in real life:

If a music festival hires a solo performer who operates as a sole trader, the festival may need to pay super for that performer. If that performer hires backup singers or band members, and pays them, then they also need to pay SG for those workers.

If an agency is involved—meaning the agency gets paid and then pays the performers—then the agency is likely responsible for paying the super. But if the festival pays the performers directly, then the festival takes on the responsibility.

This is why it’s so important to be clear on who is legally responsible for super payments.

Fitness Industry: Are Gym Instructors Employees?

Let’s take a common example from the fitness world—a gym instructor who operates as a sole trader. The instructor has an ABN and a contract with the gym stating they are an independent contractor responsible for their own taxes and super. They are paid per class or session and use the gym’s facilities, scheduling system, and branding.

In this scenario, several red flags are raised:

• The instructor is paid for their time and skills (labour-based payment).
• They cannot delegate the task to another instructor.
• They wear the gym’s uniform and follow the gym’s methods of training.

Despite the contractual wording, the instructor likely meets the definition of an employee under the SG Act. If the gym has not been making SG contributions, they could be liable for payments backdated to the beginning of the instructor’s engagement.

Why This Matters: ATO Enforcement and No Time Limits

One of the most critical aspects of SG compliance is that there is no statutory time limit for the ATO to enforce unpaid super. In theory, the ATO can pursue unpaid SG obligations from the inception of the employment relationship—whether that was last year or a decade ago.

Moreover, company directors can be held personally liable under the Director Penalty Notice (DPN) regime for unpaid SG obligations. This creates a significant risk for businesses, particularly in industries where non-traditional work arrangements are common.

What Should Employers Do?

If you’re uncertain about whether SG applies in a particular work arrangement, here are some proactive steps to take:

1. Seek professional advice – An accountant or employment lawyer can help you assess worker classifications.
2. Request a private ruling from the ATO – This provides legal clarity for your unique arrangement.
3. Review contracts – Ensure your agreements reflect the actual working relationship, not just the desired label.
4. Keep detailed records – Documentation can support your position in the event of an audit.
5. Audit historical arrangements – Identify any existing risks related to past or present engagements.

Final Thoughts

The Superannuation Guarantee rules have never been more important for business owners to understand—especially those in industries like entertainment, fitness, and contract-based services. With the ATO sharpening its focus on compliance, failing to understand and correctly apply SG obligations can have serious financial and legal consequences.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Angela Abejo @ Pitt Martin Tax

The Full Federal Court overturned an earlier decision by the Federal Court in Commissioner of Taxation v Liang [2025] FCAFC 4. It ruled that unexplained cash deposits made into a trust should be treated as taxable income. This decision supported the Australian Taxation Office (ATO) in a dispute over whether the deposits should be taxed.

A married couple, Mr. Chen and Ms. Li (not their real names), operated several restaurant and takeaway businesses through two trusts. They also had a third trust for property investments. The couple controlled all three trusts, acted as trustees, and were the beneficiaries.

In 2017 and 2018, Ms. Li deposited $735,825 into the bank account of their property trust. This money was later used to buy real estate. When the ATO reviewed the deposits, it decided the funds should be included in the taxable income of the trust.

Since Mr. Chen and Ms. Li were entitled to receive income from the trust, the ATO also changed their personal tax assessments. This meant they had to pay tax on their share of the trust’s income. Additionally, the ATO imposed a 50% penalty for recklessness, arguing they failed to properly report the deposits.

The couple objected to the ATO’s decision and challenged it in the Administrative Appeals Tribunal (AAT). They argued that the deposits were either loans or financial help from their parents. However, the Tribunal was not convinced. There were no loan agreements or documents proving the funds came from their parents. Because of this, the Tribunal ruled the couple had not provided enough evidence to show the ATO’s tax assessments were incorrect.

