Publications

06 Jun

Posted at 14:27h in Income Tax

Division 7A continues to be a minefield for taxpayers. Even relatively “settled” positions regarding unpaid present entitlements are now being disputed in litigation, with at least some initial success.1 

Companies being partners in partnerships, and what if any impacts Division 7A has on that structure has not been considered at length outside of specific limited partnership schemes (which is not the topic of this article). However there are some signs that the there may be Division 7A issues associated with common occurrences with corporate partners.  

While the ATO formerly maintained a “FAQ” regarding Division 7A, which contained some non-binding view of the ATO in respect of how Division 7A interacts with partnerships,2 it appears this document has been withdrawn, and some private rulings suggest that the ATO’s position may have shifted.3

Discussing these issues will be assisted by the use of a case study. Consider the following scenario: 

  • Ms Bloggs and Bloggs Trading Pty Ltd (BT Co) are partners in a general law partnership that operates a successful business; 
  • Ms Bloggs is the sole shareholder in BT Co; 
  • BT Co has made no loans or payments to Ms Bloggs, except by way of a properly declared dividend; 
  • the profits from the partnership have generally been retained by the partnership to fund future working capital, such that each of the partners have a partnership account owing to the partner; and 
  • due to a brief period of financial instability following Ms Bloggs’ separation from her spouse, the partnership loaned funds at a nominal interest rate to Ms Bloggs, and that loan is still outstanding.  

A partnership comprising of one or more private companies and one or more individuals is not an uncommon structure. It is also not uncommon for the individuals to be either shareholders in the company partner or be associates of those shareholders via a trust or other entity.  

Does Division 7A apply to any part of this structure? The answer is frustratingly unclear and has been made more unclear by recent ATO rulings. 

The starting point

There are a few key legal points to understand before delving into this structure. The first is that for most tax purposes a partnership is treated as an entity. This is the case whether it is a “general law partnership” and carries on a business or is a “tax law partnership” and the partners merely receive income jointly.  

The second key point is that a loan for Division 7A purposes is specifically defined in the legislation to include, among other things, a “financial accommodation” or a “transaction (whatever its terms or form) which in substance effects a loan of money”.4  

The ATO takes a broad interpretation of financial accommodation in Taxation Determination TD 2022/11 (TD 2022/11), which replaced the ATO’s earlier rulings on this point. The ATO considers that “the phrase ‘financial accommodation’ in paragraph 109D(3)(b) has a wide meaning. It extends to cases where an entity with a trust entitlement has knowledge of an amount that it can demand and does not call for payment.”5

This is the basis on which the ATO considers unpaid present entitlements owing to company beneficiaries of trusts to be loans for Division 7A purposes.  

Loans from partnerships 

Turning back to our case study, is there a risk that Division 7A could apply to the loan from the partnership to Ms Bloggs? 

There are potential issues here: whether the company, by virtue of being a partner in a partnership, is owed money by its shareholders, or whether the interposed entity rules in Subdivision E of Division 7A could apply (where the partnership is the interposed entity).  

Has the company made a loan? 

Under general law, a partnership is not an entity. Each partner holds an interest in the assets of the partnership, which can include loan assets. In our case study, BT Co holds an interest in a loan to its shareholder by virtue of being a partner in the partnership that has made a loan. 

There is a reasonable argument that, because the tax entity rules apply to Division 7A,6 meaning the partnership is treated as a separate entity for these tax purposes, the only entity which has made a loan for the purposes of Division 7A is the partnership, not BT Co, meaning Division 7A would not apply to the loan from the partnership to Ms Bloggs. It may still apply for other reasons, discussed below.   

The interposed entity rules in Subdivision E of Division 7A apply only where a company makes a payment or loan to the interposed entity.7   

In our case study, BT Co has not made a traditional loan or payment to the partnership. But it has an entitlement to an amount by the partnership because BT Co has not fully drawn down its partnership account.  

Under the ATO’s expansive view of financial accommodation, does BT Co make a loan to the partnership (meaning the first step in applying the interposed entity rules is satisfied) when it chooses not to draw on its partnership account? This takes us to our key issue, and one where we are concerned the ATO may take an aggressive approach.  

Can an undrawn partnership account be a loan for Division 7A? 

