As another financial year quickly comes to a close, we’ve summarised some key tax planning tips and relevant changes to consider in the lead up to 30 June.

Victory for the taxpayer! ATO appeal dismissed by High Court in Bendel case.

What impact does this have on Year-End Planning?

As discussed in a previous newsletter, the Commissioner was granted special leave to appeal the matter to the High Court after Bendel was successful in both the Appeals Tribunal and the Full Federal Court.

In a landmark decision, the High Court has ruled in favour of the taxpayer, dismissing the Commissioner’s appeal by a 5-2 majority. The Court ruled that an unpaid present entitlement (“UPE”) owing by a trust to a corporate beneficiary (i.e. bucket company) did not constitute ‘financial accommodation”.

As a result, the corporate beneficiary was not taken to have made a loan back to the trust. Had there been such a loan back to the trust, the loan would have then been subject to the shareholder loan rules in Division 7A.

In coming to its decision, the High Court carefully considered the wording of the trust deed and the distribution resolutions, and the overall behaviour of the trustee and the company. We note that there were two dissenting judges who would have allowed the appeal.

We now await a Decision Impact Statement from the ATO on how it is likely to approach UPEs to corporate beneficiaries. The ATO has already flagged that other integrity rules such as Section 100A and Subdivision EA (i.e. where a trust with a UPE to a corporate beneficiary has then lent funds to related parties), can apply to such UPEs, potentially limiting the tax effectiveness of using a corporate beneficiary.

Given the proposed changes announced in the Budget in relation to discretionary trusts and corporate beneficiaries, there may be a limited time window for taxpayers to avail themselves of the High Court’s position.

If you wish to discuss the potential impact of the Bendel ruling to your group, particularly in relation to UPEs created at the end of FY24 and later, please reach out to your SiP adviser.

 

Instant Asset Write Off

The Instant Asset Write Off (“IAWO”) has been extended for FY26. The IAWO provides small businesses with aggregated turnover below $10 million an instant deduction for the cost of assets up to $20,000 in the 2026 financial year.

To qualify for an immediate deduction, the asset needs to be installed and ready for use by 30 June 2026.

As part of the 2026 Federal Budget, the Government announced their intention to make the IAWO permanent from 1 July 2026 onwards, providing certainty for investment decisions.

It may be worthwhile bringing forward any asset purchases of less than $20,000 prior to 30 June 2026 if you wish to claim the full deduction in FY26, especially if you may exceed the $10M turnover threshold in FY27.

 

Discretionary Trusts Annual Distribution Resolutions

Trust Deeds of most discretionary trusts require the trustee to make a determination on or prior to 30 June each year to determine how the net income of the trust is to be distributed amongst its beneficiaries.

In conjunction with your advisor, you should carefully consider:

• The requirements of the Trust Deed and any subsequent variations to the deed
• The nature of the income of the trust for the year
• To which beneficiaries – and in what proportions – the income will be distributed

 

The ATO has flagged the following as focus areas when it comes to FY26 compliance for trusts:

• Ensuring distributions are only made within the ‘family group’ where the trust has a Family Trust Election (“FTE”) in place. Otherwise, exposure to family trust distribution tax may be triggered.
• Impact of “Section 100A”. Broadly, Section 100A is concerned with arrangements whereby distributions are made to lower taxed beneficiaries (e.g. adult children), non-resident beneficiaries or loss trusts, but where the distribution is never physically paid. As such, the benefit is enjoyed by another person or entity in the Group, rather than the beneficiary that was made entitled to the income.
• Newly incorporated corporate beneficiaries that may not meet the 45-day holding rule but are claiming the franking credit tax offset with respect to franked distributions they’ve received.
• Circular distributions where tax hasn’t been paid on some, or all, of a distribution.

 

 

Maximising Deductions

As they say, timing is everything. It can be worthwhile to ensure you’ve maximised your deductions before 30 June in order to reduce your tax payable for this financial year.

Some key areas where deductions can be maximised include:

• Superannuation contributions – Look to pay super contributions prior to 30 June to enable a tax deduction in the current financial year. Refer to our recent Superannuation EOFY Newsletter
• Bad debts – Review your trade debtors and consider whether all are recoverable. Consider writing off any non-recoverable amounts as a bad debt to claim the tax deduction this financial year.
• Trading Stock – Complete a stocktake at 30 June. Write off any obsolete or damaged stock, and where the market selling value is less than the cost of the stock, look to write down the stock to the lower value.
• Staff Bonuses – For accrued staff bonuses to be deductible on this side of 30 June, the decision to pay the bonus and the determination of the bonus must be signed off and documented prior to 30 June.
• Donations – Determine whether you can make any tax-deductible donations before the end of the financial year. For a donation to be tax-deductible, the charity must be registered as a Deductible Gift Recipient (“DGR”). You can confirm DGR status by searching the entity on the Australian Business Register.
• Repairs – Prior to 30 June may be an opportune time to have any plant and equipment in need of service or repairs attended to in order to capture the tax deductions this side of 30 June.