The couple then appealed to the Federal Court, which ruled in their favor. The judge decided the deposits did not count as taxable income. The ruling explained that the money was not earned through business activities, investments, or profit-making ventures. Since the exact nature of the deposits was unclear, the judge concluded they should not be treated as taxable income.

However, the ATO appealed to the Full Federal Court, which overturned the earlier decision. The Full Federal Court explained that if a taxpayer wants to prove money is not taxable, they must provide clear evidence of its source and purpose. It is not enough to simply claim the funds were gifts or loans without documentation.

In this case, the couple only showed that Ms. Li physically deposited the cash into the trust’s bank account. They failed to explain where the money originally came from or provide a legal reason why the trust received it. Because of this, the Full Federal Court ruled the couple had not proven that the ATO’s tax assessments were incorrect.

As a result, the deposits were treated as taxable income, and the couple remained responsible for paying the additional tax and penalties.

This case highlights the importance of keeping proper financial records, especially when dealing with family or large cash transactions. Without clear documentation, taxpayers may struggle to prove the true nature of financial dealings, leading to unexpected tax liabilities.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Angela Abejo @ Pitt Martin Tax

We take insight here of the mainly tax related changes in the Federal Budget 2025-26 announced on Tuesday this week, in relates to the topics of Individual & Families, Business & Employers, Government & regulators, & The Economy.

Individuals & Families

Modest Personal Income Tax Cuts

Effective Date: 1 July 2026

The government has announced a phased reduction in personal income tax rates. Taxpayers will see a decrease in rates starting from 1 July 2026, with another reduction from 1 July 2027.

• The tax rate for earnings between $18,201 and $45,000 will drop from 16% to 15% in 2026 and further decrease to 14% in 2027.
• The estimated cost of these reductions is $648 million over four years.
• Maximum annual savings per taxpayer:
  • $268 in 2026-27
  • $536 in 2027-28

Revised Personal Income Tax Brackets

Income Brackets ($)	Rates in 2024–25 & 2025–26 (%)	Rates in 2026–27 (%)	Rates in 2027–28 (%)
0 – 18,200	Tax-free	Tax-free	Tax-free
18,201 – 45,000	16	15	14
45,001 – 135,000	30	30	30
135,001 – 190,000	37	37	37
>190,000	45	45	45

Increased Medicare Levy Thresholds for Low-Income Earners

Effective Date: 1 July 2024
The government has raised the income threshold for exemption from the Medicare levy, reducing costs for low-income earners.

Category	2024-25 Threshold ($)	2025-26 Threshold ($)
Singles	26,000	27,222
Families	43,846	45,907
Single Seniors & Pensioners	41,089	43,020
Family Seniors & Pensioners	57,198	59,886
Additional Child/Student	4,216	4,027

This measure is estimated to cost $648 million over five years.

$150 Energy Bill Relief

Effective Date: 1 July 2025
Eligible households and small businesses will receive a $150 automatic credit on their energy bills, disbursed in quarterly instalments between 1 July and 31 December 2025.

• Estimated cost: $1.8 billion over two years.

Changes to Foreign Resident Capital Gains Tax (CGT)

Effective Date: Delayed to 1 October 2025 (earliest)
Proposed amendments to foreign resident CGT rules, initially scheduled for 1 July 2025, have been delayed. These amendments will expand the assets subject to CGT for foreign residents and require them to report high-value transactions with a value of at least $20 million to the ATO before completion.

Temporary Ban on Foreign Ownership of Established Homes

Effective Date: 1 April 2025
A two-year ban will prevent foreign and temporary residents, along with foreign-owned companies, from purchasing established residential properties in an effort to combat ‘land banking.’

Changes to Managed Investment Trust (MIT) Taxation

Effective Date: Post-Royal Assent
The extension of the cleaning building Managed Investment Trust (MIT) withholding tax concession, initially scheduled for 1 July 2025, has been postponed. It will now commence on the first 1 January, 1 April, 1 July, or 1 October after the Act receives Royal Assent.

