Why the ATO is targeting babyboomer wealth

“Succession planning, and the tax risks associated with it, is our number one focus in 2025. In recent years we’ve observed an increase in reorganisations that appear to be connected to succession planning.”
ATO Private Wealth Deputy Commissioner Louise Clarke

The Australian Taxation Office (ATO) thinks that wealthy babyboomer Australians, particularly those with successful family-controlled businesses, are planning and structuring to dispose of assets in a way in which the tax outcomes might not be in accord with the ATO’s expectations.

If you are within the ATO’s Top 500 (Australia’s largest and wealthiest private groups) or Next 5,000 (Australian residents who, together with their associates, control a net wealth of over $50 million) programs, expect the ATO to be paying close attention to how money flows through the entities you control.

A critical issue for many business owners is how to effectively (and compliantly) benefit from a successful business. In many cases, the owners have spent years building the business and the business has become not only a substantial asset, but a lucrative source of income either through salary and wages, dividends, or through the sale of shares or assets. Generally, under tax law, you can legitimately structure assets if there is a good reason to do so – like for asset protection, but if you tip across the line and the only viable reason for a structure is to reduce tax, then you risk the ATO taking a very close look at your operations or worse, denying any tax benefits under the general anti-avoidance rules in Part IVA of the tax rules, designed to combat “blatant, artificial or contrived” tax avoidance activities.

“We’re seeing that succession planning behaviour is primarily done by group heads who are approaching retirement. They typically own groups that family members are a part of, and wealth is transferred to the next generation to keep it within the family (via trusts and other means),” ATO Private Wealth Deputy Commissioner Louise Clarke said in a recent update.

Key areas of concern include:

• Division 7A loans being settled. That is, a company has been paying money to a shareholder or an associate under a loan account. The ‘loan’ is quickly settled, often via a distribution, to remove it from the accounts.
• Assets moving around the group (often the true value of an asset is not recognised raising the question, why the change if not to avoid capital gains tax on disposal or for some other benefit).
• Family member interests being restructured.
• Trust deeds being amended.
• A restructure is cited as a reason for late lodgment.

Use of trusts

Trusts are also a key area of concern in 2025. Where a trust which has made a family trust election (FTE) or interposed entity election (IEE) makes a distribution outside of the family group, a 47% Family Trust Distribution Tax applies (tax at the top marginal tax rate plus Medicare).

In addition, the ATO has recently tightened its approach to trust tax returns for closely held trusts to ensure that trustee beneficiary (TB) statements are being completed. These are required when a trust makes a distribution of income or assets to the trustee of another trust, unless an exclusion applies.

For example, a trust which has made an FTE or IEE doesn’t need to make a TB statement. The TB statement will then be used to cross reference against what the beneficiary has declared in its tax return. Where a valid TB statement is not made on time this can trigger a hefty 47% Trustee Beneficiary Non-Disclosure Tax.

Reducing risk

Where you or your family have control over multiple entities, particularly where the value of these entities is significant, it is important that the connections between these – be it in Australia or overseas – are looked at closely to avoid any nasty surprises or lost opportunities.

Transferring control of your business may involve restructuring your business operations – changes to share structures, changes to the trustee and appointor of a trust, changes to partnership structures – or transferring assets to family members via the creation of trusts or other entities. All these events have legal and tax implications that need to be carefully considered

Contact Indigo Financial on (08) 8212 8585 for all your accounting needs.

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Global Google searches for the word “tariffs” spiked dramatically between 30 January and 2 February 2025, a +900% increase to the previous 12 months. We look at what tariffs really mean.

Who pays for tariffs?

Tariffs increase the price of imported goods and reduce trade flows of that good or service.

Traditionally used to protect specific domestic industries by reducing competition, tariffs increase the price of foreign competitors and reduce demand. In his first term, President Trump imposed a 25% global tariff on steel and a 10% tariff on aluminium (which Australia managed to reduce to zero with supply limits imposed instead). The impact was reportedly a 2.4% increase in the price of aluminium and 1.6% increase in the price of steel in the domestic US market. The cost of tariffs is not borne by overseas suppliers but indirectly through a reduction in trade and domestically through higher prices, particularly where those goods and services are common.

For the US however, the negative impact of tariffs will be felt less abruptly than many of its trading partners as trade only represents around 24% of US gross domestic product (GDP) – whereas trade accounts for 67% of Canda’s GDP.

Where we are at with US trade tariffs

While talking to shock jock Joe Rogan during his election campaign, Donald Trump stated, “this country can become rich with the proper use of tariffs.”