The ATO has, in private binding ruling PBR 105219530678 made in 2023, set out its view that a deemed dividend arises in circumstances where a company underdraws on its partnership account, while related individuals overdraw their partnership accounts. This is because the ATO considered it to be a financial accommodation between the company and the individuals.  

Further, the ATO considers that a loan made by the partnership to the individual partners represents a financial accommodation from the company to the individuals. 

The ATO’s logic is that by acquiescing to the arrangement (either the unequal drawings, or the loan), and by not calling on the profits owed to it, the company has made a financial accommodation (within the ATO’s broad interpretation of that expression as set out in TD 2022/11) to the other partners. 

There is no particular reason this logic would not equally apply to undrawn partnership accounts even where those partnership drawings are equal between company and non-company partners. In that case, there is still a company that, in its capacity as a partner, is choosing not to demand payment of an amount owing to it. Another entity is then getting the benefit of that money – either the partnership, or the other partners indirectly.  

This would seemingly run contrary to the now withdrawn non-binding “FAQ” the ATO previously published.  

It would seem an absurd outcome that if a company chooses to not call on payment of its partnership profit as to allow the partnership to retain working capital, Division 7A is triggered and a deemed dividend arises. But where the partnership pays out all its profits and concurrently demands working capital contributions from its partners, then Division 7A would not apply because the resulting capital contribution is a discharge of a pecuniary liability and exempt.  

However, that is the necessary conclusion from the line of logic that starts with a position that “a failure to call upon moneys owing is financial accommodation” – which is the ATO’s position in respect of unpaid present entitlements from trusts and appears to be the ATO’s position in respect of partnership accounts, at least where those partnership accounts are uneven.   

It may be that the ATO adopts a position that unpaid partnership accounts are only a Division 7A issue where the accounts are not even, and the company partner has underdrawn its partnership account, and the individual partners have overdrawn their partnership account.  

But this position is not logically consistent with the view that, if a company chooses not to demand payment of an amount owing to it, it has made a financial accommodation (either to the partnership, or to the other partners) – as expressed in PBR 105219530678.  

If the company partner has made a financial accommodation to the partnership by not drawing all its partnership profits, then that financial accommodation can presumably be the first ‘step’ in applying the interposed entity rules for Division 7A to any payment or loan from the partnership. 

To return to our case study to illustrate the result of the ATO’s apparent position:

  • BT Co may have made a financial accommodation to Ms Bloggs (its shareholder) by choosing not to demand payment of its partnership profits – which would be a deemed dividend; and 
  • BT Co may have made a financial accommodation to the partnership, which may have allowed the partnership (being a separate entity for tax) to make a loan to Ms Bloggs – which would be a deemed dividend to Ms Bloggs under the interposed entity rules for Division 7A. 

What are the arguments against this interpretation? 

It may be possible to argue that because partnership accounts may lack the fundamental component of a loan – the absolute obligation to repay – then having an undrawn partnership account is not a financial accommodation from the company.  

Another approach would be to recognise that a partnership (despite any tax deeming as an entity for certain tax purposes) is not separate from its partners at general law. It, therefore, seems to follow that there can be no debt/no financial accommodation owed for undrawn partnership accounts where, at general law, a partner is dealing with itself regarding that entitlement in the normal course.  

There is precedent for the ATO recognising limits to the effect of a partnership being a deemed entity for tax purposes in the GST position that deemed tax law partnerships cannot have partnership capital8. (But note, this reasoning differs from the ATO views noted below from PBR 1051393604802, about capital contributions being payments to the partnership entity.) 

On this basis, only to the extent partnership funds have been lent/draw disproportionately, are there dealings are with other parties – which may then be characterised as loans/financial accommodation by a partner, to that extent.  

We would expect the ATO would contest this interpretation because if it is correct, it could call into question the ATO’s position on unpaid present entitlements. Similarly to partnership accounts, it is possible for an unpaid present entitlement to exist almost perpetually (although a trust may end after 80 years, the trustee could still hold those entitlements for the benefit of the company after vesting).  

This feeds into a broader argument as to whether the ATO’s interpretation of “loan” in the context of Division 7A is correct – a position currently being tested in Bendel and Commissioner of Taxation (Taxation) [2023] AATA 3074 where the taxpayer was successful in the Tribunal but (at the date of this publication) the ATO had appealed that Tribunal decision to the Federal Court.  