Additionally, the government will amend tax laws to clarify MIT arrangements, ensuring that legitimate investors continue to benefit from concessional withholding tax rates. These changes will apply to fund payments made from 13 March 2025 and align with the ATO’s increased scrutiny in this area to prevent potential misuse

‘Help to Buy’ Program Expansion

The government has expanded the ‘Help to Buy’ program, which reduces the upfront cost of purchasing a home by providing an equity contribution through Housing Australia. Under the program:

• Eligible participants can receive up to 30% of the purchase price for an existing home.
• For new homes, the Commonwealth equity contribution increases to 40%.
• The income eligibility thresholds have increased from $90,000 to $100,000 for singles and from $120,000 to $160,000 for joint applicants.
• Additional conditions apply, and the program remains unavailable for new applications at this time.

Business & Employers

Ban on Non-Compete Clauses for Workers

Effective Date: 2027
The government will prohibit non-compete clauses for employees earning below the high-income threshold ($175,000). Additional measures will:

• Prevent businesses from fixing wages through anti-competitive agreements.
• Ban ‘no-poach’ agreements restricting employee mobility.

Paused Beer Tax and Benefits for Alcohol Producers

Effective Date: August 2025 (beer excise) & 1 July 2026 (other measures)

• The indexation of draught beer excise duty will be paused for two years starting August 2025.
• The excise remission cap for brewers, distillers, and wine producers will rise to $400,000 annually from 1 July 2026 (up from $350,000).

Extension of Trade Tariffs on Russia & Belarus

The government has prolonged an additional 35% tariff on imports from Russia and Belarus as part of ongoing support for Ukraine.

Government & Regulators

$999M Boost to ATO Tax Compliance Efforts

Effective Date: 1 July 2025
Funding of nearly $1 billion over four years will expand key tax compliance programs, expected to recover $3.2 billion in revenue. Programs include:

• Tax Avoidance Taskforce
• Shadow Economy Compliance Program
• Personal Income Tax Compliance Program
• Tax Integrity Program (targeting medium and large businesses, as well as wealthy groups)

$700M Cut in Government Outsourcing

The government aims to reduce reliance on external contractors, estimating savings of $718 million by 2028-29.

The Economy

Growth

Australia’s economy is projected to grow at a modest pace, with GDP expected to expand by 2.25% in 2025-26 and 2.5% in 2026-27. The direct economic impact of Ex-Tropical Cyclone Alfred is estimated to reduce GDP by up to 0.25%.

Budget Deficit

The underlying cash balance is forecasted to be a deficit of -$42.1 billion in 2025-26, with gradual improvements over subsequent years, though remaining in deficit.

Government Debt

Debt is projected to increase from 18.4% of GDP in 2023-24 to 21.5% in 2025-26, reaching 23.1% by 2028-29.

Employment

The unemployment rate remains low, with strong workforce participation. Since May 2022, employment has increased by over one million people, with around 80% of new jobs created in the private sector. Unemployment is expected to peak at 4.25%.

Wages

Annual real wages have grown for five consecutive quarters and are projected to rise by 0.5% in 2024-25. The Wage Price Index (WPI) grew by 3.2% through the year to the December quarter 2024 and is forecast to grow by 3% to June 2025 and 3.25% to June 2026.

Inflation

Inflation is expected to be 2.5% through the year to the June quarter 2025. The decline in inflation has been supported by cost-of-living relief measures, a reduction in petrol prices towards the end of 2024, and rebates on electricity and rental assistance. These factors collectively reduced headline inflation by 0.75% through the year to December 2024.

Global Economic Tensions

Trade tensions continue to contribute to global uncertainty. The indirect impact of tariffs is estimated to be nearly four times greater than the direct effect on Australia, reflecting significant trade relationships with China and the United States. Any retaliatory tariffs would further amplify potential losses in real GDP.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Angela Abejo @ Pitt Martin Tax

As the end of the Fringe Benefits Tax (FBT) year (31 March) is approaching, this article highlights key areas that employers and employees should focus on.

