Blog

Everyone loves a work-related deduction. From the 2026-27 income year there is a standard deduction of up to $1,000 for work-related expenses, and it applies automatically. This will simplify things for many. However, if your claims exceed $1,000 you still need to substantiate every dollar.

How does the standard deduction work?

To be eligible for the standard deduction you must be an Australian resident and earn assessable income from salary and wages. It does not extend to dividend or business income.

If your labour income for the year comes to less than $1,000, your standard deduction is capped at that amount. Union fees and memberships of a trade, business or professional association can be claimed on top, provided you keep the records. Everything else you would normally claim is unaffected, including donations, rental and investment deductions, personal super contributions, income protection premiums and the cost of managing your tax affairs.

The trap is record keeping. If your work-related expenses come to more than $1,000, you need records for all of them, not just the amount above $1,000.

Know the two types of deductions

Deductions fall into two camps: specific and general. Costs like membership of a professional association are deductible because the law says that specific expense is deductible. Then there are general deductions, a ‘catch-all’ for those expenses you incurred in the course of producing assessable income. With so many exceptions and qualifications, deciding what is and what isn’t deductible can require a bit of judgement.

Private or domestic expenses

A personal expense is not deductible just because there is a loose connection with work. In FCT v Cooper (1991), a rugby coach instructed a professional player to eat more to improve fitness for the football season. The player claimed a deduction for the cost of the additional food. He said it was deductible because the additional expense on food was incurred while producing assessable income as a professional player. Unfortunately for the player, the Court disagreed. It was held that the expense was a personal one to sustain life, so the deduction was denied.

Work clothing rarely makes the cut

People often want to claim clothing expenses, but unless you wear a company uniform to work it isn’t usually deductible. In Case U80 (1987), a department store staff member unsuccessfully claimed a deduction for black clothing in keeping with the retailer’s dress code. Being conventional attire, the clothing was a private expense and not deductible.

On the other hand, the personal secretary to the wife of the Governor of Queensland successfully claimed a deduction for formal daytime clothing and evening wear for her job. In this case 51 expensive garments were purchased within three months for formal work events. The deduction was allowed as the abnormal clothing expenses were due to her job and she would not otherwise wear the garments.

The lesson is, check with us before claiming a deduction on clothing.

Incidental benefit may be OK

The ATO does not mind if there is some incidental personal enjoyment from a deductible expense. Let’s say you attend an overseas eight-day work-related conference. As part of the conference you go on a winery tour and play a game of tennis. As the main purpose of attending the conference is the gaining or producing of assessable income, the total cost of the conference (airfares, accommodation and meals) is deductible. It’s OK if there is a bit of downtime. But if you want to add a personal holiday to the trip, things get tricky. You will need to apportion your airfare and claim only the portion related to the conference.

Reminder

Tax deductions can be tricky. When in doubt, check with us to ensure you get it right.

Since 10 August 2026, SMSFs can no longer use a Limited Recourse Borrowing Arrangement (LRBA) to acquire residential property. Existing arrangements are grandfathered, and borrowing to acquire business real property is not affected. Co-ownership may be a solution for SMSFs without enough cash to purchase a property outright. However, keep in mind the rules are strict and there are many traps you can fall into.

You and your self-managed super fund (SMSF) can own an investment property together as tenants in common. Each of you will hold a share on the title reflecting your proportion of ownership. However, even though you might have personal ownership in the property, the property must still be acquired and used in a way that satisfies the Superannuation Industry (Supervision) Act 1993 (SIS Act). Breaching the rules may result in the ATO taking compliance action against the fund. That action can range from administrative penalties on each trustee, to disqualification. In the most serious cases the fund can be made non-complying and lose its concessional tax treatment. So understanding the rules is important.

Keep everything strictly proportionate

Rent, rates, insurance, repairs, agent fees and improvement costs must be split in line with the proportion of ownership interest.

Your fund’s share of the rent must go into the fund’s own bank account. If you pay for an expense personally which should have been borne by the fund, the fund can be treated as having non-arm’s length expenditure. The rental income received by the fund and any capital gain when the property is sold, may then be taxed at 45%. If the fund pays more than its share of expenses, it may be providing financial assistance to a member. This is prohibited and carries penalties.

Do not use the property yourself

The purpose of your fund is to provide you with retirement benefits. Even though you might partially own the property, you may not use it yourself.

Neither you nor a related party, such as a relative, can live in it, even at full market rent. Exceptions apply to business premises that are used “wholly and exclusively” in a business. These business premises are known as business real property.