Due to the particular arguments in Bendel its impact may be limited to whether unpaid present entitlements are financial accommodation – so even a favourable decision on this matter may not provide certainty on the treatment of undrawn partnership accounts.  

But it is submitted that partnership circumstances can/should be recognised as materially different from that of unpaid present entitlements owed from trusts/trustees, regardless of the outcome in Bendel. With unpaid present entitlements, there is typically a legal person (the trustee) separate from the beneficiary. As noted above, this is not the case for partners. Arguably, only to the extent partnership funds have been lent/draw disproportionately should potential Division 7A issues arise. 

How can this risk be managed? 

Given the lack of clarity from the ATO as to how Division 7A interacts with partnerships the remaining question is how best to manage these risks where they operate a partnership that includes at least one company. 

First, taxpayers should test the ownership structure of the company to confirm whether the partnership or the non-company partners are shareholders or associates of shareholders in the company. If they are not (for example, because the partners are all unrelated parties), then Division 7A may not have any operation.  

It is open to a taxpayer to adopt a position that undrawn partnership accounts are not financial accommodation and Division 7A does not apply. But taxpayers should be made aware of the risks associated with adopting this position – while they may ultimately be proven true, it may involve a costly audit, objection and litigation process to arrive at that conclusion. 

Otherwise, as a starting point, it would appear that the partners in a partnership should draw down their partnership accounts at equal rates. If this approach is adopted, then the ATO would not be able to argue that non-company partners had benefitted from the company choosing not to drawdown its partnership account, or that the company has indirectly funded the over-payments to the individuals. 

Where a partnership is intending to make a loan to a partner, you may wish to consider putting it on Division 7A complying terms – that is with a maximum term with interest and minimum principal repayments calculated in accordance with Division 7A. This would resolve any concern that the individuals are somehow “getting access” to company money without that company receiving compensation. Alternatively, the company could make the loan directly to the individuals.  

A genuine contribution of capital is not subject to Division 7A 

Finally we note that the ATO has seemingly kept to its position that a genuine contribution of capital to a partnership by a company partner is not a payment that is a deemed dividend.  

The ATO see the contribution as a payment (to an entity) but accepts it does not cause a deemed dividend because it is s merely the discharge of a pecuniary liability and not more than what an arm’s length party would pay (under the terms of the partnership).9 This has been confirmed in one private ruling made in 2018 of which we are aware PBR 1051393604802. 

That PBR also reasons that the capital contribution is not a loan for Division 7A purposes, because it “is made in accordance with the Partnership Agreement and for purposes which are consistent with the purpose of the Partnership”.  

Annexure – ATO FAQ on Division 7A

This copy was extracted from Alex Kokkinos and Leo Gouzenfiter’s Tax Institute paper, “Division 7A – Everything old is new again”:

Footnotes

  1. Bendel and Commissioner of Taxation (Taxation) [2023] AATA 3074 ↩︎
  2. The relevant part has been extracted and replicated in the Annexure to this article ↩︎
  3. See for example PBR 105219530678 ↩︎
  4. Section 109D(3) ITAA36 ↩︎
  5. TD 2022/11 at [6] ↩︎
  6. Section 109ZE ITAA36 ↩︎
  7. Section 109T(1) ITAA36 ↩︎
  8. GSTR 2004/6 paragraph 103 ↩︎
  9. Section 109J ITAA36 ↩︎

06 Jul

Posted at 09:20h in Corporate tax advisory services, Debt management matters, GST, Payment arrangements, Providing support to other accountants and lawyers, Superannuation, Tax advisory services

Payday super is now in effect

1. Employers should now be aware of the Federal Government’s ‘Payday Super’ reforms, which commenced from 1 July 2026.

2. These changes were introduced in November 2025 by the Federal Government, amending the Superannuation Guarantee Charge Act 1992 and the Superannuation Guarantee (Administration) Act 1992 (SGAA).

3. For employers, the most important change is the removal of quarterly superannuation guarantee payments. Now, in most circumstances, employers must make superannuation contributions on behalf of their employees at the same time as they pay salary and wages.

4. If these payments are not received by the employee’s superannuation fund within seven days, or are not made at all, the employer may be liable to pay superannuation guarantee charge (SGC).