FBT Updates and Common Issues

• Exemption of FBT for electric cars
• Providing equipment for working from home
• Does FBT apply to contractors?
• Reducing the paperwork burden for FBT
• The biggest risks related to FBT

Key FBT Issues

FBT Exemption for Electric Cars

Employers who provide electric vehicles (EVs) to their employees may not have to pay FBT. The exemption applies if:

• The car is electric, hydrogen fuel cell, or a plug-in hybrid.
• The car was first bought and used on or after 1 July 2022.
• The cost of the car is below the luxury car tax limit, which is $89,332 for the 2024-25 financial year.

Plug-in Hybrids Lose FBT Exemption

From 1 April 2025, plug-in hybrid cars will no longer qualify for the FBT exemption. The only exceptions are if:

• The exemption was already applied before 1 April 2025.
• There is a legally binding agreement to continue providing the car for private use after 1 April 2025.

If this agreement is changed or stopped after 1 April 2025, the exemption will no longer apply.

Managing the Exemption

Even though some electric cars are exempt from FBT, employers still need to calculate the taxable value of the benefit. This is because the value of the benefit is still included in the employee’s reportable fringe benefits amount. This amount does not count as taxable income, but it may affect things like:

• Medicare levy surcharge
• Private health insurance rebate
• Employee share scheme discounts
• Social security payments

Employees may need to track the electricity costs they pay when charging the EV at home. These costs can be treated as an employee contribution to reduce the FBT amount. However, it can be difficult to calculate these costs. To help, the Australian Taxation Office (ATO) has provided a shortcut rate of 4.20 cents per km for electric vehicles. This rate does not apply to plug-in hybrid vehicles.

Employers should also note that the FBT exemption for electric cars does not include home charging stations. If an employer provides a charging station for an employee’s home, FBT may apply.

Providing Equipment for Working from Home

Many businesses now allow employees to work from home. Employers often provide work-related items to help employees perform their jobs at home. In most cases, if these items are used mainly for work, FBT does not apply.

For example, if an employer provides laptops, mobile phones, or other portable electronic devices, no FBT should be charged as long as the devices are used mostly for work.

Employers with a turnover of less than $50 million can provide multiple similar items during the FBT year without extra tax. This means a business can provide more than one laptop to an employee if needed.

If an employee uses the employer-provided equipment for personal use, FBT may apply. However, the FBT liability can be reduced based on the percentage of business use.

Does FBT Apply to Your Contractors?

FBT usually applies to employees and some directors. It does not apply to genuine independent contractors. However, businesses must ensure that their contractors are truly contractors.

Are Your Contractors Actually Contractors?

The ATO has provided new guidelines to help determine if a worker is an employee or an independent contractor. The High Court has also ruled on two important cases that set the rules for classification.

The ATO’s TR 2023/4 ruling states that if there is a written contract, the contract’s terms should be the main focus when determining the worker’s status. Just calling someone a contractor in the contract is not enough. If the contract’s terms indicate an employment relationship, the worker will be considered an employee.

The ATO’s PCG 2023/2 guideline provides four risk categories. A contractor arrangement is less risky if:

• There is clear evidence that both the business and the worker agreed on the contractor status.
• A proper written agreement is in place.
• Both parties understand the legal consequences of the arrangement.
• The actual working relationship follows the contract without major changes.
• Legal advice was obtained to confirm the classification.
• The business has followed all tax, superannuation, and reporting rules for the worker.

If your business hires contractors, it is important to review their classification regularly. Even if a worker is a genuine independent contractor, businesses may still have obligations, such as paying superannuation in certain situations.

Reducing the FBT Record-Keeping Burden

Keeping records for FBT can be time-consuming. However, from 1 July 2024, businesses will have more options. You can either continue using the current FBT record-keeping methods, use existing business records (if they meet the legal requirements), or combine both methods.

