Budget update
The Budget implications are changing almost daily. The key developments since our last update are as follows.
- The Senate Committee process has been compressed to two weeks of preparation (with a public holiday in the middle) followed by a two-day hearing: significantly less time than is afforded to other Senate Committee matters. We think this is wholly inadequate and illustrative of a rushed Bill with too many powers delegated to the Minister. A number of key features of the package remain subject to separate legislative tranches, adding further uncertainty. The Liberals and the Greens are reportedly in talks about applying pressure to extend the Senate Committee process.
- It has been reported today that the Government may seek to include a start-up exemption in the current Bill, rather than waiting for a separate legislative tranche. The critical issue will be the definition of a 'start-up'. We are hopeful that it is not defined narrowly, for example, to technology businesses only. In our view, any exemption should apply more broadly to businesses with a nominal cost base, for example, professional services businesses built through skill and effort. The accounting practice that you have grown from the ground up deserves the same CGT exemption as a tech company.
- The Government is also considering adding to the current Bill to expand the small business CGT concessions by raising the turnover eligibility threshold from $2 million to $10 million. This is welcomed, for the following reasons:
- 3.1. It is more appropriate: the $10 million threshold is already the benchmark applied for small business entity purposes in many other parts of the tax law.
- 3.2. It is practically significant. The $2 million threshold pushes many clients to rely on the alternate maximum net asset value (“MNAV”) test. The MNAV test is more administratively burdensome, frequently requires formal valuations and tends to attract greater ATO scrutiny than the turnover test. As the CGT discount is wound back, the small business CGT concessions have become critically important for a wide range of clients. Any expansion is to be welcomed.
Other recent updates
Bendel and Division 7A: High Court rules UPEs are not loans
Commissioner of Taxation v Bendel [2026] HCA 18
In a 5-2 majority, the High Court dismissed the Commissioner's appeal and confirmed that a corporate beneficiary's failure to call for payment of an unpaid present entitlement (UPE) owed to it by a trust is not, of itself, a loan for Division 7A purposes.
The majority held that Division 7A requires a positive act by the company: something actively done to transfer value to another person. Merely allowing a UPE to remain unpaid is not such an act. This overturns the ATO's administrative position maintained since 2009 in TR 2010/3, PSLA 2010/4 and TD 2022/11.
The ATO has confirmed it is 'considering the implications of the adverse decision' and will update its guidance. A legislative response (and potentially an interim measure) is very possible.
This is a clear taxpayer win and, in our view, a necessary correction of a long-standing administrative overreach. The ATO has issued law by administration, maintaining a controversial application of the meaning of ‘financial accommodation’, which many taxpayers have been compelled to practically accept to avoid the risk of ATO scrutiny. Most taxpayers simply cannot afford nor have the desire to challenge the ATO, even when the ATO is wrong.
We can celebrate, but with caution because the ATO may seek to apply Subdivision EA, section 100A or even Part IVA to similar arrangements.
Practically, the right course of action depends heavily on how existing UPE arrangements were documented and implemented. Positions taken for the 2023 and 2024 income years may need to be revisited. Some groups may seek to lodge objections.
We are assisting many of our clients with corporate beneficiaries following this decision.
Residency tie-breaker: employment income decisive
Bulie and FCT (Taxation) [2026] ARTA 1003
The ART found that a taxpayer was a resident of Singapore for tax purposes under the tie-breaker provisions of the Australia-Singapore double tax treaty, despite being a resident of both countries under each country's domestic law.
The ART conducted a holistic assessment of the taxpayer's personal and economic relations with each country. The most significant factor was the earning of employment income in Singapore, particularly given the taxpayer's established pattern of living overseas to best apply his skills.
A useful and timely decision. The tie-breaker provisions in double tax agreements are not mechanical: they require a genuine assessment of where a person's social and economic ties lie, based on a total weight of circumstances.
Employment income location was the decisive factor here, which is consistent with the weight tribunals and courts have given to economic connections. The result is a reminder that a taxpayer who genuinely derives their income overseas may be able to establish foreign residency, even where significant personal ties to Australia remain.
Residency decisions are particularly relevant given the volume of residency enquiries we have been fielding since the Budget.
ATO maladministration: Ombudsman finds substantiated bias
The Tax Ombudsman has found substantiated maladministration following an independent investigation into the ATO's management of a 10-year compliance case. The investigation identified evidence of bias in decision-making and a breach of taxpayer secrecy provisions by an ATO investigator.
The Ombudsman has now commenced a broader systemic review of the ATO's internal controls, focusing on decision-making safeguards, audit and enforcement frameworks and information disclosure practices.
This is consistent with what we are observing in practice. We have never seen as many ATO complaints and Inspector-General of Taxation referrals as we are currently handling.
If you or your clients are experiencing ATO conduct that appears disproportionate, unreasonable, or procedurally improper, please reach out. There are formal avenues available and we are experienced in using them.
ATO EOFY guidance: common trust resolution errors
The ATO has published its end of financial year guidance for trustees, highlighting the most common errors made in trust resolutions. The ATO advises trustees to: review the trust deed to understand how trust income is defined, ensure resolutions are clearly documented and made before 30 June, review dividend and distribution statements to confirm holding period rules are satisfied and maintain adequate records.
Errors in trust resolutions remain one of the most common sources of ATO disputes in the private group space. A defective resolution is difficult to remedy after the fact and can have significant downstream tax consequences.
Given the heightened scrutiny on trust arrangements by the ATO and Treasury, this is a good time for trustees and their advisers to review their resolution practices. If there is any doubt about whether resolutions have been validly made for prior years, it is worth addressing that now rather than waiting for a compliance review.