5. An SGC liability will be assessed by the Australian Taxation Office (ATO) on an employee’s ‘qualifying earnings’, a concept introduced by the November 2025 reforms, replacing the former ordinary time earnings basis for calculating superannuation obligations.

6. The SGC also includes an interest component, calculated by reference to the ATO general interest charge (GIC) rate on a daily compounding basis, together with an administrative uplift that may vary depending on the employer’s compliance history. The administrative uplift may be reduced where the employer makes a voluntary disclosure, and the SGC is generally tax deductible under the new regime.

Risks for businesses engaging contracts

7. If your business engages contractors, you may think that Payday Super (and superannuation, generally) does not apply to the contractors. However, this may not be the case. Section 12 of the SGAA operates to expand the definition of ‘employee’, for superannuation purposes, to include individuals engaged under a contract that is ‘wholly or principally for their labour’.

8. Accordingly, where contractors have been engaged, it is important to ensure that the contractor arrangement does not fall within the scope of s 12(3) of the SGAA. If it does, the contractor is treated as an employee for SG purposes and, as a result, the business is required to make superannuation contributions on behalf of the contractor.

9. The ATO regularly reviews contractor arrangements. In the recent Administrative Review Tribunal decision in Balmain Dental Clinic Pty Ltd v Commissioner of Taxation [2026] ARTA 895 (Balmain), a dental practice was held to be liable for approximately $70,000 in unpaid superannuation. In Balmain, the terms of a contractor oral therapist’s contract with the dental clinic were deemed to constitute a contract ‘wholly or principally for the labour’ of the oral therapist. Relevantly, under the contract, the oral therapist:

(a) lacked genuine business autonomy or a right of delegation; and

(b) worked under significant control by the clinic.

What can I do?

10. The Payday Super reforms impose tighter compliance obligations and expanded penalties. This means that there are more ways that your business can be inadvertently tripped up when engaging contractors.

11. It is a good opportunity to review all contractor agreements from a superannuation perspective and, where needed, update agreements or assess potential risks.

12. If you would like assistance reviewing your contracts or assessing your obligations under the new regime, please contact our team.

       

      23 Jun

      Posted at 09:34h in CGT, Corporate groups, GST, Income Tax, Private wealth families, Providing support to other accountants and lawyers, Small to medium enterprises, Tax audits and reviews, Tax objections, Tax practice areas

      Earlier this month, Jack Colley (a Senior Associate of West Garbutt) presented the following paper which he co-authored with Alex Whitney (a Principal of West Garbutt), at The Tax Institute’s Agribusiness Intensive. The paper discusses the full lifecycle of a dispute – from risk and review to audit and objection, providing practical strategies for dealing with the ATO and effectively managing disputes.

      Link to paper.

      19 Jun

      Posted at 14:53h in CGT, Income Tax, Providing support to other accountants and lawyers, Tax practice areas, Trusts and Equity

      Principal Mark West and Senior Associate Hugo Southcott’s paper on a practical walk-through of the decisions and tax mechanics that sit behind “just do the trust distribution”, using a prior-year fact pattern that can get complicated by current-year activities (sale of assets, dividends received, and changed beneficiary tax profiles).

      This case study will demonstrate:

      • How to think about distributions and what is it we’re actually trying to distribute (and why the deed definition matters)
      • What are the distributions to be made? Are we talking about income or capital? The practical sequencing to consider when you’ve got ordinary income, capital gains, and franked distributions
      • Making beneficiaries “specifically entitled” to capital gains and franked distributions and where advisers commonly get things wrong
      • How Division 6E interacts with Subdivision 115-C/207-B
      • Capital gains streaming realities – the impact of concessions, the “rateable reduction”, and why the taxable gain outcome can differ from the economic gain you think you’re allocating
      • What happens where distributions are made through the year – Interim distributions, the timing of present entitlement, and what can (and can’t) be “fixed” at 30 June when the facts change late; and
      • Deed and beneficiary class traps – Who is eligible, deed restrictions, and “default beneficiary” consequences when the intended beneficiary can’t receive what you’re trying to allocate.

      Link to the paper here.