Here are some types of records you may need to keep:

• Travel diaries – see LI 2024/11
• Living-away-from-home-allowance (FIFO/DIDO declarations) – see LI 2024/4
• Living-away-from-home maintaining an Australian home declaration – See LI 2024/5
• Expense payments, property, or residual benefits declaration (Otherwise Deductible Rule) – See LI 2024/6
• Private use of a vehicle other than a car declaration– See LI 2024/7
• Car travel for a job interview or selection test declaration– See LI 2024/14
• Remote area holiday transport declaration– See LI 2024/10
• Overseas employment holiday transport declaration– See LI 2024/13
• Car travel for certain work-related activities declaration– See LI 2024/9
• Relocation transport declaration– See LI 2024/12
• Temporary accommodation for relocation declaration – See LI 2024/8

FBT Housekeeping

Keeping track of records for fringe benefits can be tricky, especially if they depend on employees providing documents on time. If your business provides cars, you must record odometer readings on 31 March and 1 April. To make this easier, ask employees to take a photo of the odometer and email it to a central contact person. This will help avoid missing records or having to check each car manually.

Biggest FBT Risk Areas

Mismatched Entertainment Claims

One of the most common FBT mistakes is claiming a tax deduction for entertainment expenses but not reporting the benefit for FBT purposes. The ATO closely monitors these mismatches.

For example, if a business takes a client to lunch and the cost per person is under $300, there may not be any FBT. However, the business cannot claim a tax deduction or GST credit unless FBT applies. If the business uses the 50/50 method for entertainment expenses, then 50% of the cost is subject to FBT, and only 50% of the amount can be claimed as a deduction.

Employee Contributions Made by Journal Entry

Many businesses allow employees to make after-tax contributions to lower the taxable value of fringe benefits. Instead of paying in cash, some businesses record these contributions as journal entries in their accounting system.

While this method can be acceptable if done correctly, the ATO has raised concerns about whether journal entries made after the FBT year-end are valid.

For an employee contribution through a journal entry to be valid in reducing FBT, these conditions must be met:

• The employee must be required to make a contribution toward the fringe benefit as part of their employment agreement.
• The employer must owe the employee a payment, such as a loan or a bonus that hasn’t been paid yet. However, if a loan is involved, additional tax issues may arise.
• Both the employee and employer must agree to offset their respective obligations (the employee’s contribution against the employer’s payment).
• The journal entries must be made before the business finalizes its financial accounts for the year.

If these conditions are not met, the ATO may challenge the validity of the arrangement. The business must keep proper documentation showing that the employee was actually required to contribute toward the fringe benefit. If there is no clear evidence, the business may face unexpected FBT liabilities.

Not Lodging FBT Returns

The ATO has noticed that some businesses are failing to submit FBT returns when they are required to do so.

If your business employs staff, including family members in a closely held business, and is not registered for FBT, you should review whether you might have an FBT liability.

You may need to lodge an FBT return if your business provides any of the following:

• Cars or parking spaces for employees
• Reimbursements for private (non-business) expenses
• Entertainment, such as meals and drinks
• Employee discounts

Some benefits are exempt from FBT, such as work-related electronic devices (e.g., laptops), protective clothing, and tools of trade. If your business only provides these exempt items or occasional benefits worth less than $300, you likely do not need to worry about FBT. However, if you provide any taxable fringe benefits, it’s important to ensure compliance to avoid penalties.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Angela Abejo @ Pitt Martin Tax

The Australian Taxation Office (ATO) is paying close attention to wealthy baby boomers, especially those who own family-run businesses. Many of these individuals are passing on their businesses and assets to their children or selling them. The ATO is concerned that some of these transfers and business restructures are being done in ways that reduce tax payments unfairly.

According to ATO Private Wealth Deputy Commissioner Louise Clarke, succession planning and tax risks are a major focus for 2025. The ATO has noticed a rise in business reorganizations that seem to be linked to business owners retiring and passing on their wealth.