In his second week of office, President Trump used emergency powers to curb the “extraordinary threat” of illegal aliens, drugs and fentanyl into the US, by imposing the following tariffs:

• Canada – 25% additional tariff on imports from Canada (except energy resources that have a reduced 10% additional tariff). Canada responded by imposing its own 25% tariffs on a range of predominantly agricultural products and household goods. Canada is a trading nation and exports represent two-thirds of its GDP. In 2023, the US represented 77% of Canada’s total goods export.
• Mexico – 25% additional tariff on imports from Mexico. Mexico has responded with its own 25% tariff on US goods.
• China – 20% additional tariff on imports from China. The US trade deficit was over $900bn in 2024 of which China accounts for around $270bn. The additional tariff on postal shipments from China to the US has since been temporarily suspended for items with a value under $800 until the US postal service is able to collect the tariff. China’s response has been to impose additional tariffs on certain US imports including a targeted 15% tariff on agricultural products including chicken, wheat, corn and cotton, and a 10% tariff on fruit, vegetables, dairy products, pork, beef and sorghum. Export controls have been placed on some critical minerals. In addition, China has filed a complaint to the World Trade Organization.

Industry specific tariffs and investigations

• Steel imports – from 12 March 2025, the original 25% steel tariff is set to resume without the bi-lateral agreements reached over time with many nations including Australia watering down the tariff.
• Copper imports – while no actions on tariffs, the President has ordered an investigation into the threat to security of copper imports.
• Imports of timber, lumber products – while no action or impositions as yet, the President has ordered an investigation into the threat to security of imports of timber, lumber and derivative products such as paper.
• US tech giants – it seems that the President is concerned by digital services taxes (DST) imposed on US technology companies and has vowed to respond with tariffs and other measures. Australia does not impose a DST and instead is aligned to the OECD reforms of digital taxing rights.

Will Australia face US tariffs?

Australia has a large trade surplus with the US which would normally make the imposition of tariffs less likely. However, specific industries may be impacted by product or industry based tariffs, such as steel and aluminium.

The largest American imports into Australia are financial services, travel services, telecoms/ computer/ information services, royalties and trucks. Australia’s largest exports to the US are financial services, gold, sheep/goat meat, transportations services and vaccines.

Impacts of trade wars on Australia

Australia is impacted indirectly by demand. China is Australia’s largest two-way trading partner, accounting for 26% of our goods and services trade in 2023. If Chinese demand slows as a result of a trade war, Australia’s economy will slow. But there is a pattern in President Trump’s approach to international and trade relations that suggests that an all-out trade war might not occur: a bold line or policy is stated – a statement that tells a story to the US public consistent with his election sentiments; then, wound back either partially or fully after concessions have been secured or concessions stated. For Australia, there is a risk in these policy machinations that China again agrees to reduce the US trade deficit by purchasing more from the US, potentially to the detriment of Australian suppliers.

For Australian business, uncertainty and volatility is the problem. Uncertainty slows the economy and impacts business revenue while at the same time, costs may increase.

For those in the business of selling product manufactured and distributed from China or through other trading partners directly impacted by tariffs, watch for more supply chain issues and potential cost increases.

If the US export markets retracts, there is also a risk other trading nations look to dump their products to help offset losses.

Contact Indigo Financial on (08) 8212 8585 for all your accounting needs.

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The Fringe Benefits Tax (FBT) year ends on 31 March. We’ve outlined the hot spots for employers and employees.

FBT exemption for electric cars

Employers that provide employees with the use of eligible electric vehicles (EVs) can potentially qualify for an FBT exemption. This should normally be the case where:

• The car is a zero or low emission vehicle (battery electric, hydrogen fuel cell or plug-in hybrid electric);
• The car is both first held and used on or after 1 July 2022; and
• The value of the car is below the luxury car tax threshold for fuel efficient vehicles (which is $89,332 for 2024-25 financial year).

Plug-in hybrid vehicles no longer FBT exempt

From 1 April 2025, plug-in hybrid electric vehicles will no longer qualify for the FBT exemption unless:

• The use of the vehicle was exempt before 1 April 2025, and
• There is a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025.

If there is a break or change to that commitment on or after 1 April 2025 then the exemption normally won’t be available any more.

Working with the exemption

Even if the FBT exemption applies, your business will still need to work out the taxable value of the benefit as if the FBT exemption didn’t apply. This is because the value of the exempt benefit is still taken into account when calculating the reportable fringe benefits amount of the employee. While income tax is not paid on this amount, it can impact the employee in a range of areas (such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and social security payments).

This means the employee’s own home electricity costs incurred on charging the electric vehicle will often need to be worked out. This figure can generally be treated as an employee contribution to reduce the value of the benefit.

While this can be practically difficult to determine, the ATO has issued some guidelines that provide a 4.20 cent per km shortcut rate that can potentially help with the calculation. These guidelines do not apply to plug-in hybrid vehicles.

Many electric vehicles are also packaged together with electric charging stations. Just be aware that the FBT exemption for electric cars does not extend to charging stations provided at the employee’s home.