      28 May

      Posted at 09:06h in CGT, Income Tax, Trusts and Equity

      On 12 May 2026, the Federal Government released the document titled ‘Budget 2026-27: Minimum tax on discretionary trusts’ (the ‘Tax Explainer’) to explain the reasoning behind the proposed 30% minimum tax rate for trusts – and key aspects of how the minimum tax rate will apply.

      In seeking to understand how these presently proposed and unlegislated Budget changes may affect operation of discretionary trusts, at this stage, we can only rely on the Tax Explainer and the expressed underlying policy of the changes.

      Comments on tax policy context of trust changes

      The ‘Tax Explainer’ seeks to justify the announced changes on policy grounds that confuse some concepts. It states:

      “The introduction of a 30 per cent minimum rate will mean a fairer rate of tax paid on discretionary trust income, better aligning the tax rate on trust income with the tax rates paid by workers.” 

      It is not a comparison to the corporate rate that is advanced in the ‘Tax Explainer’.

      Also, from the ‘Tax Explainer’:

      “… discretionary trusts also allow lower tax rates to be achieved through ‘income splitting’, where trustees of discretionary trusts allocate all or part of their income to others who have a lower marginal tax rate, while often retaining the income.”  This seems to refer to issues dealt with by section 100A.

      … families with discretionary trusts faced an average tax rate around 4 percentage points lower compared with families with similar incomes who do not use a trust. Note the reference to ‘families’, not individual taxpayers. This invites questions around why Centrelink and other payment benefits to all family members should not also be taken into account in making such a financial comparison (in addition to the tax rates of the ‘workers’). The income from a discretionary trust distributed within a family often excludes the members of the family from such Centrelink and other payment benefits.

      This flexibility is not available to individuals without a trust. It seems to be the discretionary nature of a trust that is deemed to be of concern.

      … can result in different tax outcomes for people with similar levels of income.” The reference to ‘people’ is an unhelpfully imprecise term. Further, the reference to ‘similar level of income’ does not allow for different circumstances under which that income is earned.

      These comments in the ‘Tax Explainer’ feign support of the concept of horizontal equity (without making specific mention), which is defined in paragraph 31 of the (Ralph) Review of Business Taxation in 1999 as:

      “Horizontal equity requires that taxpayers in similar situations are taxed in a similar manner and that transactions of similar economic substance are taxed similarly.”

      ‘Entity tax’ from that ‘Ralph Review’ was advanced on the basis of a company being the appropriate vehicle through which to ‘unify’ the treatment of entities (to advance horizontal equity). John Ralph, the review chair, came from the corporate world. His recommendation for ‘entity taxation’ reflected that outlook.

      The entity tax proposal was not implemented because the reasoning wasn’t compelling that companies were the appropriate vehicle through which to so ‘unify’ the treatment of entities. Trusts are/were already flow through entities (unlike companies) and, as such, do not distort the achievement of horizontal equity.

      The whole reasoning underlying the imputation system is directed to achieving this horizontal equity (for the most part, the CGT discount is an exception) for the income that is derived through companies – where the lower (than the top 47% tax rate) 30% company tax rate is accepted as appropriate (as an initial tax rate) for corporate business/investment activities (where profits may then be reinvested).

      But ‘entity tax’, using companies as the benchmark entity, wasn’t going to maintain horizontal equity with its ‘profits first’ rule, as compared to if the entity’s income/capital flowed directly to/from individuals (as through trusts). That ‘profits first’ rule would have meant that the simple withdrawal of trust capital (a common occurrence in a family situation) may have been assessable to tax, like a dividend from a company.

      The new approach under the announced 2026-27 Budget changes seeks not to benchmark against companies but instead against ‘workers’. The 30% tax rate happens to also be the (main) company tax rate but that seems coincidental (maybe contrived) to 30% being the average tax rate adopted for comparison with ‘workers’.

      The chosen new approach seeks to avoid the complications of providing for a coherent ‘full’ entity tax regime by just imposing the minimum 30% tax at the trustee level – and leaving taxpayers to deal with the consequences.

      The ‘worker-based’ reasoning does not acknowledge that the different circumstances that should inform horizontal equity include that the type of income does not need to be tied to an individual when it is from business or investment. Also, that business/investment income involves risks and other features.

      The result is an inconsistency in proposing the minimum 30% tax rate for business/investment income earned through a discretionary trust, where that same business/investment income is accepted where earned through a company – without a minimum tax rate, after franking credits – including where a company may have different share classes that can replicate the discretionary nature of a trust.