If you belong to the ATO’s Top 500 (the wealthiest private groups in Australia) or Next 5,000 (those who control a net wealth of over $50 million), expect the ATO to closely examine how money moves through your businesses and investments.

Why Business Owners Should Be Careful

For many business owners, their company is more than just a source of income—it’s their biggest asset. Over the years, they’ve earned income through salaries, dividends, or by selling shares. While tax laws allow business owners to structure their assets in ways that protect their wealth, they must do so legally. If the ATO finds that a structure exists only to avoid taxes, it can deny any tax benefits under Part IVA, the rule that prevents artificial tax avoidance.

The ATO is particularly watching business owners who are nearing retirement and want to pass their companies down to their children. Often, these owners transfer wealth through trusts and other financial arrangements. While this is legal, the ATO is looking at whether these methods are being used to reduce tax payments unfairly.

Areas That Concern the ATO

Some of the key things the ATO is monitoring include:

1. Division 7A loans settlements – Some companies lend money to shareholders, and instead of repaying the loan, they remove it from the books by calling it a “distribution.” This raises tax concerns.
2. Moving Assets Without Proper Valuation – If businesses transfer assets between family members or related companies, they must properly value them. If an asset is moved just to avoid paying capital gains tax, the ATO may investigate.
3. Restructuring Family Interests – Changing how family members own or control assets may trigger tax issues.
4. Changes to Trust Deeds – The ATO is checking whether changes to trust agreements are being used to lower tax payments.
5. Delays in Tax Filings – Businesses delaying tax returns after a restructure may face scrutiny.

The Use of Trusts

Trusts are under greater scrutiny in 2025. If a trust makes a Family Trust Election (FTE) or Interposed Entity Election (IEE), it must follow strict rules about distributing income. If the trust distributes money outside the family, a 47% Family Trust Distribution Tax applies.

The ATO is also tightening rules on trust tax returns for private trusts. When a trust distributes money or assets to another trust, it must complete a Trustee Beneficiary (TB) statement, unless there is an exclusion that applies. If the TB statement is missing or late, the trustee may face a 47% Non-Disclosure Tax on the undisclosed income.

How to Avoid Risk

If you control multiple businesses or investment entities, make sure everything is structured correctly. Whether these businesses are in Australia or overseas, failing to report transactions properly could lead to penalties.

Transferring a business to the next generation might require changes to share ownership, trust structures, partnership agreements, or asset transfers. Each of these changes has tax consequences that need to be carefully managed.

Business owners should also keep detailed records of why and how they transfer assets. Proper documentation can help show that the purpose of a transaction was legitimate and not just for avoiding tax.

It’s important to plan succession and tax strategies properly. Seeking professional tax advice before making major changes could be something you might need to take into consideration. Tax laws are complex, and a professional can ensure that business owners comply with regulations while still minimizing tax burdens legally to avoid any issues in the future.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Angela Abejo @ Pitt Martin Tax

The Federal Court recently decided against a sports company that wanted to claim tax benefits for research and development (R&D) work on an Australian signature basketball shoe.

The case brings to mind the success of Nike’s Air Jordan shoes, famously highlighted in the movie Air. Originally, Nike expected these shoes to earn $3 million by the fourth year. However, they became a massive success, earning $126 million in the first year alone. Nike sold 1.5 million pairs within six weeks. Marketing played a big role, hinting that the colorful shoes violated NBA rules. Today, the Jordan brand is a key part of Nike’s success. By May 31, 2024, it was worth $7 billion and saw a 6% increase in sales during the fourth quarter.

In Australia, Peak Australia tried to replicate similar success with the Delly1 shoe. This shoe was designed with the help of Matthew Dellavedova, an Australian Olympian and NBA champion. Dellavedova worked closely on the shoe, stating in interviews that he wanted it to be low-cut, lightweight, and comfortable for defending quick players in the NBA. He said the team made small adjustments based on his feedback during the testing phase.

