November 2025 Accounting Newsletter

1. The Race That Stops the Nation… But Not FBT Obligations 

As Melbourne Cup celebrations come to an end, it’s worth remembering that staff lunches, drinks, and social events may have Fringe Benefits Tax (FBT) implications. Food, beverages, venue hire, and prizes provided to employees or their associates can all fall within the FBT net, depending on the circumstances. 

If your event was held at the office during work hours and attended mainly by employees, it may be exempt under the “minor benefits” or “property benefits” rules. However, off-site events, such as lunches or parties at restaurants, are more likely to attract FBT — particularly when partners or guests are invited. Prizes, vouchers, or gifts given out on the day can also be taxable unless they fall under the $300 minor benefits exemption. 

Keeping clear records is essential. Note who attended, what was provided, and the total cost per person to help determine whether FBT applies and to support income tax and GST deductions. 

With the ATO continuing to review entertainment and staff benefit claims closely, it’s a good idea to confirm your position before the 31 March FBT year-end. If you’re unsure whether your Cup Day expenses could trigger FBT, speak with our office — we can help ensure your celebrations don’t result in an unexpected tax bill. 

2.Division 296: What the New $3M & $10M Thresholds Mean for You 

The Government has released an updated version of the proposed Division 296 tax, which would apply an extra layer of tax to earnings from very large superannuation balances. While the measure is not yet law, the latest proposal is a major improvement on the earlier version announced in 2023. 

The most significant change is that unrealised gains will no longer be taxed, meaning members won’t be taxed simply because their investments increase in value. Instead, the additional tax will apply only to realised earnings. 

The proposal introduces two new thresholds: 

• For super balances above $3 million, an additional 15 % tax on the earnings attributable to that portion. 

• For balances above $10 million, an additional 25 % tax on the earnings relating to the excess above $10 million. 

These thresholds will be indexed to inflation, though not annually — they will rise in increments ($150,000 for the $3 million tier and $500,000 for the $10 million tier). The extra tax will operate as a personal tax, assessed at the individual level, and members can choose to pay it personally or have it released from super. 

The new system is proposed to start from 1 July 2026, with the first calculations applying for the 2026–27 financial year. Importantly, the details are still being worked through — including how “earnings” will be defined, whether the capital-gains tax discount will apply, and how pension-phase assets will be treated. 

For now, there is no need to make any changes to fund structures or investment strategies. It’s best to wait until legislation is released and the rules are finalised. However, members with balances close to or above the proposed thresholds may wish to start reviewing their overall position, long-term strategy, and projected balances leading up to 2026. 

We’ll continue to monitor developments closely and provide further updates once draft legislation is available. 

 3. Family Trust Elections – Why Getting It Right Matters

A Family Trust Election (FTE) can be a powerful tool for managing how trust income is taxed and who it can be distributed to. However, it’s equally important to understand the risks of getting it wrong — or of making an election too early. 

An FTE is a formal election made to the ATO that locks in a defined “family group” for tax purposes. Once in place, the trust can distribute income and capital gains to family members within that group without attracting penalty tax. This is particularly useful where the trust receives franked dividends, carries forward losses, or owns shares in a company — all situations where the ATO requires a family trust election to ensure concessional tax treatment continues. 

The benefits of a valid Family Trust Election include: 

• The ability to carry forward tax losses and deduct them in future years. 

• Easier satisfaction of the franking credit rules, allowing the trust to pass on franking credits to beneficiaries. 

• Simplified compliance when the trust holds shares or units in other entities that also have FTEs in place. 

However, an FTE is not something to rush into. Once made, it is binding and can only be revoked in very limited circumstances. The trust becomes restricted to distributing within its nominated family group, and any distributions outside that group — even accidentally — can trigger Family Trust Distribution Tax (FTDT) at the top marginal rate (currently 47%). 

Common pitfalls include: 

• Making the election too early, before the trust has losses or franking credits that actually require it. 

• Failing to properly define the test individual and their family group. 

• Distributing income to someone outside the group after the election, which automatically triggers penalty tax. 

Given these risks, it’s best to seek advice before lodging an FTE. The timing should align with the trust’s long-term objectives — not just for the current year’s tax outcome. In many cases, the right approach is to prepare the trust for an FTE (by confirming family relationships and reviewing shareholdings) but wait until it’s necessary to formally make the election. 

If your trust has accumulated losses, holds franked income, or invests in a company structure, we recommend reviewing whether an FTE may benefit your circumstances. Our team can help assess the timing, structure, and documentation to ensure it’s done correctly — avoiding costly tax surprises later. 

4. ATO Finalises NALI Rules for SMSFs – What’s Changed?

The ATO has now finalised its guidance on the non-arm’s length income (NALI) rules for self-managed super funds (SMSFs). These rules deal with situations where an SMSF gets income or benefits that are not on normal commercial terms — for example, when a related party provides a service or loan to the fund at a discounted rate. 

Previously, the ATO’s view was that any non-arm’s length expense (NALE) could taint all the fund’s income. This meant that if even one expense wasn’t charged properly — such as a discounted accounting fee or an under-market loan — the entire fund’s income could be taxed at 45%. Many SMSF trustees and professionals saw this as overly harsh, especially for small or minor oversights. 

Now, the final rules take a more balanced approach. 

