Practice Update - May 2022

Lowe Lippmann Chartered Accountants

No reduction in the Private Health Insurance rebate as of 1 April 2022


An event that we have become accustomed to every 1st April, is that the amount of the Private Health Insurance (PHI) rebate decreases.


The Australian Government rebate on PHI is annually indexed on 1st April by a Rebate Adjustment Factor (RAF) representing the difference between the Consumer Price Index and the industry weighted average increase in premiums.


The RAF for 2022 has been calculated as 1, which means there will be no changes to the PHI rebate on 1 April 2022.


Disclosure of business tax debts


The ATO is in the process of writing to taxpayers that may be eligible to have their tax debts disclosed to credit reporting bureaus (CRBs).


The ATO can potentially report outstanding tax debts to a CRB where the following criteria are satisfied:

  • The taxpayer has an Australian business number and is not an excluded entity;
  • The taxpayer has one or more tax debts and at least $100,000 is overdue by more than 90 days;
  • The taxpayer is not engaging with the ATO to manage their tax debt; and
  • The taxpayer does not have an active complaint with the Inspector-General of Taxation about the ATO’s intent to report its tax debt information.


Excluded entities are a deductible gift recipient, a complying superannuation fund, a registered charity and a government entity.


The purpose of this letter from the ATO is to raise awareness of the actions that the ATO can now take under the ‘Disclosure of Business Tax Debts’ measure. 


The letter will be sent to all taxpayers with business tax debts that currently meet the criteria (above) for disclosure, and it provide business taxpayers with information on how to effectively engage with the ATO to manage their tax debt.


Taxpayers can avoid disclosure to a CRB by making payment in full or negotiating a payment plan.


If an eligible taxpayer does not take steps to actively manage their debt, they will remain eligible for disclosure.


Before the ATO takes any final action to disclose a tax debt, it will issue the taxpayer with a formal ‘Intent to Disclose Notice’.


If a taxpayer receives an Intent Notice, asking them to 'Act now or your tax debt will be reported to credit reporting bureaus', the taxpayer or their tax agent must contact the ATO within 28 days of receiving the notice to avoid the debt being reported.


It is crucial for taxpayers to engage with the ATO early before their debts become unmanageable.


If the ATO reports a taxpayer that has an outstanding debt to a CRB, this can have a negative impact on the taxpayer’s credit rating, which in turn may affect their ability to borrow from banks and other financial institutions.


If you need any assistance in this regard, please do not hesitate to contact your Lowe Lippmann Relationship Partner.



High Court rejects attempt to disclaim interest in trust distribution


The High Court has rejected a taxpayer’s attempt to disclaim an interest in trust income that arose as a result of a default beneficiary clause being triggered.


Facts of the case

  • The taxpayer, Ms Natalie Carter, was one of five default beneficiaries of the Whitby Trust, a discretionary trust.
  • For the 2014 income year the trustee had failed to appoint or accumulate any of the income of the Trust.
  • The Trust Deed contained a default beneficiary clause, nominating Ms Carter and four other beneficiaries, as the default beneficiaries, in the event that the trustee had failed to allocate trust income for the benefit of beneficiaries by 30 June of a particular year.
  • The ATO issued each of Ms Carter and the four other default beneficiaries with an assessment for one-fifth of the income of the Whitby Trust for the 2014 income year on October 2015.
  • This was done on the basis that they were “presently entitled” to that income within the meaning of section 97(1) of the Income Tax Assessment Act 1936.
  • An initial unsuccessful attempt was made by the default beneficiaries to disclaim their entitlement to default distributions in November 2015.
  • A further attempt by the default beneficiaries to disclaim their interest in trust income for the 2014 income year was made in September 2016 in what was referred to as the “Third Disclaimers”.
  • The Administrative Appeals Tribunal held that the Third Disclaimers were ineffective whereas the Full Federal Court found in the taxpayers’ favour that they were effective.
  • The High Court was then asked to consider the legal status of the Third Disclaimers.



High Court decision


It was the unanimous decision of the High Court that the Third Disclaimers were ineffective.


The High Court carefully analysed the words of section 97(1), in particular, the phrase “is presently entitled to a share of the income of the trust estate” is expressed in the present tense. 


The plurality found that expression "is directed to the position existing immediately before the end of the income year for the stated purpose of identifying the beneficiaries who are to be assessed with the income of the trust – namely, those beneficiaries of the trust who, as well as having an interest in the income of the trust which is vested both in interest and in possession, have a present legal right to demand and receive payment of the income."


