As we come to the end of the Financial Year, and the beginning of a new one, the ATO is starting to ramp up its normal tax compliance program. The program this year covers all of the usual areas you would expect the ATO to be looking at in terms of Rental Properties, Working from Home Deductions and Cars. (Especially the Fringe Benefits Tax on Cars which is easily forgotten about, mis-calculated and / or netted off against an employee contribution where both Tax Agents and Clients don’t understand that you still need to lodge an FBT Return) Given the re-election of the Government and the upcoming Tax Season, I’d like to highlight two different areas where “interesting” things are taking place and remind you of one critical change that is in from July 1.
ATO Interest no longer deductible
First to the critical change that from the 1st of July, 2025 ATO General Interest Charge is no longer tax deductible. The Government has made this change for a number of reasons but underlying this is the ATO’s outstanding debt book reaching $105 billion. By making Interest on ATO Debts non deductible the ATO is effectively bringing the end to businesses, and people, using the ATO as a Bank where they can pay tax via instalments. We also anticipate that it will be much harder to have interest and ATO penalties remitted as this regime comes in.
Coupled with this the ATO has become increasingly active in Debt Collection by continuing to increase the number of Garnishee Notices, reporting of Debts to Credit Reporting Bureaus and Director Penalty Notices being issued. We expect this to continue and for businesses of all descriptions to be forced to more closely manage their Tax Debts and projected Tax Debts.
Increasing Tax for Superannuation Balances above $3 million
Without wading into the Politics of the Governments proposed increased tax on Super balances above $3 million, we continue to believe that this will eventually become law. While taxation of unrealised gains does break a key tax principle that you only tax when a gain, or income, when it becomes realised or actualised, we believe the Government will eventually compromise on this in order to pass legislation. This could potentially effect Dental Practitioners in two key ways:
- If they own their Practice Premises in their Super Fund, given Property Prices, there is the potential for the increased value of the property, plus the Rent and Contributions going into the Fund to eventually breach this cap;
- When you sell your Practice, depending on the size of the Practice you can apply the Small Business Concessions to reduce your taxable gain to zero. If you choose to rollover this gain into Superannuation, you will need to ensure this does not push your account balance above the $3 million threshold.
These are two simple examples of how this could effect Dental Practitioners especially if the $3 million threshold is not indexed.
Childcare deductions case
Finally, and very interestingly, a Law Firm is seeking ATO Funding to over-rule the now 50 year old Precedent that Child Care Costs are not tax deductible. The 1972 High Court Case ruled that parents had no right to deduct child care fee’s because they are largely a private or domestic expense which, due to them having no direct link to work at the time, made them non deductible. Fast Forward to 2025 and even looking at my own client base, there would be any number of examples where children going into Child Care has meant that clients taxable incomes have been able to increase so on a basic fairness test it would seem logical to be able to deduct at least some portion of these fee’s.
It will be interesting to follow the progress of this case to see if the ATO does fund it and what outcome there is. Ultimately, however, it would be easier for the Government to legislate this and given the complexity of the current process to obtain the Child Care Subsidy it might actually be easier for Government to scrap the current system and allow the ATO to administer it through deductions. It would certainly make it a lot easier for parents!
Author
Scott Hogan-Smith
Director – Ecovis Clark Jacobs