Practice Update - March 2025

Updated: Mar 10

Practice Update

March 2025

🔶ATO WELCOMES ANAO AUDIT REPORT ON GOVERNANCE OF AI🔶

The Australian Taxation Office (ATO) acknowledges the Australian National Audit Office’s (ANAO’s) report on the governance of Artificial Intelligence (AI) and fully supports all seven recommendations to enhance audit processes, financial accountability, and reporting integrity.

As AI capabilities evolve, the ATO recognizes the critical need for robust oversight, transparency, and proper financial reporting to ensure compliance with ethical and regulatory standards.

Strengthening audit frameworks is essential for:
- Maintaining accurate financial records
- Mitigating risks from AI-driven automation
- Upholding accountability in tax administration
The ATO is committed to refining its AI governance structures by:
- Ensuring auditability, financial transparency, and effective risk management
- Improving AI-specific policies
- Aligning automation strategies with enterprise-wide financial management requirements
- Reinforcing risk controls

These measures will not only support effective decision-making but also ensure that AI applications in taxation operate with accuracy, fairness, and compliance, reinforcing trust in the tax system’s integrity and financial reporting processes.

🔶ASIC SHUTS DOWN 130 INVESTMENT SCAM WEBSITES PER WEEK🔶

The Australian Securities and Investments Commission (ASIC) has ramped up its fight against online scammers, shutting down over 10,000 fraudulent investment websites and ads. In its latest enforcement update, ASIC revealed it removes an average of 130 scam sites weekly, targeting fake investment platforms, phishing links, and cryptocurrency scams. The agency has also taken legal action against HSBC Australia for failing to protect scam victims. Over the past six months, ASIC has launched 109 new investigations, secured $46.6 million in civil penalties, and prosecuted major financial institutions for misleading practices. ASIC Chair Joe Longo emphasized the agency’s commitment to stronger enforcement, particularly in banking, insurance, and superannuation, to better protect consumers from financial harm.

🔶FBT EXEMPTION FOR ELECTRIC VEHICLES – KEY UPDATES🔶

You do not pay FBT if you provide private use of an electric car that meets all the following conditions:

The car is a zero or low-emissions vehicle
The first time the car is both held and used is on or after 1 July 2022
The car is used by a current employee, or their associates (such as family members)
Luxury car tax (LCT) has never been payable upon importation or sale of the car.
Benefits provided under a salary packaging arrangement are included in the exemption.

Changes for Plug-in Hybrid Vehicles From 1 April 2025, plug-in hybrid EVs will no longer be FBT-exempt unless:

The exemption applied before 1 April 2025, and
A binding financial commitment exists to continue providing the vehicle.

Important Considerations

The exemption applies only to employer-provided vehicles, not personally purchased or leased EVs.
Luxury car tax disqualifies an EV from the exemption.
Home charging stations are not included in the exemption.
Employees may need to calculate home electricity costs for charging, with the ATO offering a 4.20c/km shortcut rate.
Only "cars" qualify—electric bikes, scooters, and certain larger vehicles do not.

For more details or assistance, feel free to reach out Lynden Group

🔶FEDERAL COURT DELIVERS A DIVISION 7A WIN FOR TAXPAYERS IN BENDEL CASE DECISION🔶

The Full Federal Court has ruled that an unpaid present entitlement (UPE) from a discretionary trust to a corporate beneficiary is not a "loan" for Division 7A purposes. This overturns the ATO’s long-standing position that such UPEs could be treated as loans and deemed dividends.

A brief history of the Bendel Case:

The Bendel Case involved an individual and a private company, both beneficiaries of a discretionary trust. The individual was also the director of both the corporate trustee and the corporate beneficiary.

The trust distributed income to the corporate beneficiary, but the entitlements remained unpaid (creating a UPE). The ATO treated these UPEs as "loans" under Division 7A, deeming them dividends and taxing the beneficiaries accordingly.

The taxpayers challenged this in the Administrative Appeals Tribunal (AAT) and won. The ATO then appealed to the Full Federal Court, which unanimously ruled that a UPE is not a loan for Division 7A purposes.

Key Takeaways:

A UPE does not create a repayment obligation, distinguishing it from a loan.
This decision may benefit many private groups using discretionary trusts.
Subdivision EA still applies—trusts distributing to corporate beneficiaries must monitor payments to shareholders/associates.
The ATO may appeal or push for legislative changes.

What’s Next?

If you’ve been penalized based on the previous ATO stance, consider seeking amendments or objections.
Ongoing ATO audits on this issue should take this ruling into account.
We will keep you updated on any ATO response or policy changes.

For tailored advice on your situation, feel free to reach out Lynden Group.

🔶EMPLOYEE CONTRIBUTIONS BY JOURNAL ENTRY IN THE ACCOUNTS🔶

Many businesses use after-tax employee contributions to reduce fringe benefits tax (FBT), often recording these via journal entries instead of cash payments. While this can be acceptable, the ATO has concerns, particularly about journal entries made after the FBT year ends.

To be valid, journal-based contributions must meet strict conditions, including a clear obligation for both employer and employee, proper set-off agreements, and timely recording in financial accounts. Poor documentation can lead to significant FBT liabilities. Businesses should ensure compliance to avoid ATO scrutiny.

🔶 THE NFP SELF-REVIEW RETURN IS AN ANNUAL REPORTING REQUIREMENT FOR NON-CHARITABLE NFPS WITH AN ACTIVE ABN.🔶

Non-charitable not-for-profits (NFPs) with an active Australian Business Number (ABN) are required to lodge an annual NFP self-review return to confirm their eligibility for income tax exemption. This reporting obligation, introduced by the Federal Government on 11 May 2021, aims to strengthen transparency and integrity by ensuring that only eligible NFPs access tax exemptions. The first NFP self-review return applies to the 2023–24 income year, with an annual deadline of 31 October; however, as a transitional measure, the deadline for the first lodgment has been extended to 31 March 2025 to provide additional support. NFPs can lodge the return online, through the ATO's self-help phone service, or engage a registered tax agent to submit it on their behalf.