Providing equipment to work from home

Many businesses continue to offer flexible work from home arrangements. employees are often provided with work-related items to assist them to work from home. In general, where work related items are provided to employees and used primarily for work, FBT shouldn’t apply.

For example, portable electric devices such as laptops and mobile phones provided to employees shouldn’t trigger an FBT liability as long they are primarily used by your employees for work. Multiple similar items can also be provided during the FBT year where required – for example multiple laptops have been provided to the employee – but only if the business has an aggregated turnover of less than $50m (previously, this threshold was less than $10m).

If the employee is using equipment provided by the business for their own private use, normally FBT would apply to the private use. However, the FBT liability can be reduced based on the business use percentage.

Does FBT apply to your contractors?

The FBT rules tend to apply when benefits are provided to employees and certain office holders, such as directors. FBT should not apply when benefits are provided to genuine independent contractors but, you need to be sure that your contractors are in fact contractors.

Are your contractors really contractors?

Following two landmark decisions handed down by the High Court, the ATO has now finalised a ruling
TR 2023/4 that helps determine whether a worker is an employee or an independent contractor.

If the parties have entered into a written contract, then you need to focus on the terms of that contract to establish the nature of the relationship (rather than looking at the conduct of the parties). However, merely labelling a worker as an independent contractor doesn’t necessarily mean that they won’t be treated as an employee if the terms of the contract suggest that the parties have entered into an employment relationship.

The ATO has also issued PCG 2023/2 that sets out four risk categories. Arrangements will tend to be viewed in a more favourable light where:

• There is evidence to show that you and the worker have agreed on the classification;
• There is a comprehensive written agreement that governs the relationship;
• There is evidence that you and the worker understand the consequences of the classification;
• The performance of the arrangement hasn’t deviated significantly from the terms of the contract;
• Specific advice has been sought confirming that the classification is correct; and
• Tax, superannuation, and reporting obligations have been met when the worker is classified as an employee or independent contractor (whichever relevant).

If your business employs contractors, you should have a process in place to ensure the correct classification of the arrangements and to determine the ATO’s risk rating. These arrangements should also be reviewed over time.

Even when a worker is a genuine independent contractor, just remember that this doesn’t necessarily mean that the business won’t have at least some employment-like obligations to meet. For example, some contractors are deemed to be employees for superannuation guarantee and payroll tax purposes.

Reducing the FBT record keeping burden

Record keeping for FBT purposes can be onerous. From 1 July 2024 however, your business will have a choice to keep using the existing FBT record keeping methods, use existing business records where those records meet the requirements set out by the legislative instrument, or a combination of both methods:

• 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
• Otherwise deductible rule – expense payment, property or residual benefit declaration – See LI 2024/6
• Otherwise deductible rule – private use of a vehicle other than a car declaration – See LI 2024/7
• Car travel to an employment 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 to certain work-related activities declaration – See LI 2024/9
• Relocation transport declaration – See LI 2024/12
• Temporary accommodation relating to relocation declaration – See LI 2024/8

FBT housekeeping

It can be difficult to ensure the required records are maintained in relation to fringe benefits – especially as this may depend on employees producing records at a certain time. If your business has cars and you need to record odometer readings at the first and last days of the FBT year (31 March and 1 April), remember to have your team take a photo on their phone and email it through to a central contact person – it will save running around to every car, or missing records where employees forget.

The top FBT risk areas

Mismatched claims for entertainment – claimed as a deduction but no FBT

One of the easiest ways for the ATO to pick up on problem areas is where there are mismatches.

When it comes to entertainment, employers are often keen to claim a deduction but this can be a problem if it is not recognised as a fringe benefit provided to employees. Expenses related to entertainment such as a meal in a restaurant are generally not deductible and no GST credits can be claimed unless the expenses are subject to FBT.

Let’s say you taken a client out to lunch and the amount per head is less than $300. If your business uses the ‘actual’ method for FBT purposes, then there should not be any FBT implications. This is because benefits provided to client are not subject to FBT and minor benefits (i.e., value of less than $300) provided to employees on an infrequent and irregular basis are generally exempt from FBT. However, no deductions should be claimed for the entertainment and no GST credits would normally be available either.

If the business uses the 50/50 method, then 50% of the meal entertainment expenses would be subject to FBT (the minor benefits exemption would not apply). As a result, 50% of the expenses would be deductible and the business would be able to claim 50% of the GST credits.

Employee contributions by journal entry in the accounts

Many businesses use after-tax employee contributions to reduce the value of fringe benefits. It is also reasonably common for these contributions to be made by journal entry through the accounting system only (rather than being paid in cash).

While this can be acceptable if managed correctly, the ATO has flagged numerous concerns including whether journal entries made after the end of the FBT year are valid employee contributions.