      Regardless of the inconsistency, it seems to be the discretionary nature of trusts that offends the Government/Treasury – and the ATO, as clearly a prime mover behind the proposed changes from the wording of the ‘Tax Explainer’.

      No recognition is given to the fact that it is the very discretionary feature of a discretionary trust that achieves the asset protection and succession planning acknowledged in the ‘Tax Explainer’. (Hence the controversy over testamentary trusts now playing out.).

      But that discretionary feature does not offend horizontal equity. The types of income being considered are not the same between a ‘worker’ and the business/investment of a trust, any more than when compared to the business/investment income of a company.

      Nonetheless, the apparent policy intent needs to be taken into account – and, for now, in the absence of legislation is our only further guide in adding to the limited specifics included in the ‘Tax Explainer’ – when trying to project how the proposed trust tax changes may affect the operation of discretionary trusts.

      Some practical issues that will arise

      The proposed imposition of the minimum 30% tax at the trustee level (from 1 July 2028), together with the proposed abolition of the 50% CGT discount for individuals, partnerships and trusts (from 1 July 2027) will have implications for strategies of making specific trust distributions of capital gains and franked dividends.

      Further, the approach of just imposing the minimum 30% tax at the trustee level and leaving taxpayers to deal with the consequences will give rise to various practical issues with which we will need to deal. Below are a few such practical issues that occur to the author now. No doubt there will be more.

      Flow through of multiple trusts – the ‘Tax Explainer’ says:

      “Individuals and other non-corporate beneficiaries will receive non-refundable tax credits for the tax payable by the trustee, which reduces their income tax payable.”

      Such flowed through credits should avoid double taxation – at least for individuals and other ‘non-corporate beneficiaries’.

      Will such ‘non-corporate beneficiaries’ include charities? What other ‘legal persons’ exist other than individuals or companies?

      But franking credits will not flow through – as the ‘Tax Explainer’ says:

      “To ensure the use of refundable franking credits does not undermine the minimum tax:

      • trustees that receive franked dividends will be required to use their franking credit to pay the minimum tax; and
      • corporate beneficiaries will not receive non-refundable credits for tax payable by the trustee, to avoid them converting these to refundable franking credits to avoid the minimum tax.”

      Hence, there are issues around bucket companies. Trust income ($100) taxed at 30% ($30) then distributed ($70) to a company would seemingly incur further tax to the company on that $70 at 30% ($21) or 25% ($17.50) – so total tax of 51%/47.5%.

      When then flowed on to individual shareholders of the company, they will seemingly only get franking credits of $21/$17.50. If this is correct, for individual shareholders on the top tax rate (47%), the total effective tax rate on the original trust income would be 63%.

      There is a question of whether a trust with losses still be able to flow through all the franking credits (to non-corporate beneficiaries) if there is, say, $1 of income (as now). The ‘Tax Explainer’ says on franking credits:

      “… stakeholder views will also be sought on how the trustee uses franking credits that exceed the minimum tax liability …”

      Because the credits for the minimum 30% trust tax will not be refundable:

      a) trust beneficiaries on lower marginal tax rates will not receive the benefit of those lower rates;

      b) trust beneficiaries on higher marginal tax rates will still be taxed at the higher rate(s) with a credit for the 30%;

      c) income directed to trust beneficiaries that are non-DGR (deductible gift recipient) tax exempt charities (e.g. churches) will be taxed at the trust level (versus that income now being tax exempt). Even if such non-DGR tax exempt charities are accepted as ‘other non-corporate beneficiaries’ they will not obtain refunds of the minimum trust tax. Tax will therefore apply where previously none did;

      d) for franked dividends flowed through a trust to such non-DGR tax exempt charities, a charity currently obtains a refund of the franking credits on its share of the dividend income distributed to it. Those franking credits do not appear to flow through under the proposed changes, instead being applied against the 30% minimum trust tax. Again, tax will apply where previously none did, because non-DGR tax exempt charities will not obtain refunds of the minimum trust tax; and

      e) trust beneficiaries will be denied deductions for the application of their trust distributions to DGRs, deductible superannuation and other deductible purposes, where the 30% trust tax applies without refund.

