Updated Guidance on Land Projects and Reminders for NFP Self-Review Returns

Updated guidance on land and subdivision projects

The ATO has revised its document, ‘Examples of tax consequences of sales of land, including small-scale land subdivision,’ to add more examples. It now features seven instances addressing the income tax and GST implications of typical property transactions, including property flipping, subdivision, and development.

In example 3, the ATO highlights a scenario where the taxpayer buys, renovates, and disposes of properties repeatedly, involving in market research, getting professional advice, taking loans for business, and then opting for renovations in a business-like manner. The ATO emphasise that this is running a business since the primary aim of a taxpayer is to make a profit from the upgrades and reselling of the property.

The profits are considered ordinary income and taxed based on revenue. The CGT rules are irrelevant here as the property is categorized as trading stock. Additionally, GST does not apply in this case because the taxpayer is providing existing residential premises that have not undergone significant renovations.

In Example 4, the taxpayer purchases a property to make it their primary residence, undertaking renovations with the help of tradespeople as needed. Unfortunately, they sell the property due to personal circumstances, including job loss and family health issues. Although favourable market conditions exist at the time of the sale, the ATO considers this transaction to be taxed on capital account due to the absence of commercial intent. The sale is not recognised as part of a business operation or merely an isolated profit-making venture. The taxpayer is eligible for the 50% CGT discount, but the main residence exemption does not apply since they never lived in the property.

The ATO also covers two secanrios on subdivision. In example 5, the taxpayer subdivides the vacant land from their primary residence because of growing debt levels and ill health. Since they didn’t likely to profit from the subdivision and sale of the vacant land, the sale is treated as the realisation of a capital asset rather than a business venture.

Example 6 covers someone who buys an investment property to subdivide the land and sell the lots for profit. The taxpayer involves professionals and steps into a development agreement to oversee the subdivision, actively handling the project. The ATO views that this is a profit-driven, business-like activity, so the profits are viewed as business income and taxed on revenue accounts.

Reminders for NFP Self-Review Returns

The ATO is reminding not-for-profits regarding 31 March 2025 deadline for non-charitable NFPs that must self-assess as income tax exempt to file their NFP self-review return for the 2023-24 income year. Non-charitable NFPs can self-assess their income tax exemption if they have purposes that match one of the 8 categories in Division 50 of the ITAA 1997.

NFPs that self-assess as income tax exempt must maintain governing documents to meet their operation as an NFP. The governing document must evidence that the NFP is prohibited from distributing assets or profits for the benefit of members or other private persons. When the governing documents do not have these clauses, companies will have until 30 June 2025 to update the documents accordingly. They can self-assess as income tax exemption for the 2024 income year they have not distributed any income or assets to members.

ATO Impersonation Scams

As scammers are becoming more sophisticated, the ATO has warned businesses to stay aware of ATO impersonation scams. The ATO advises checking your contact details and being cautious of messages that:

• Contain links
• Create urgency or fear
• Ask for personal info or payments
• Have spelling or grammar mistakes
• Come from unofficial email addresses or phone numbers

Scammers often use fake emails that look real, so always double-check.

The ATO never sends unsolicited messages with links or asks for personal details via email or SMS. It’s recommended to use Digital ID (myID) to access ATO messages and verify info through official sources before responding.

Claiming Fuel Tax Credits When Rates Change

The ATO is reminding taxpayers that fuel tax credit rates changed on 3 February 2025.

The ATO offers an eligibility tool to help determine if clients can claim fuel tax credits. Additionally, the ATO provides a calculator that automatically applies the correct rates based on when the fuel was purchased, helping to calculate the claim amount.

Employer Obligations in 2025

The ATO has updated its website with a summary of important dates for employer tax obligations.

Online Tax Schemes on the Rise

The ATO is warning taxpayers regarding unlawful tax schemes that are being offered to taxpayers. Some unlawful schemes being offered include setting up a purported not-for-profit foundation and arranging finances to look like the income belongs to the NFP, and providing the investors with the chance to invest in a start-up company that artifically qualifies as an early-stage innovation company.

Tips to help you stay on top of your BAS

• Enter the right figure at the correct label for obligations and complete the fields that apply.
• Enter full dollar amounts, don’t round up to the next dollar and leave cents out.
• If the client doesn’t have anything to report for the time period, you can file a ‘nil’ BAS online by choosing ‘prepare’ and then ‘prepare as nil’, or call the ATO.
• If there is any error on the last BAS, instead of filing a revision, some errors can be corrected on the current BAS.
• You can use your BAS to change an investment amount.
• If clients file their next quarterly BAS online or using a registered tax or BAS agent, they can get an extra 2 or 4 weeks to file and pay.
• If clients receive paper BAS, they can update their ATO communication preferences to online from paper.