Business real property can be leased to your own business, provided the rent is at market rate and paid on time.

Buy the property from an unrelated seller

Your fund is generally prohibited from buying assets from you or “related parties”. This means you will need to purchase the property from an unrelated third party unless it is business real property. Also, your fund cannot buy out your personal share in the property at a later time unless the property is business real property.

Know that the fund cannot help you borrow

Your fund cannot give a charge over its assets. This means you cannot borrow against your share of the property as the lender would ordinarily want to take security over the whole property, not just your share.

Reminder

Co-ownership of property with your SMSF can work well, particularly for business premises, but it can be a complicated arrangement that carries many risks. It is important to get advice before entering these arrangements.

One of the many areas where the big changes to negative gearing and Capital Gains Tax may have an effect is where you use the “absence concession” to allow you to “continue to treat” your home as your CGT-free main residence during an extended absence from the home – including where you rent it out for up to 6 years during this period.

While, at this stage, there appear to have been no direct changes to this concession, some interesting consequences arise from using it under these new tax rules.

For example, if you rent it out during a period of absence, and you have a big mortgage, you may find yourself in a negatively geared position (ie where your taxable rent is less than the deductible rental expenses) – so that you end up with a deductible loss.

Moreover, if you acquired your home before 12 May 2026 (ie Budget-day) you will still be allowed to claim this negative geared loss, as the changes which now “quarantine” negative gearing losses do not apply to property acquired before that date.

In other words, such property is “grandfathered” from the negative gearing changes ie the property is carved out from the changes, but in the expectation that that property will one day cease to be a pre-12 May 2026 property when it is sold or bequeathed to beneficiaries etc.

Suffice to say the combination of this carve out from negative gearing quarantining and the CGT absence concession can provide some benefits – and even some good planning opportunities.

In relation to the CGT discount changes, where the absence concession is used, its effect is to “continue to treat” the home as your CGT-free main residence during your period of absence – so that there will be no CGT consequences on any later sale or disposal.

But this is subject to an important exception: where you rent your home for more than 6 years only a partial CGT exemption will apply – to reflect the period that it was rented for more than 6 years. But even then, that partial exemption will be calculated favourably by reference to the market value of your home when you first rent it and not its original cost.

Nevertheless, the capital gain so calculated will be subject to the new CGT rules regardless of when you acquired the property (unlike the negative gearing changes).

This will generally mean that you still get the 50% discount up to the property’s market value on 30 June 2027, but thereafter any gain that accrues will be subject to the new (less favourable) indexation rules and the minimum 30% tax rate!

And for those that are interested, the 50% CGT discount applying to a partial capital gain from the sale of a home (and other circumstances where a partial CGT exemption on a home arises) actually costs the government some $25 billion to $30 billion in foregone tax each year – and has done so for at least the last 10 years!*

So, given a person’s home is usually their most significant asset, if you think that these changes could affect (or even help) you, please make an appointment to see us about it.

The Government has legislated major changes to capital gains tax (CGT). From 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships will be replaced. In its place comes cost base indexation and a new 30% minimum tax rate on capital gains.

How the 30% minimum tax works

Under the current rules, you pay tax on only half your capital gain on assets held for more than 12 months, with that half taxed at your marginal rate.

The new rules work differently. The 50% discount is removed but your cost base is lifted for inflation. So you only pay tax on the real gain. Then a floor applies to the rate of tax. Even if your marginal rate is below 30%, your real capital gain is taxed at a minimum of 30%.

The measure applies to assets held for at least 12 months. It also brings pre-1985 assets into the net for gains accruing after 1 July 2027. Your family home stays exempt. Super funds are not affected and keep their existing discount.

Why it matters for self-funded retirees

The minimum tax is aimed at people who sell assets in low-income years. Retirement is the obvious example.

Many self-funded retirees have little taxable income. They often plan to sell shares or property in retirement, when their marginal rate is low. The new rules take much of the value out of that plan. A retiree with a marginal rate of 16% would still pay 30% on a real gain. That is close to double the tax on the same sale today.

Age pensioners are exempt

There is an important carve-out. The Treasurer has confirmed that recipients of certain government payments, including the Age Pension and JobSeeker, will be exempt from the 30% minimum tax. Pensioners would keep being taxed at their marginal rate.

A word of caution on the pension

The Age Pension is means tested. To qualify you must pass both an income test and an assets test. You must also meet the age and residency rules.