 

Division 7A Year-End Planning

A reminder that for existing Division 7A loan arrangements, the annual minimum repayment is due by 30 June. Failure to make the annual minimum repayment may result in a deemed unfranked dividend to the borrower having regard to the shortfall of the required repayment amount.

The ATO has also noted that they are seeing private groups not complying with their obligations under Division 7A, which, at a high level, is an integrity measure aimed at preventing private companies from making tax-free distributions to shareholders or their associates. The ATO are focused on:

• Inadequate record-keeping
• Unreported shareholder loans
• Non-complying loan agreements
• Failing to make minimum yearly repayments
• Arrangements that aim to circumvent Division 7A

 

Review and Vary PAYG Instalments

Many businesses and individuals progressively pay PAYG instalments throughout the year towards their estimated tax liability for the current year.

Where businesses experience a decrease in profit relative to the prior year, this can result in additional PAYG instalments being paid throughout the year. Whilst any overpayment of income tax will be reconciled upon lodgement of the tax return, the payment of additional tax can put pressure on the working capital requirements of the business.

June is an opportune time for businesses and individuals to review if your circumstances have changed and are likely to derive a lower taxable income in FY26, and if so to consider varying the June PAYG instalment to reduce the instalment payable or claim back any excess instalments paid during the year.

 

2026 Federal Budget Snapshot

The Budget includes several proposals that are likely to significantly impact private groups under the guise of “tax reform.” We have summarised the key changes under these proposals but note they will ultimately contain significant details and rules to navigate.

Discretionary Trusts

From 1 July 2028, discretionary trusts are proposed to be treated as follows:

• 30% minimum tax on taxable income derived by the Trust and payable by the trustee.
• Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for tax paid by the trustee.
• Corporate beneficiaries won’t receive the tax credit – the current proposal therefore effectively double taxes income distributed to corporate beneficiaries. This may signal the end of the use of bucket companies.

 

Capital Gains Tax:

• Changes proposed to come into effect on 1 July 2027.
• 50% CGT discount replaced by cost base indexation and a 30% minimum tax on capital gains. (There are rumours that carve outs to these CGT changes may be introduced for “start-ups” ie. for shareholders and businesses that have low cost bases and therefore won’t benefit from indexation).
• Indexation applies to individuals, trusts and partnerships (not companies).
• Pre-CGT (or pre-September 1985) assets no longer exempt. Gains accrued up to 1 July 2027 on pre-CGT assets will remain exempt. Only the increase in value from 1 July 2027 should be taxable.
• 50% CGT discount should continue to apply to gains accrued up to 1 July 2027.
• For assets sold after 1 July 2027, there will be an ATO tool to determine which component of the gain will be subject to the 50% CGT discount and which amount will be subject to indexation. Taxpayers will also have the choice to obtain a valuation of the asset as at 1 July 2027.

 

Negative gearing:

• Changes proposed to come into effect on 1 July 2027 and to apply to properties acquired from 7:30pm on 12 May 2026 onwards.
• Losses from established residential property will only be able to be offset against other residential rental property income, including capital gains on sale.
• Excess losses can be carried forward with future offsets limited to residential property income/gains.
• Negative gearing still available for “eligible new builds”.
• Residential properties acquired before Budget night will remain eligible for negative gearing.
• Note: negatively gearing commercial properties or margin loans for example, are not impacted by these measures. Further, the 50% CGT discount will be retained for properties that qualify as eligible new builds.

 

Businesses and SMEs:

• Companies with aggregated turnover of less than $1 billion may carry back a tax loss and offset against tax paid up to 2 years earlier. Only revenue losses will be eligible and limited by the franking account balance. Proposed to apply in FY27.
• From FY29, small start-ups in their first two years can receive a refund for tax losses.
• IAWO being made a permanent feature as noted earlier in the newsletter.

 

It’s important to note that these measures have been proposed as part of the Budget but have not yet been legislated. Legislation has been introduced into Parliament for the proposed CGT and negative gearing changes. We will continue to monitor progress on the implementation of these changes and provide updates as they get closer to their final form.

For a detailed summary of the proposed measures and our insights, please see our Federal Budget publication.

If you would like to discuss these changes and the potential impact to your group, please reach out to your SiP advisor.

 

 

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The above tax summary is intended to be general in nature and does not constitute advice. Should you believe that any of the above matters may be relevant to you or your Group’s particular circumstances, please discuss the specific details with your Slomoi Immerman Partners adviser.