Client Verification Process

Minimum verification requirements are mentioned in the TPB practice note.

Thin Capitalisation Test Choices – Approved Form  

The guidance on the approved form has been updated when making a choice to utilise the group ratio test or the third-party debt test for an income year. These are called thin capitalisation test choices. The form can be used when all of the below conditions apply:

• The entity wants to make a thin capitalisation test choice.
• The entity is a general class investor, inward investing financial entity or outward investing financial entity for the income year.
• The entity doesn’t satisfy the requirements in section 820-37 of the ITAA 1997 for the income year.

Effective Record-Keeping for the Next 5,000

The ATO reminds taxpayers about the Next 5,000 privately owned and wealthy groups program to keep accurate records for tax returns and business activity statements.

Critical minerals and hydrogen production incentives

With the Critical Minerals Production Tax Incentive, companies can get a refundable tax offset of 10% of the eligible expenses of processing certain critical minerals in Australia. The Hydrogen Production Tax Incentive is a refundable tax offset of $2 per kilogram of eligible hydrogen, available to eligible companies from 1 July 2027 to 30 June 2040, for up to 10 years.

ATO forcing some businesses to move to monthly GST reporting

From 1 April 2025, the ATO will move small businesses with a history of non-compliance to monthly GST reporting. Affected businesses will be notified in writing. Small businesses can also choose to switch voluntarily, offering benefits like better alignment with business processes, improved cash flow, and smaller payments.

Operating outside the tax system

The ATO is targeting small businesses that avoid tax, super, and registry systems, especially contractors who underreport income and taxi/ride-sourcing providers not registered for GST. Contractors in these sectors must report income on their tax return:

• Building and construction
• Courier
• Cleaning
• IT
• Road freight
• Security/surveillance

The ATO receives data from businesses lodging TPARs on contractor payments. Discrepancies between TPAR data and contractor returns may lead to penalties and interest. Contractor payment info is typically pre-filled for sole traders in the ATO online platform.

Small businesses deductions and concessions

The ATO has raised several risks that attract its attention when small businesses claim concessions and deductions inaccurately.

• Non-commercial losses

The ATO pays attention to those who inaccurately claim and offset business losses against other income sources. To offset losses from a business activity against other income sources, the taxpayer must pass a $250,000 adjusted income test and the business requirements to pass one of the four tests. The ATO has noticed the following errors:

• offsetting losses from non-businesses like activities
• issues applying the rules for offsetting losses when taxable income for non-commercial loss purposes is over $250,000
• problems with the rules for offsetting losses when not passing any of the 4 eligibility tests
• not applying for the Commissioner’s discretion to allow the claim or failing to apply PCG 2022/1 in good faith.

• Small business boost measures

The ATO has also noticed small businesses inaccurately claiming the small business skills and training boost and small business technology investment boost because of misunderstanding the law. Clients must ensure all the eligibility requirements are satisfied before claiming the additional deductions. For the skills and training boost, the ATO has noticed the following mistakes:

• Claiming when your total turnover is above $50 million or you are not in a business.
• Claiming for training where an individual is not an employee of your business.
• Sole traders claim the boost deductions for expenses on training for themselves.
• Claiming above the additional 20% deduction for eligible workers’ training expenses.
• Claiming when training is not offered by a registered training provider.

For the technology investment boost, the following errors have been seen by the ATO:

• Expenses not complying with eligible digital expenses.
• Surpassing the annual turnover threshold requirement.
• Claims surpassing the cap on expenses.
• Claims by businesses without reported depreciating assets.
• Inaccurately claiming over multiple years.
• Small business capital gains tax concession (SBCGT) risks

The ATO pays attention to those who inaccurately apply the SBCGT concessions. Individuals or sole traders who are partners in a partnership report the SBCGT concessions for individuals in their tax returns.

Using business money and assets for personal benefit

The ATO focuses on Division 7A errors that occur where small businesses use assets and money for personal benefit. Here are the common errors:

• Shareholders fail to understand that a company is a separate legal entity and that the company’s assets and money are not for shareholders.
• Poor or no business records.
• Failing to meet Division 7A conditions when making, repaying, and managing loans made to a shareholder or their associates.

Transfer balance cap increase

The general transfer balance cap has been increased from $1.9m to $2 million for the 2025-26 year. The transfer balance cap is a limit on the total superannuation amount that can be transferred into the retirement phase. The defined benefit income cap has also increased from $118,750 to $125,000 for the 2025-26 income year.