For an employee contribution made by way of journal entry to be effective in reducing the taxable value of a benefit, all of the following conditions must be met:

• The employee must have an obligation to make a contribution to the employer towards a fringe benefit (i.e., under the employee’s remuneration agreement);
• The employer has an obligation to make a payment to the employee. For example, the parties may agree that the employer will lend an amount to the employee or the employee might be entitled to a bonus that hasn’t been paid yet. If a loan is made by the employer then this could trigger further tax issues that need to be managed;
• The employee and employer agree to set-off the employee’s obligation to the employer against the employer’s obligation to the employee; and
• The journal entries are made no later than the time the financial accounts are prepared for the current year (i.e., for income tax purposes).

Failing to ensure that arrangements involving fringe benefits and employee contributions are clearly documented can lead to problems. For example, the ATO may ask to see evidence of the fact that the employer is actually under an obligation to make contributions towards a fringe benefit. If there is no evidence, then significant FBT liabilities could arise.

Not lodging FBT returns

The ATO is concerned that some employers are not lodging FBT returns when required to.

If your business employs staff (even closely held staff such as family members), and is not registered for FBT, it’s essential to ensure that the position is reviewed to check whether the business could potentially have an FBT liability.

If the business provides cars, car spaces, reimburses private (not business) expenses, provides entertainment (food and drink), employee discounts etc., then you are likely to be providing at least some fringe benefits.

There is a list of benefits that are considered exempt from FBT, such as portable electronic devices like laptops, protective clothing, tools of trade etc. If your business only provides these exempt items, or items that are infrequent and valued under $300, then you are unlikely to have to worry about FBT.

Contact Indigo Financial on (08) 8212 8585 for all your accounting needs.

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Your myGovID is now simply known as myID.

The Australian Government’s Digital ID app is now known as myID. It has a new name and new look, but how you use it remains the same.

What you need to know

There’s nothing you need to do. You still have:

• The same details: there’s no need to set up a new myID. Your login details (including email address) and identity strength remain the same.
• Continued use: your existing app should have automatically updated – if not, you can manually update it from the App Store or Google Play.
• Access to services: you can continue to access the services you used with your myGovID. When logging into an online service, you may now need to select myID as your identity provider.

During the transition period, you may see references to both myID and myGovID.

Why the change

The change aims to reduce the ongoing confusion between the app’s previous name (myGovID) and myGov.

The new name for the Australian Government Digital ID app reflects the community’s evolving understanding of Digital IDExternal link and demonstrates how a whole-of-government ID provider can help protect Australians from identity theft and fraud.

Avoid scams 

It is important to be aware of fraudulent websites, apps and phishing scams.

During the transition period, you may see references to both myID and myGovID.

You do not need to set up a new myID or reconfirm your details. If you’ve been prompted to go to a website to do so, this is a scam.

“If asked to do this via text message, email, or visiting a website, it is a scam,” the Tax Office said.

Be cautious as scammers can make fake websites or apps that look just like myID or myGovID. To help protect yourself:

• don’t click on suspicious links, open attachments or download any files from suspicious emails or SMS. We will never send an unsolicited SMS that contains a hyperlink
• When logging in to an online service with myID, ensure that the URL displayed in your browser includes ‘https://www.myID.gov.au’ or ‘https://myID.gov.auExternal link’.
• only download the myID app from the official app stores (Google Play or the App Store).

The Tax Office said communications and notices could also be found on Facebook, Instagram and LinkedIn.

“We are on these platforms, but we will never use these social media platforms to private message, discuss your personal information, documentation, or ask you to make payments,” it said.

“If you’re unsure whether it’s really the ATO, don’t reply. Phone us on 1800 008 540 to report any suspicious contact claiming to be from the ATO to ReportScams@ato.gov.au.”

Find out more tips and learn how we protect your Digital ID.

Contact Indigo Financial on (08) 8212 8585 for all your accounting needs.

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The Australian Taxation Office (ATO) is encouraging taxpayers to engage with the ATO if they want certainty on the tax implications of complex or unusual commercial deals and avoid future compliance action.

The ATO’s commercial deals service enables taxpayers to engage with the ATO after the relevant transaction has been completed but prior to lodgment of the tax return. The idea is that this service assists taxpayers and the ATO to reach mutual agreement on the tax implications of the deal and resolve any tax issues before lodgment.

The commercial deals service can be used in a range of situations, including significant business transactions that may impact on the structure of the business. For example:

• Financing and refinancing
• Initial public offerings
• Mergers and acquisitions
• Restructures
• Sale of business (partial or complete) or business assets
• Sale of commercial property
• Share buybacks
• Takeovers

The ATO has also updated its website guidance with case studies to provide examples of how the commercial deals service might be utilised. These include:

• Applying the market value substitution rule when siblings sell shares in a family company to other siblings
• Applying the general value shifting regime to a company restructure
• Negotiations with the ATO regarding capital gains liabilities and variation of the foreign resident capital gains withholding (FRCGW) amount.