However, the key question was whether the work done to create the Delly1 shoe qualified as R&D under tax law.

How R&D Tax Incentives Work

Australia’s R&D tax incentive program is meant to encourage companies to perform research they might not do otherwise. The program offers tax benefits based on how much a company spends on qualifying R&D activities. The type of tax benefit depends on the company’s situation. To qualify, the activities must either be “core” or “supporting.”

Core R&D activities involve solving problems that can only be addressed through scientific methods and experiments. The goal is to create new knowledge. Supporting activities are those that directly assist core R&D work.

Active Sports Management Pty Ltd applied with Industry Innovation and Science Australia (IISA), to have their work on the Delly1 shoe recognized as core R&D. They said the process involved detailed research and testing.

Why the Claim Was Denied

Despite the company’s claims, the Australian Taxation Office (ATO), the Administrative Appeals Tribunal, and the Federal Court all rejected the application. They found that the shoe’s development didn’t meet the standards for core R&D. According to the courts, the work didn’t involve significant technical or scientific uncertainty. Instead, it seemed to focus more on personal preferences and design adjustments.

As a result, the company couldn’t claim R&D tax incentives for their work on the Delly1.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Angela Abejo @ Pitt Martin Tax

Working with overseas, non-resident workers can be a great opportunity for Australian businesses, but it also brings some important tax responsibilities. Let’s break this down in simple terms to help you understand the basics.

Understand the Worker’s Status

Before anything else, you need to figure out if the worker is an employee or an independent contractor. This is important because tax rules apply differently to each type. The Australian Taxation Office (ATO) provides guidance on this in their Employee or Independent Contractor resource, but if you’re unsure, seeking professional advice is a good idea.

Tax Rules for Employees

If the worker is classified as an employee and they are not a resident of Australia for tax purposes, here are the main things you should know:

1. Tax on Income
   Non-resident employees are generally taxed in Australia only on income earned from an Australian source. For instance, if the work is done entirely overseas, it might not be taxed in Australia.

However, you must check if a Double Tax Agreement (DTA) between Australia and the worker’s home country applies. Australia has around 45 DTAs, which help decide how income is taxed in such cases. For example, the DTA between Australia and the Philippines (Article 15) typically prevents Australia from taxing income unless the work is done within Australia.

2. PAYG Withholding
   Normally, you don’t need to withhold Pay As You Go (PAYG) tax if the employee is a non-resident and earns income from a foreign source.
3. Superannuation
   If the worker is a non-resident and performs all work overseas, superannuation contributions are not required under Australian rules. However, you’ll need to check the worker’s local laws to see if superannuation or similar payments are necessary in their home country.
4. Local Tax Advice
   It’s essential to get advice from a tax expert in the worker’s home country. They can guide you on obligations like withholding taxes or pension contributions.

Tax Rules for Independent Contractors

If the worker is a genuine independent contractor (or operates through a trust or company), here are the key points:

1. Tax on Income
   Non-resident contractors are taxed in Australia only on income earned from an Australian source. For example, under Article 7 of the DTA with the Philippines, Australia generally cannot tax the contractor’s income unless they have a permanent establishment in Australia.
2. PAYG Withholding
   In most cases, you won’t need to withhold PAYG tax if:
   • The contractor has an Australian Business Number (ABN).
   • The DTA prevents Australian taxation.
   • The contractor isn’t conducting a business in Australia.

If the contractor works entirely overseas with no physical presence in Australia, they likely don’t carry on a business in Australia.

3. Reporting to the ATO
   Payments to foreign contractors might need to be reported in the Taxable Payments Annual Report (TPAR) if your business operates in areas like construction, cleaning, IT, or security services.

What About Permanent Establishments?

Hiring overseas workers could lead to your business being seen as operating in their home country. This is called a permanent establishment, and it might mean you have to pay tax in that country.

A permanent establishment usually refers to having a fixed place of business in another country, like an office or warehouse. However, each DTA has its own definition, so it’s important to understand how the rules apply to the specific country you’re working with.