• If the expense relates to a specific asset (for example, a property purchased from a related party on favourable terms), only the income and capital gains from that asset will be treated as NALI. 

• If the expense is general — such as accounting, administration, or investment management fees — the ATO will apply a “twice the difference” test. This means the extra taxable income is limited to twice the amount the fund saved by not paying the full market rate, rather than all income being affected. 

The ATO has also clarified that trustees who provide services to their own fund for free will not trigger the NALI rules, provided they are acting in their trustee role (not through their business). Normal staff discounts are also acceptable if they are consistent with ordinary commercial practice. 

Overall, the changes provide fairer and more practical outcomes for SMSFs, especially for funds where minor or unintentional discounts were previously at risk of extreme tax consequences. Trustees should still review any related-party transactions, loans, and service arrangements to make sure they are at arm’s-length or clearly documented. 

5. Binding Death Benefit Nominations Validity Under Fire — Deed Consistency Is Key

A Binding Death Benefit Nomination (BDBN) can be one of the most important documents in an SMSF, but it is also one of the most commonly challenged. The key issue often comes down to whether the nomination is valid under the fund’s trust deed. 

Many BDBNs are prepared using standard templates or online forms that do not match the specific wording or requirements of the fund’s deed. This can render the nomination invalid, even if it reflects the member’s genuine wishes. Before preparing or signing a BDBN, the first step should always be to check the trust deed — it must allow a BDBN and set out how it can be made. Some deeds prescribe particular forms, witnesses, expiry dates, or trustee acknowledgement requirements. 

If a deed is old or overly restrictive, it may be worth updating it to a more modern version that allows simpler and clearer nomination procedures. This helps ensure the member’s wishes can be properly carried out without unnecessary legal challenges. 

Where a member wants to use a power of attorney (POA) to make or renew a nomination, additional care is needed. The deed must expressly permit this, and the POA should be carefully limited to avoid conflicts — for example, allowing nominations only to a spouse or the estate, not to the attorney personally. 

It’s also good practice for the SMSF trustee to formally acknowledge receipt of any BDBN and to make sure that control of the fund (such as who becomes trustee or director on death) aligns with the intended distribution of benefits. Otherwise, disputes can arise between beneficiaries or surviving trustees. 

A BDBN should never be viewed in isolation — it needs to work hand in hand with your will and overall estate plan. Superannuation is often one of the largest assets a person holds, but it does not automatically form part of the estate. If the BDBN directs benefits to the estate, the will must clearly set out how those funds should be distributed. If the nomination directs benefits to individuals, it is still important that the will and other structures (such as family trusts) are consistent with those intentions. 

Reviewing both your BDBN and your will regularly — especially after major life events such as marriage, separation, or the addition of new beneficiaries — is the best way to make sure your superannuation and estate planning remain aligned and legally effective. 

6. ATO Adopts a Stricter Approach to Penalties and Interest

In recent years, the Australian Taxation Office (ATO) has taken a firmer stance on the application of penalties, interest charges, and remission requests. This reflects a broader emphasis on compliance and timely lodgment across all taxpayer groups. 

Australia continues to manage ongoing structural budget deficits, and the federal government has highlighted the importance of maintaining strong and consistent revenue collection without introducing new taxes. As part of this focus, the ATO has placed greater attention on enforcement through existing administrative powers. 

Penalties are now more frequently issued automatically when activity statements or tax returns are lodged late, and general interest charges accrue until outstanding amounts are paid. Remission requests are assessed under established guidelines that consider factors such as compliance history, the reason for delay, and whether circumstances were beyond the taxpayer’s control. 

The ATO’s digital systems have significantly improved efficiency and consistency in monitoring lodgment and payment performance. However, they have also led to more standardised outcomes, with fewer cases receiving direct officer review. Many practitioners have noted that remission decisions now follow a more structured process, with reduced flexibility compared to earlier years. 

The current framework applies penalties and interest according to legislated thresholds and rates, which are designed to encourage compliance and maintain fairness among taxpayers. The ATO has reiterated that these measures form part of its commitment to ensuring equity between those who meet their obligations on time and those who do not. 

Taxpayers are encouraged to review their lodgment schedules, ensure their activity statements and returns are up to date, and contact their tax adviser promptly if difficulties arise in meeting deadlines. Early engagement remains the most effective way to minimise penalties and interest charges and to maintain a strong compliance record. 

7. Payday Super: Big Change Ahead for Employers and Payroll

From 1 July 2026, employers will need to pay superannuation at the same time as wages under the new Payday Super laws. The reform aims to ensure employees receive their super faster and to reduce unpaid or late super contributions. 

While positive for employees, this change will affect how businesses manage cash flow and payroll. Paying super more frequently will bring forward outflows that were previously made quarterly, so employers — particularly small and medium-sized businesses — should review their cash-flow forecasts and make sure there’s enough working capital to cover each pay run. 

Payroll systems will also need updating. Employers should confirm with their software providers that super payments can be processed automatically with each pay cycle and that any clearing house used is ready for same-day payments. It’s a good time to review internal payroll procedures, train staff on the new timing, and check that reporting is set up correctly. 

Early preparation through 2025-26 will make the transition smoother. Discuss the upcoming change with your accountant or bookkeeper to understand its impact on budgeting, compliance, and system setup. Businesses that act early will be better placed to adapt once Payday Super becomes mandatory in July 2026.