The ATO is also focusing its pre-deal completion and pre-lodgment compliance activities for commercial deals where there is a potential risk of:

• Misapplication of the capital gains tax exemption for foreign residents and taxable Australian property under Division 855;
• The dissipation of assets, such as the movement of funds outside Australia (for example, where a foreign resident is selling their sole Australian asset).

Advantages of engaging with the ATO

If you have recently completed a commercial deal, the ATO can work with you to understand your circumstances and address any potential issues as soon as possible.

The ATO can:

• help resolve tax technical issues relating to the deal
• work towards agreement on the tax position you intend to take
• help you meet your tax obligations and reduce the likelihood of a review.

Working transparently with the ATO can mutually resolve tax issues prior to lodgment and help avoid tax disputes post-lodgment.

If agreement is reached, and lodgment is received as agreed, the ATO have indicated they will not conduct a review or audit for that commercial deal, increasing certainty on how tax law applies to your circumstances.

Engage with us early

The earlier you discuss your completed commercial deal with the ATO the better. They can work with you to get the right tax position before you lodge your tax return. By reaching a pre-lodgment agreement, you can avoid potential post-lodgment tax disputes or shortfall penalties and interest.

Once you have completed a deal, the ATO will work together to ascertain the relevant facts to reach an agreement on how the transaction will be reported for tax purposes. They may still contact you post-lodgment to confirm you reported as agreed.

Contact Indigo Financial on (08) 8212 8585 for all your accounting needs.

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Australian voters tend to reject US style education favouring more egalitarian systems where income does not determine access.

In the US, average student debt is USD $37,693 (public and private debt) taking an average of 20 years for individuals to repay. But, students often have a gap not fulfilled by loans.

For Australian domestic students, the cost of completing a bachelor degree is generally between $20,000 and $45,000, excluding some of the higher value courses. HECS-HELP loans are available for eligible students to cover the cost of tuition up to $121,844 for most degrees, and $174,998 for higher value degrees like medicine. The average higher education student debt in Australia is around $27,000 and on average takes just over 8 years to repay. Close to 3 million Australians have a student loan debt with debt totalling over $81 bn. Over 7 million have loans above $100,000.

Currently, student loans start to be paid back when an individual’s income reaches $54,435, with a repayment rate that scales according to income ranging from 0% to 10% when income reaches $159,664.

The Government has announced a series of changes to HECS-HELP including:

• Indexation rate calculation change to the lower of consumer price index (CPI) or wage price index (WPI) – currently CPI. Intended to be backdated to student loans on 1 June 2023, effectively removing the 7.1% spike that occurred in 2023.
• Increased minimum repayment threshold to $67,000 in 2025-26. The repayments will also be calculated on the income above the new $67,000 threshold rather than total annual income.
• 20% loan reduction for all study and training support loans before 1 June 2025 (around $16bn).

These changes apply to HELP, VET Student Loan, Australian Apprenticeship Support Loan and other student support loans.

This will benefit all Australians with a student debt, fixing last year’s spike in the indexation of 7.1 per cent and preventing indexation from outpacing wages in the future.

This means the 7.1 per cent spike in indexation in 2023 will be reduced to 3.2 per cent (based on the lower WPI), and credits provided via the ATO.

The indexation rate for 2024 will also be reduced from 4.7 per cent to 4.0 per cent.

An individual with an average HELP debt of around $27,000 will see around $1,200 wiped from their outstanding HELP loans.

The ATO will automatically apply these changes to everyone with a student loan. This work will happen as soon as possible.

If someone has completely repaid their student debt after 2023 or 2024 indexation was applied, the credit would be via a refund to their bank account (assuming there are no outstanding government debts).

Australians with a HELP debt can find out how much this is estimated to benefit them using the HELP Indexation Credit Estimator here.

The Bill also supports the introduction of the Commonwealth Prac Payment from 1 July 2025 for around 68,000 higher education teaching, nursing, midwifery and social work students to help support them financially while they do the practical part of their degree.

It also expands FEE-FREE University Ready Courses which acts as a bridge between school and university to help more Australians get a crack at university and succeed when they get there.

Contact Indigo Financial on (08) 8212 8585 for all your accounting needs.

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The Fair Work Commission has determined that a Philippines based “independent contractor” was an employee unfairly dismissed by her Australian employer.

Like us, you are probably curious how a foreign national living in the Philippines, who had an ‘independent contractors’ agreement with an Australian company, could be classified as an Australian employee by the Fair Work Commission?

The recent case of Ms Joanna Pascua v Doessel Group Pty Ltd highlights just some of the issues Australian businesses face when working with overseas contractors and staff.

What underpinned the Fair Work decision?

Ms Pascua worked under contract as a legal assistant, investigating credit claims on clients’ behalf, for a specialist credit repair legal firm based in Queensland between 21 July 2022 until 20 March 2024. She worked from home in the Philippines, using her own computer, a firm email address and a PBX phone system that gave the appearance that she was calling from the legal office.

