2024 – The year in review

Most years don’t see major changes to the Australian tax system. There has been a lack of significant tax reform for many years, although it is hoped that with the recent release of the Honorable Allegra Spender’s Tax Green Paper that tax reform, or even a discussion about it, might be back on the agenda.

However, while there doesn’t seem to have been much change this year, on reflection there is still a lot that has happened, or in some cases, not happened…

The big issues in 2024

If there was one tax case that sums up 2024, it would have to be Bendel’s case. The tax world has been waiting with bated breath for the Full Federal Court decision on whether an unpaid present entitlement between a corporate beneficiary and a trust constitutes a loan under section 109D of the ITAA 1936. The case was heard in August so the judgment could be handed down at any time. Although, if the ATO loses its appeal, it is likely we will see a legislative amendment so any excitement might be short-lived.

Speaking of Division 7A, the ATO ran a series of webinars on the provisions this year in an attempt to reduce the number of errors made by tax agents. While Division 7A has been around for more than 25 years, it does have its complexities. The Commissioner’s discretion under section 109RB is one of the only solutions (noting corrective action is still required and the money needs to come from somewhere!). From what we are seeing the ATO is rarely granting the discretion, and will only do so where there has been a clear case of an honest mistake or inadvertent omission, with significant evidence needed for the discretion to be given.

After the High Court decisions in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel) and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek) it was widely thought that the employee vs contractor debate had been settled. However, based on the recent AAT decision in The Trustee for the Peter Hatfield Trust and Commissioner of Taxation [2024] AATA 3428, and the filing of an ATO appeal, it appears that whether someone is an employee or a contractor remains an ongoing issue. See our article here which considers these issues in more detail.

The Labor Federal Government announced the introduction of Division 296 to increase the tax rate by an additional 15% tax on the earnings of superannuation funds with balances exceeding $3 million. The bill did not pass Parliament this year, but its expected Labor will reintroduce the bill in 2025. This is notwithstanding concerns regarding the taxation of unrealised gains and that funding the tax will cause major issues for some funds.

There were many changes to the responsibilities of tax agents under Tax Agent Services Act 2009, in particular requiring tax agents to report clients to the ATO and keep clients informed of their own circumstances. After significant pushback the changes have been wound back a little but its still important for tax agents to be aware of the changes which will apply from next year. In addition, the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Amendment Bill 2024 has now passed parliament and will expand the anti-money laundering and counter-terrorism financing (AML/CTF) regime to certain high-risk services provided by accountants. Consultation on the new rules will be conducted before the new rules come into effect from 1 July 2026.

2024 also saw a continued surge in the issuing of director penalty notices (DPNs) and debt recovery action by the ATO, as well as a tightening of GIC remissions. The ATO debt book is over $100 million with collectable debt exceeding $50 million. The Federal Government needs the cash and will be pushing for the ATO to collect as much of this debt as possible, so we expect the level of ATO activity in this area will continue.

2025 – a crystal ball

2025 is a federal election year so it will be interesting to see the policies of both the Labor Government and the Coalition. Given the minor parties and independents might again hold the balance of power, their policies might also be relevant. Whether or not tax issues are a big part of the election remains to be seen, but it is likely the cost of living crisis will override tax issues at the polls.

The ATO has also been busy letting everyone know what it will be focussing on in 2025. Looking at small business, the ATO considers that there is a tax gap of around 12% or approximately $17.7 billion of tax (based on figures from the 2022 year). The shadow economy remains one of the larger reasons for this in addition to under reporting of income and overclaiming of deductions.

Other ATO areas of focus for small business are non-commercial losses and ride-sourcing issues, along with the perennial issues of Division 7A and small business CGT concessions.

Family Trust Elections (FTEs) are required in many cases to ensure Family Trust Distribution Tax (FTDT) does not apply, as well as ensuring trusts can satisfy the 45-day holding period rule for franked dividends or utilise prior year losses. ATO activity in this area is increasing, with the ATO intending to actively raise awareness of FTDT (similar to its approach with Division 7A in 2024) meaning it is timely to consider a review of existing, and required, FTEs and interposed entity elections.

Section 99B could also be high on the ATO’s agenda. Section 99B assesses taxpayers on certain amounts received from trusts, generally overseas trusts. The ATO regularly receives information about international money transfers and recently finalised its Tax Determination TD 2024/9 and Practical Compliance Guideline PCG 2024/3 on section 99B and so has a ready source of information when it starts to ensure that tax agents and taxpayers are complying, using the issuing of guidance as justifying its position that taxpayers have no excuse to not understand the requirements.

So, for those tax agents whose Christmas wish is for more tax issues in 2025, you can rest assured that Santa has your gift wrapped and ready for delivery!

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