If the pension is part of your plan, a few points help. Know the assets test thresholds and where you sit against them. Remember your home does not count as an asset. Watch the gifting rules, as you cannot simply give assets away to qualify. And think carefully about the timing of any large sale.

This article is general information only. It does not take account of your objectives, financial situation or needs, and it is not personal financial or taxation advice.

Self-managed super funds are generally not allowed to borrow money. A limited recourse borrowing arrangement, or LRBA, is one of the few exceptions. It lets a fund borrow to buy a single asset, with the lender’s rights limited to that asset alone. If the loan goes bad, the lender can take the asset but cannot touch the rest of the fund. That protection is what makes the arrangement attractive to many trustees.

How an LRBA works

Under an LRBA, the borrowed money is used to buy one asset, which is held in a separate holding trust until the loan is repaid. The fund makes the repayments and, once the loan is paid off, takes full ownership of the asset.

The law allows a fund to borrow for a single acquirable asset, or for a parcel of identical assets that have the same market value. A common example is a parcel of shares. The fund can use an LRBA to buy shares, but they must all be in the same company. A bundle of different shares does not qualify, because that would be more than one asset.

What is changing

A new law will soon restrict what an SMSF can borrow to buy. Once it takes effect, a fund will no longer be able to use an LRBA to acquire residential property.

This is a significant change. Residential property has been one of the most popular uses of LRBAs, with many funds borrowing to buy a house or unit as a long-term investment. That door is closing for new arrangements.

What you can still borrow for

LRBAs are not being abolished. A fund will still be able to use one to buy business real property, broadly meaning land and buildings used wholly and exclusively in a business. This might include a commercial premise. A fund will also still be able to borrow to buy a parcel of identical shares or other listed securities, provided they are all the same. Units in a managed fund remain available too, again as long as the units are identical, being the same class in the same fund. So the change is targeted. It removes residential property from the list, while leaving genuine business premises, shares and managed fund investments available.

When the change starts

The restriction applies from 10 August 2026.

Importantly, arrangements already in place are protected. If your fund entered into a borrowing arrangement before the start date, it is not affected. Refinancing an existing loan is also allowed. And if your fund has signed a contract to acquire an asset before the start date, that arrangement is not impacted even if settlement happens afterwards.

What this means for you

If you are considering using an LRBA to buy residential property, timing matters. Once the change commences, that option is gone for new arrangements. If a commercial property or share investment is part of your plan borrowing will remain being available.

This article is general information only. It does not take account of your objectives, financial situation or needs, and it is not personal financial or taxation advice.

What this means for you

If your family trust gives a company a share of trust income but does not actually pay it across, the High Court has confirmed this is not automatically treated as a loan back to the trust. That matters, because being treated as a loan could trigger an unexpected tax bill under the rules known as Division 7A.

The background

Many family trusts distribute income to a related company, often called a “bucket company”, but leave the money sitting in the trust rather than paying it over. When income is owed to a beneficiary but not yet paid, it is called an unpaid present entitlement, or UPE.

For about 15 years the ATO took the view that if the company did not call for its money, the unpaid amount worked like a loan from the company back to the trust. On that view, the arrangement could be taxed as if a dividend had been paid, unless the trust put a formal loan agreement in place and made regular repayments.

The Bendel case put that view to the test. A trust controlled by Mr Bendel set income aside for a related company year after year. The company never asked to be paid, and the funds stayed in the group. The ATO assessed the unpaid amounts as loans and taxed them.

What the High Court decided

On 10 June 2026 the High Court ruled in favour of the taxpayer, by a five to two majority. It found that simply leaving an entitlement unpaid is not a loan.

The key point is that a loan needs an obligation to repay money that was advanced. Here, the company had not advanced anything. It had simply chosen not to call for what it was owed. Doing nothing, the Court said, is not the same as making a loan or providing finance. The unpaid amount remained the company’s entitlement, but it did not become a debt the trust had to repay until the company actually asked for payment.

In short, the long-standing ATO position has been overturned.

The ATO’s response

The ATO has said it welcomes the clarity and is considering what the decision means. It will release further guidance for affected taxpayers as soon as it can.

Where this leaves you

This is a helpful outcome, but it does not mean unpaid entitlements can be ignored. The result turned on the specific wording of the trust deed and the fact that the company never called for payment. Other tax rules can still apply, and how the decision affects your trust will depend on your own arrangements.

There is also a longer-term question mark. The Government has proposed taxing trust income at a minimum rate from 1 July 2028, which could reduce the appeal of distributing income to companies in any case.

If your trust uses a bucket company, please speak to us so we can review where you stand.