Why Get Professional Advice?

The rules around international workers and taxes can get complicated quickly. Mistakes can lead to unnecessary taxes or penalties. That’s why it’s always a good idea to:

• Seek advice from tax professionals in both Australia and the worker’s home country.
• Understand your obligations clearly to avoid surprises.

By handling these details carefully, you can focus on making the most of your international partnerships while staying on the right side of the law.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Angela Abejo @ Pitt Martin Tax

The Australian government is planning to ban life insurers from using predictive genetic test results to discriminate against people. Predictive genetic tests can identify gene variants linked to diseases that might appear later in life but are not yet visible when the test is done.

Right now, some people are worried that life insurers might deny them coverage or charge higher premiums if they take these tests, so they avoid genetic testing altogether. To address this, the government has proposed a total ban on the use of these genetic test results by life insurers.

How Life Insurance Works

Life insurance is a type of voluntary insurance that’s based on individual risk. Insurers consider factors like your family’s medical history and your personal habits to set your premiums. Once you have life insurance, it’s guaranteed renewable, meaning the insurer can’t cancel or change your policy as long as you keep paying the premiums, even if your health changes. This is why people need to think carefully before switching life insurance policies, especially if they’ve developed health issues since their first policy was issued.

The Current Moratorium on Genetic Testing

In 2019, Australia introduced a partial moratorium on disclosing genetic test results for certain life insurance applications. This moratorium, effective from 1 July 2019, prevents the use of genetic test results for some types of coverage below specific thresholds. However, based on APRA data, these thresholds are considerably lower than the average sum insured:

Policy cover	Moratorium limit	APRA average
Death	$500,000	$713,959
Total permanent disability	$500,000	$849,128
Trauma and/or critical illness	$200,000	$207,414
Disability income insurance	$4,000* a month	$7,706 a month

* any combination of income protection, salary continuance or business expenses cover.

Ongoing Discrimination Concerns

Even with this moratorium, many people still worry that taking a genetic test could hurt their chances of getting affordable life insurance. Research from Monash University found that 35% of people who had taken a genetic test faced difficulties getting life insurance. Some had their applications rejected, while others were advised by financial professionals that they wouldn’t qualify for coverage. Insurers sometimes placed restrictions on policies or charged higher premiums based on test results. In one case, a 43-year-old woman with a BRCA2 gene variant, who had taken preventative measures like surgery, was denied life insurance, even though she had no personal history of cancer.

The Government’s Response

The Australian government has now announced a full ban on the use of predictive genetic tests in life insurance underwriting. This ban is meant to stop the discrimination that still exists. However, the government has not yet introduced the legislation for these reforms or announced when the ban will take effect. The ban will be reviewed after five years, and it only applies to predictive genetic tests, not to diagnostic tests done to confirm an existing condition based on symptoms.

Global Examples

Australia isn’t the only country facing this issue. In the UK, insurers can’t use genetic test results unless the information benefits the person applying for insurance, or the person voluntarily provides the results. There’s one exception: insurers can use genetic test results for Huntington’s disease for life insurance policies worth over £500,000.

In Canada, the Genetic Non-Discrimination Act makes it illegal for insurers or any other entity to ask for or use genetic test results, except when the individual voluntarily discloses a negative result (meaning they don’t have the genetic condition that runs in their family).

In the United States, the Genetic Information Nondiscrimination Act (GINA) prevents genetic test results from being used in health insurance and employment, but not in life insurance. However, Florida has a state law that bans the use of predictive genetic test results in life insurance underwriting.

Conclusion

While genetic testing has the potential to improve health outcomes, it has also created concerns about discrimination, especially in life insurance. Australia’s move to ban the use of predictive genetic tests in life insurance underwriting aims to protect consumers and encourage participation in genetic testing and research without fear of losing access to affordable life insurance.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Angela Abejo @ Pitt Martin Tax