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.




July 21, 2025
New Tax Agent Obligations from 1 July 2025 From 1 July 2025, “small” firms of tax practitioners (with 100 or less employees) must ensure they are complying with the eight new Code of Professional Conduct obligations from the Tax Practitioners Board ( TPB ). These new Code obligations were introduced by the Government under the Tax Agent Services (Code of Professional Conduct) Determination 2024. The new Code obligations have already commenced for large tax practitioners (with over 100 employees) from 1 January 2025. As tax agents, Lowe Lippmann Chartered Accountants are committed to upholding our professional and regulatory obligations, including with the Tax Agent Services Act 2009 which includes the Code of Professional Conduct as regulated by the TPB.
July 16, 2025
Related parties – what should I consider in identifying them? Related party disclosures is an area that is receiving more scrutiny from stakeholders in both the for-profit and the not-for-profit space. Disclosure of transactions that have occurred with related parties are important since the terms and conditions are often different from those with unrelated parties, in some instances the transactions may have occurred for much lower or even nil consideration. Often one of the biggest challenges for compiling the disclosures is working out who is a related party of an entity. The definition of related parties in AASB 124 Related Party Disclosures is detailed, however we have summarised the definition into various elements below. a. Think about entities who might be related to the reporting entity i.e.: i. through control or significant influence, ii. by the existence of material transactions or iii. dependence on technical information or personnel provided by them. b. Think about people who might be related to the reporting entity, i.e.: i. Key management personnel, including all directors. ii. Close family members of key management personnel (e.g. spouse, child). c. Think about entities that the people identified in b. might control or significant influence, i.e.: i. Family businesses ii. Businesses which a close family member controls (i.e. senior partner in a legal or accounting firm). Once you have identified a complete list of who is potentially a related party, analysis can then be performed to confirm they meet the criteria in AASB 124 and then identify any transactions with these parties. Remember that transactions should be included whether or not a price was charged or whether the transaction was formally documented or not.
July 4, 2025
Changes to car thresholds from 1 July The car limit for the 2026 income year is $69,674. This is the highest value that a taxpayer can use to calculate depreciation on a car where they use the car for work or business purposes and they first use or lease the car in the 2026 income year. If a taxpayer is buying a car and the price is more than the car limit, the highest input tax ( GST ) credit they can claim (except in certain circumstances) is one-eleventh of the car limit. For the 2026 income year, the highest input tax credit they can claim is $6,334 (i.e. one-eleventh of $69,674). The luxury car tax ( LCT ) threshold for the 2026 income year is $91,387 for fuel-efficient vehicles, and $80,567 for all other luxury vehicles. Input tax credits need to be claimed within the four-year time limit. A taxpayer cannot claim an input tax credit for luxury car tax when they buy a luxury car, even if they use it for business purposes.
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