      Trust resolutions will need to allow for the minimum 30% trust tax.

      Because the minimum 30% trust tax will apply to the trust net income, timing differences between tax and book income will need to be considered when making distributions to different beneficiaries over time.

      Trust deed definitions of ‘trust income’ may need revisiting.

      There will be the duty and other issues arising from any restructure out of a trust – even with the proposed rollover relief for CGT.

      It is unclear if any changes to Division 7A are planned to recognise a reduced tax risk where a company taxed at 30% is owed an amount – as either a loan or an unpaid present entitlement – by a trust that has already also been taxed at 30%. It is arguable that the retention of funds by (within) the trust (e.g. as working capital) in these circumstances should not be a concern.

      Present indications are that existing tax treatments will remain in place, so that such changes to Division 7A cannot be assumed.

      For more information, please contact Mark West.

       

      15 Apr

      Posted at 15:15h in Corporate tax advisory services, Debt management matters, GST, Payment arrangements, Providing support to other accountants and lawyers, Superannuation, Tax advisory services

      In this article, we highlight potential tax administration traps for Queensland law practices which they should be aware of, particularly in light of upcoming renewals.

      Accountants and tax practitioners often liaise with the Australian Taxation Office (ATO) on behalf of clients in the context of debt management, including to seek extensions of time and/or to arrange payment arrangements for outstanding debts.

      Whilst it is not uncommon for these arrangements to be entered into, particularly on behalf of small businesses, consideration needs to be given to any adverse ramifications that may arise for clients who are members of professional bodies, including for instance lawyers and tax agents.

      This article focuses on the professional obligations of members of the Queensland Law Society (QLS) to illustrate the issues Queensland legal practitioners need to be mindful of.

      BAS debt

      Ordinarily, Australian businesses have the options of entering into payment arrangements with the ATO to pay debts arising from business activity statements (BAS) via instalments. This is commonly used as a method of debt management when businesses are experiencing cash flow difficulties. However, if such arrangements are entered into by a Queensland law practice, it is a matter that each principal of the law practice is required to report to the QLS.

      This is because QLS regards the non-payment of tax debts by their due dates (as reflected by interest charges continuing to accrue during the period any instalment arrangement remains on foot) as conduct capable of constituting professional misconduct on the part of the principals of the law practice.

      In contrast, requesting and obtaining an extension of time may not necessarily be a failure to comply with a law practice’s tax obligations, if the ATO formally varies the due date in accordance with its powers to do so.

      Reporting, to QLS, a failure to comply with tax obligations must occur by no later than the application for renewal of the principal’s practising certificate, immediately following the failure to comply.

      Superannuation liabilities

      In the context of meeting superannuation obligations, principals of Queensland law practices need to be particularly mindful of ensuring due dates are complied with.

      Currently super guarantee payments are required to be received by an employee’s super fund within 28 days of the end of the quarter.

      From 1 July 2026, employers (including Queensland law practices) will be required to pay employees their super guarantee on payday (Payday Super), at the same time as the employee’s salary and wages.  Each time ordinary earnings are paid to employees, there will be a new seven day ‘due date’ (subject to some limited exceptions) for contributions to arrive in the employee’s superannuation fund.  This seven-day window provides time for movement of funds through the payment system, including clearing houses. If funds are not received in an employee’s superannuation fund within seven calendar days, then the employer will be liable for the new superannuation guarantee charge.  If the employer is a Queensland law practice, of which QLS members are principals, then based on current QLS policy, those principals will have an obligation to report any failure to pay superannuation to the QLS.

      It is therefore imperative that Queensland law practices, and their advisors, take steps to ensure they are ready for Payday Super.

      Professional obligations – Queensland legal practitioners

      The majority of Queensland law practices are sole practitioners and one principal practices (76%) or law practices with two to four principals (13%).  66% of Queensland solicitors work in private practice.[1]  These figures emphasise that the majority of Queensland law practices are likely to be small to medium businesses.

      The Queensland Law Society (QLS) has a policy in place regarding Failure of a Law Practice to meet Tax and Superannuation Obligations (QLS Law Practice Tax Policy), which applies to any failures by a law practice to comply with taxation and/or superannuation obligations that exist unremedied as at 1 March 2021, or which occur after that date.