The High Court took the view that the question of the "present entitlement" of a beneficiary to income of a trust must be tested and examined "at the close of the taxation year", not some reasonable period of time after the end of the taxation year.


Accordingly, Ms Carter and the other four beneficiaries had been appropriately assessed by the ATO under section 97(1) given their status as default beneficiaries under the Trust Deed.


For the sake of completeness, the High Court also rejected the taxpayers’ argument that a beneficiary of a discretionary trust, with reference to events that may occur in a “reasonable period” after the end of an income year, can trigger an event that would disentitle the beneficiary to a distribution.


Our comments


This is a significant decision, as it backs the proposition that disclaimers of trust income cannot be effective if they occur after the end of the income year that gave rise to a present entitlement. 


It will be interesting to see in any subsequent Decision Impact Statement guidance documents from the ATO whether they intend to apply the decision in Carter’s case.


With 30 June of another income year on the horizon, this case serves as a timely reminder for discretionary trusts to ensure that steps are taken before the end of the income year to effectively distribute trust income.


This is done to avoid the operation of default beneficiary clauses, or the situation where no beneficiary is presently entitled to trust income and the trustee is assessed at the highest marginal rate.


Please do not hesitate to contact your Relationship Partner if you wish to discuss any of these matters further.




September 9, 2025
Costs incurred in acquiring / forming a business. Further to the recent blog about capitalisation of costs when acquiring an asset, we have received a number of questions in relation to costs incurred in setting up / purchasing a business. Formation costs on establishing a business: These costs would include: Incorporation fees ASIC registration fees Legal fees Business name registration Pre-operating costs Pre-opening costs. The relevant standard for these costs is AASB 138 Intangible Assets and paragraph 69a confirms that these start-up costs are expensed when incurred. There is no identifiable asset controlled by the entity when the costs are incurred as the entity does not exist. Business acquisition costs These costs would include: Legal and accounting fees Due diligence and valuation costs Stamp duty Advisory or brokerage fees Project management costs related to the acquisition Internal costs allocated to the transaction In contrast to the asset acquisition discussed previously, AASB 3 Business Combinations requires all acquisition costs to be expensed as incurred. This means that they are not included as part of the consideration paid and therefore do not affect calculated goodwill.  Entities purchasing businesses should be aware that these costs are not able to be capitalised as they can often be substantial, and purchasers often do not expect the costs to be taken directly to the income statement
September 8, 2025
ATO to include tax 'debts on hold' in taxpayer account balances From August 2025, the Australian Taxation Office ( ATO ) is progressively including 'debts on hold' in relevant taxpayer ATO account balances. A 'debt on hold' is an outstanding tax debt where the ATO has previously paused debt collection actions. Tax debts will generally be placed on hold where the ATO decides it is not cost effective to collect the debt at the time. The ATO is currently required by law to offset such 'debts on hold' against any refunds or credits the taxpayer is entitled to. The difficulty with these debts is that the ATO has not traditionally recorded them on taxpayer's ATO account balances. Taxpayers with 'debts on hold' of $100 or more will receive (or their tax agent will receive) a letter before it is added to their ATO account balance (which can be viewed in the ATO's online services or the statement of account). Taxpayers with a 'debt on hold' of less than $100 will not receive a letter, but the debt will be included in their ATO account balance. The ATO has advised it will remit the general interest charge ( GIC ) that is applied to 'debts on hold' for periods where they have not been included in account balances. This means that taxpayers have not been charged GIC for this period. The ATO will stop remitting GIC six months from the day the taxpayer's 'debt on hold' is included in their account balance. After this, GIC will start to apply.
August 26, 2025
How do we account for the costs incurred when acquiring an asset? When we acquire an asset such as property, plant and equipment, intangibles or inventory there are often significant other costs incurred as part of the purchase process, including delivery, stamp duty, installation fees. Whether we capitalise these to the value of the asset or expense them as incurred can make a significant difference to an entity’s reported position or performance. Since we have accounting standards for specific assets, the treatment can vary depending on the asset and the relevant standard. A summary of some common expenses and their treatment under four accounting standards has been included below. The four standards considered are: AASB 102 Inventories AASB 116 Property, Plant and Equipment AASB 138 Intangible Assets AASB 140 Investment Property.
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