The contract described the relationship as one of an independent contractor, with the standard clauses that the firm will not be liable for any other benefits or remuneration other than what was specified and that the firm was not liable for taxes, worker’s compensation, unemployment insurance, employer’s liability, social security or other entitlements. Ms Pascua also bore a liability in the event that something went awry with her work.

For her work, Ms Pascua was paid “AUD$18 per hour Salary all inclusive as a Full Time Employee,” capped at 8 hours per day, 5 days per week, excluding breaks. While working with the firm, Ms Pascua used a firm supplied pro forma invoice to bill 83 weekly invoices at the full hours allowable and 28 other invoices for lesser amounts when she worked less than 40 hours in the week.

For the first 12 months of her time with the legal firm she was supervised by a solicitor. Within 12 months, her work was unsupervised, and in the last 7 months of the relationship, she was the only person conducting investigative work.

Underpinning the Fair Work Commission’s decision were the recent High Court cases that changed the way in which disputes over the nature of employment relationships are determined (CFMMEU v. Personnel Contracting Pty Ltd and ZG Operations Pty Ltd and Jamsek). Whereas once the courts looked at the substance of the overall arrangement (let’s call it the ‘if it walks like a duck and talks like a duck, then it’s a duck’ principal), now greater weight is given to the contract, with reference to the rights and duties created by that contract.

To determine this case, the FWC stepped through the contract clause by clause to evaluate whether it suggested an employment or independent contractor relationship, and looked at how these clauses were brought into effect.

In this case, on weight, the FWC determined Ms Pascua was an employee because the contract indicated that Ms Pascua was required to perform work “in the business of another”, instead of for her own enterprise. The contract suggested that:

• Despite being described as a paralegal, she did not appear to be working in a distinct profession, trade or distinct calling. Her contract outlined administrative tasks and ad hoc duties.
• The contract did not enable her to assign the work to another.
• While there were daily targets in the contract – a result that she was expected to achieve – these tasks referenced weekly requirements and often could be carried over, suggesting ongoing work.
• There was a level of control exerted by the legal firm over how Ms Pascua performed her work that suggests she was not running her own enterprise – the PBX phone system, the email address, the level of direction in the tasks to be performed in the daily instruction she received.
• Despite being invoiced by Ms Pascua, the hourly rate described in the contract was that of a full-time employee, and the invoices were to be forwarded weekly for the previous week’s work. The FWC also noted that the most likely rate for Ms Pascua as an employee would be $30.95 per hour (the casual rate for level 2 legal clerical work). To this, the FWC noted that genuine independent contractors would normally specify a fee that was greater, not less, than the minimum wage.

The FWC found that the description of the arrangement as that of independent contractor belied the actual nature of the contract.

When it came to the clauses excluding matters such as the payment of income tax, workers compensation, annual and personal leave relied on by the legal firm as confirmation of an independent contractor arrangement, the FWC referred to the Deliveroo Australia Pty Ltd v Diego Franco case and others. That is, the FWC considers, “the statements in the contract about meeting the obligations consequent upon the labelling of the arrangement as one of independent contractor to have little weight in determining the true nature of the relationship.”

The new definition of employee and employer

In August 2024, a new definition of what is an employee and employer came into effect in the Fair Work Act. This new definition extends the High Court’s decision in CFMMEU v. Personnel Contracting Pty Ltd and ZG Operations Pty Ltd and Jamsek to rely on the nature of the contract between the parties, not just what the contract says. The intent of the legislative change appears to be to ensure that clever drafting of a contract alone will not be sufficient to define an independent contractor arrangement.

The Fair Work Act now requires that the true relationship between the parties is, “determined by ascertaining the real substance, practical reality and true nature of the relationship between the individual and the person.” The totality of the relationship needs to be considered including how the contract is performed in practice.

What does this decision mean for employers?

The FWC’s decision in Ms Joanna Pascua v Doessel Group Pty Ltd highlights how cautious employers should be about the nature of employment relationships. Just because you label an arrangement as that of an independent contractor, does not mean it is. And if you get it wrong, beyond the industrial relations impact, you might be liable for the tax, payroll tax and workers compensation payments that should have been made.

What makes this decision unusual is how an international employment arrangement can be drawn into the national workplace system. Regardless of the geographic location of an employee, if your business is an Australian national system employer (bound by the Fair Work Act), and the individual is deemed to be an employee, the same rights and obligations may apply to that employee as to other employees located in Australia.

While not addressed in this case, the FWC also referred to the minimum wage for a paralegal performing work such as that undertaken by Ms Pascua. While not applicable to this case, from  1 January 2025, wage theft will become a criminal offence – where an employer is required to pay an amount to an employee but intentionally underpays.  For international employees where rates might be significantly different to Australian expectations, it is more important than ever to ensure you have characterised the employment relationship correctly.