      The QLS considers that a law practice failing to comply with its tax obligations and/or superannuation obligations are factors which increase the risk of default in relation to that law practice.

      The QLS Law Practice Tax Policy sets out:

      • the QLS position that a law practice’s failure to comply with various tax obligations is conduct capable of constituting professional misconduct on the part of the principals of the law practice;
      • the action the QLS expects principals of law practices in such circumstances to take, including an obligation on each principal (either jointly or severally) to report to the QLS failures to comply with tax and superannuation obligations (by no later than the application for renewal of the principal’s practising certificate, immediately following the failure to comply); and
      • the action to be taken by the QLS when law practices do not comply with tax and/or superannuation obligations.

      ‘Taxation obligations’ are defined in the QLS Law Practice Tax Policy to mean:

      • the obligation to lodge BASs by relevant due dates;
      • to pay, by the due date, any BAS liabilities (including associated penalties, interest or charges assessed by the ATO as payable regarding a BAS);
      • to pay, by the due date, any assessed liabilities as per instalment activity statements (where BASs are not required to be lodged).

      ‘Superannuation obligations’ are defined to mean:

      • the obligation to pay the super guarantee as required by the Superannuation Guarantee (Administration) Act 1992 (SG Act);
      • to lodge a superannuation guarantee statement and pay superannuation shortfall (including choice liability), interest chargeable and any administration fee by the relevant due date.

      The QLS has published a form, available on the QLS website, to assist principals of law practices to report failures to comply with tax or superannuation obligations.

      Due dates – impact of common interactions with the ATO

      In ascertaining whether a Queensland law practice has complied with its obligations to pay tax and superannuation liabilities by the relevant due date, consideration should be given to the impact of common requests to the ATO, including requests for:

      • extensions of time to pay; and
      • instalment arrangements, so that tax debt can be repaid over a longer period.

      Extensions of time to pay

      Section 255-10(1) of Schedule 1 to the Taxation Administration Act 1953 (Schedule 1 Tax Admin Act) provides the Commissioner with a power to defer the payment time for particular taxpayers, having regard to the circumstances of the particular taxpayer.  If the Commissioner does so, then:

      • the time is varied accordingly;
      • general interest charge (GIC) or any other applicable penalties for any unpaid liabilities will begin to accrue from the time as varied;
      • the Commissioner must issue a written notice to the taxpayer, confirming the varied payment due date.

      Section 255-10(2) of Schedule 1 to the Taxation Administration Act 1954 (TAA) provides a similar power to the Commissioner to defer the time at which amounts of tax related liabilities are, or would become, due and payable by a class of taxpayers.  Deferrals in this instance require a notice to be published on the ATO website.  If the Commissioner does so, that time is varied accordingly.  GIC or any other applicable penalties for any unpaid liabilities will begin to accrue from the time as varied.

      Payments by instalments

      Section 255-15(1) of Schedule 1 TAA provides the Commissioner with a power to permit taxpayers to pay tax related liabilities by instalments under a payment arrangement, having regard to the circumstances of the particular taxpayer.

      Where a payment arrangement is granted, permitting a taxpayer to pay by instalments, section 255-15(2) of Schedule 1 TAA clarifies that the payment arrangement does not vary the time at which the amount is due and payable.  Instead, any GIC (and other applicable penalties) continues to accrue from when the liability is due and payable (or any varied date as confirmed by the Commissioner in accordance with section 255-10 of Schedule 1 TAA.

      Suggested action

      If principals of Queensland law practices (and their tax agents) were not aware of the QLS Law Practice Tax Policy, then steps should be taken to ensure all tax and super obligations are lodged by relevant due dates.

      Law practices should be operating with sufficient cash-flow to facilitate payment of tax and superannuation obligations by due dates, so that reporting obligations on principals are not triggered.

      While ATO instalment arrangements are commonplace for many small businesses, if such arrangements are entered into on behalf of Queensland law practices, there will be a professional reporting obligation for any principal of the practice who is a member of the QLS.

      With the pending introduction of Payday Super, to take effect on 1 July 2026, it is imperative that Queensland law practices ensure they have appropriate systems in place to ensure superannuation obligations are paid within the shorter due date periods.

      [1] ‘2024 National profile of solicitors’, prepared by Urbis for the Law Society of NSW, 13 June 2025