Tax obligations and international workers

We’re often asked about the implications of working with overseas, non-resident workers who are working for a resident Australian company.

Let’s say you want to engage the services of a non-resident individual.

Contactor or employee?

The first step is to ensure that the arrangement is correctly classified. As we have seen from the Ms Joanna Pascua v Doessel Group Pty Ltd case, this really depends on the specific situation. From a tax perspective, the ATO has outlined their guidance in Employee or independent contractor, but you might need specific advice if you are uncertain.

Implications of an employment relationship

If the worker is classified as an employee and they are a non-resident for Australian tax purposes, then they should only be taxed in Australia on income that has an Australian source. However, you need to check whether a double tax agreement (DTA) could impact on the outcome – Australia has around 45 bilateral DTAs. For example, if the employee was a resident of say the Philippines, then Article 15 of the double tax agreement (DTA) between Australia and the Philippines generally prevents Australia from taxing the employment income unless the work is performed in Australia.

Pay as you go (PAYG) withholding should not generally apply if the worker is a non-resident employee and is only deriving foreign sourced income. Generally, PAYG does not need to be withheld under the PAYGW rules from a payment of salary / wages to someone if the payments are not taxed in Australia.

Superannuation guarantee should not apply if all the work is performed overseas, and the worker is a non-resident.

It will be important to get specialist advice in the employee’s country of residency to determine whether there are any obligations that need to be satisfied under local tax or super systems (e.g., withholding, superannuation or superannuation like contributions, etc).

Tax implications of independent contractors

If the worker is classified as a genuine independent contractor (or they are working through a trust or company) and they are a non-resident, then they should only be taxed in Australia on Australian sourced income. Using the same example, if the contractor is a resident of the Philippines, then Article 7 of the DTA would generally prevent Australia from taxing their business profits or income unless they relate to a permanent establishment that the contractor has in Australia (see Will a foreign worker mean your business is carrying on a business overseas? below).

PAYG withholding should not apply as long as:

• The contractor provides an ABN; or
• A DTA prevents the income from being taxed in Australia; or
• The contractor does not carry on an enterprise in Australia. If the contractor performs all their work overseas, they don’t have any physical presence or employees in Australia, then it might be possible to argue that they don’t carry on an enterprise in Australia. The company could ask the contractor to complete a statement by supplier.

Payments to foreign contractors might need to be reported to the ATO on the taxable payment annual report (TPAR) if your business provides building and construction, cleaning, courier and road freight, IT or security, investigation or surveillance services.

Will a foreign worker mean your business is carrying on a business overseas?

By having foreign workers, there is a risk that the business will be considered to be carrying on a business through a permanent establishment in the relevant foreign country. This could potentially expose an Australian business to tax in the foreign country on some of its business profits.

A permanent establishment is generally defined in Australia’s double tax agreements as being a fixed place of business through which the business of the enterprise is carried on in whole or part. Each DTA is a unique document which means that the definition of permanent establishment might be different depending on which foreign country you are dealing with.

This area can become complex very quickly and it is a good idea to get advice to ensure that you have certainty about your obligations.

Contact Indigo Financial on (08) 8212 8585 for all your accounting and business development needs.

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The cost of living has eased over the past year but consumers are still under pressure. For business, planning is the key to managing Christmas volatility.

The countdown to Christmas is on and we’re in the midst of a headlong rush to maximise any remaining opportunities before the Christmas lull. Busy period or not, Christmas causes a period of dislocation and volatility for most businesses. The result is that it is not ‘business as usual’ and for many, volatility can create problems.

Added to this dislocation are cost of living pressures impacting consumers. Employee households are the hardest hit experiencing mortgage cost fuelled increases – spiked by the rollover of fixed rate loans to higher variable rate loans. While there has been some relief from energy subsidies and a reduction in fuel prices, underlying inflation remains persistently above the RBA’s target rate. Services inflation – the cost of your rent, insurance, your hairdresser, etc. – is sitting at around 5%. With the Reserve Bank of Australia (RBA) Board keeping rates on hold for now and hinting that it will be some time yet before they are comfortable reducing rates, consumers want a reason to spend based on value for money. The irony is that if we all spend up big, which a recent Roy Morgan poll suggests we are, there is a risk this elevated spending will further delay rate cuts. But, while we might spend more, some of this increase is simply to compensate for inflation – we need to spend more to buy at the same level as previous years.

The discounting trend

Consumers expect a bargain and can generally find one. If you choose to discount stock (or the market forces you to), it’s essential to know your profit margins to determine what you can afford to give away. A business with a 20% gross profit margin that offers a 15% discount, needs a 300% increase in sales volume simply to maintain the same position. Worst case scenario is that a business trades below its breakeven point and generates losses.

Increased sales from discounting can be great if you know your numbers, have excess or older stock that needs to be moved, generates demand, or drives new customers to you.

Also think about how you create value; it does not always have to be a direct discount on a product. Packaging might be a better option than a straight discount where you can increase sales of multiple items, even better if you can combine higher demand with lower demand stock. Quantity discounts, value added are also options.

The Christmas cost hangover

Costs tend to go up over Christmas. More staff, lower efficiency, downtime from non-trading days, increased promotional costs, all mean that the cost of doing business increases. It’s great to get into the Christmas spirit as long as you don’t end up with a New Year hangover. Cost control is important.

Many businesses also bring in casual staff. It’s essential that you pay staff at the correct rates and meet your Superannuation Guarantee obligations.

Check the pay calculator to make sure you have it right.

New Year cashflow crunch

The New Year often leads into a quieter trading and tighter cashflow period. The March quarter is often the toughest cashflow quarter of the year. You will need a cash buffer. Don’t over commit yourself in the run up to the end of the year and start the new Year with a problem.

Take a lesson from Scrooge

If you work with account customers, start your debtor follow up early. If your customers are under cashflow pressure, the Christmas period will only exacerbate it. The creditors that chase debt hard and early will get paid first. Don’t be the last supplier on the list; the bucket might be empty by then.

Christmas is a great time of year. Just don’t get caught up in the rush and forget about the basics.

Trading stock headaches

If business activity spikes over the Christmas period and you sell goods, then there is a temptation to increase stock levels. That makes sense as long as you don’t go too far. Too much stock post the Christmas period and you will either be carrying product that is out of season, or you will have too much cash tied up in trading stock. Try to work with suppliers that can supply on short notice.

Managing your trading stock is not just about managing cost. If your customers are in your store but can’t find what they need, have an online option available in store to take the sale.

Contact Indigo Financial on (08) 8212 8585 for all your accounting and business development needs.

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

If you are aged 55 years or older, the downsizer contribution rules enable you to contribute up to $300,000 from the proceeds of the sale of your home to your superannuation fund (eligibility criteria applies).

In 2023-24, over 57% of people making a ‘downsizer’ contribution to super were women. And, the average value of the contribution was marginally higher at $262,000 versus $259,000 contributed by men.

The most likely age someone makes a downsizer contribution is between 65 and 69. From age 65, a downsizer contribution can be withdrawn from super if your circumstances change, even if you are still working. Those aged 55 to 64 generally won’t have access to these funds until they are at least 60 and retired.

Downsizer contributions are excluded from the existing upper age test, work test, and the total super balance rules (but the amount that can be moved to a retirement pension is limited by your transfer balance cap).

For couples, both members of a couple can take advantage of the concession for the same home. That is, if you or your spouse meet the other criteria, both of you can contribute up to $300,000 ($600,000 per couple). This is the case even if one of you did not have an ownership interest in the property that was sold (assuming they meet the other criteria).

To be eligible to make a downsizer contribution you do not have to buy another home once you have sold your existing home, and you are not required to buy a smaller home – you could buy a larger and more expensive one and make a downsizer contribution if you have access to other funds.

EXAMPLE 1: Contribution of maximum amount
A couple, George and Jane, sell their home for $800,000. Each spouse can contribute up to $300,000.

EXAMPLE 2: Contributions can’t exceed the total sale price
A couple, Bruce and Betty, sell their home for $400,000. The maximum contribution both of them can make is $400,000 in total. This means they can choose to contribute half ($200,000) each, or split it – for example, $300,000 for Betty and $100,000 for Bruce.

EXAMPLE 3: When a property is owned by one spouse
A couple, John and Fatima, sell their home for $600,000. Only John is on the title. Both John and Fatima meet all the other requirements, therefore both of them can both make a downsizer contribution of up to $300,000 each.

How to make a contribution

• Contact your super fund(s) to check that they accept downsizer contributions.
• You’ll need to submit a Downsizer contribution into super form (NAT 75073) to your fund(s) with or before your contribution is made. If you don’t, your fund may not be able to accept your contribution as a downsizer contribution.
• If you make multiple contributions to one or more super funds, you must provide a Downsizer contribution into super form for each contribution. The total of your contributions cannot exceed $300,000.
• Contributions must be made to your super fund within 90 days of receiving the proceeds of sale. However in some circumstances you may be able to request an extension of time.

If you make an invalid contribution

If the Australian Tax Office (ATO) becomes aware that your contribution doesn’t meet the eligibility requirements, your fund will need to assess whether it could have been made as a personal contribution under their acceptance rules.

If your contribution is accepted as a personal contribution, the amount will count towards your non-concessional contributions cap.

If your contribution can’t be accepted, the contribution amount will be returned to you by your super fund.

Penalties may apply for making a false and misleading statement if you incorrectly declare you’re eligible to make a downsizer contribution.

Reach out to Indigo Financial on (08) 8212 8585 if you need assistance understanding the facts and implications of downsizer contributions.