This month, we begin with Understanding the Australian Landscape, exploring key economic, regulatory, and industry trends shaping the business environment.
Understanding the Australian Dividend Landscape
Australia’s dividend culture is distinct from many other developed markets, characterised by generally higher payout ratios and the added benefit of franking credits. As highlighted in a Firstlinks article, “Australia has one of the highest dividend payout ratios in the world” (Firstlinks, 2023a). This high payout culture has been shaped by a combination of factors, including the country’s tax system, investor preferences, and the structure of the Australian
economy.
The Franking Credit System
Introduced in 1987, this system aims to eliminate the double taxation of corporate profits. When a company pays tax on its profits and then distributes dividends to shareholders, it can attach franking credits to these dividends. These credits represent the tax already paid by the company and can be used by shareholders to offset their personal tax liabilities or, in some cases, receive a tax refund (Australian Taxation Office, 2023).
Focus on Sustainable Dividends
One of the most crucial strategies for long-term success in dividend investing is to focus on companies that can sustainably grow their dividends over time. This approach requires looking beyond current yield figures and examining factors such as:
- Payout Ratio: A sustainable payout ratio typically falls between 40% and 60% of earnings, although this can vary by industry (Morningstar, 2023)
- Earnings Growth: Companies with consistent earnings growth are more likely to maintain and increase their dividends over time.
- Free Cash Flow: Strong free cash flow generation provides companies with the flexibility to pay and grow dividends.
- Competitive Position: Companies with strong market positions and economic moats are better positioned to maintain profitability and dividend payments.
Stay Informed and Adaptable
The dividend landscape is not static, and successful income investors need to stay informed about changes in company fundamentals, sector dynamics, and broader economic trends. Regularly reviewing and rebalancing your portfolio ensures it remains aligned with your income goals and risk tolerance.
By implementing these strategies, investors can work towards maximising their dividend income while building a resilient portfolio capable of weathering various market conditions.
“Lodgement Day” is important for Div 7A
Concept of ‘lodgment day’ is important for Division 7A purposes
Action is often required prior to a company’s (or in some cases, a trust’s) lodgment day to avoid a deemed dividend arising under Division 7A.
For example, if a loan from a private company to a shareholder arose during the 2024 income year, the parties can avoid a deemed dividend by entering into a complying loan agreement before the company’s lodgment day for the 2024 income year.
Importantly, a company’s lodgment day is the earlier of:
- the due date for lodging the company’s income tax return for the relevant year (e.g., for a loan made in the 2024 income year, this can be as late as 15 May 2025); or
- the actual date of lodging the company’s income tax return for the relevant income year
Unpaid present entitlements that are subject to Subdivision EA
Subdivision EA can be triggered if there is an unpaid present entitlement is owed by a trust to a private company, and the trust loans an amount to the company’s shareholder (or their associate).
Effectively, the loan from the trust to the shareholder/associate may be treated as a deemed dividend under Division 7A (subject to the usual exceptions).
In these circumstances, parties can prevent a loan from a trust to a company shareholder/associate from triggering a deemed dividend if (by the relevant ‘lodgment day’):
- the trust pays the unpaid present entitlement to the private company;
- the shareholder/associate repays the loan to the trust; or
- the trust and the shareholder/associate enter into a complying loan
- agreement for the loan amount.
Build to Rent Developments
The ATO has updated its website guidance on the build-to-rent (BTR) development tax incentives.
The BTR development tax incentives give owners access to:
- An accelerated deduction rate of 4% for capital works relating to BTR developments
- A concessional final withholding tax rate of 15% on eligible fund payments (amounts referable to rental income and capital gains from the BTR development).
To access these incentives, the BTR owner must first notify the ATO to opt in by lodging the Build to rent development – notice of events form.
From 1 January 2025, owners or purchasers of a BTR development must notify the ATO of the development events using the ‘Build to rent development – notice of events’ form.
BTR owners must notify the ATO of the following events:
- Commencing an active BTR development – The form should be provided to the ATO before the commencement date. Otherwise, the choice will be taken to have been made on the day the form is received.
- Expanding an active BTR development.
- Another entity acquires the ownership interest in the active BTR development.
- They acquire the ownership interests in an active BTR development.
- Ceasing an active BTR development.
An authorised person can complete the form, which must be lodged (by email) with the ATO on or before 28 days after the relevant event.
When to lodge SMSF annual returns
- Newly registered SMSFs and SMSFs with overdue SARs for prior financial years (excluding deferrals) should have lodged their SAR by 31 October 2024.
- All other self-preparing SMSFs (unless the ATO has asked them to lodge on a different date) must lodge their SAR by 28 February 2025.
- For SMSFs that lodge through a tax agent, the due date for lodgment of their SAR is generally 15 May or 6 June 2025.
SMSFs that have engaged a new tax agent need to nominate them to confirm they are the authorised representative for the fund (and SMSF trustees can refer to the ATO’s website for step-by-step instructions on how to do this).
SMSF trustees must appoint an approved SMSF auditor no later than 45 days before they need to lodge their SAR. Before they lodge, they must ensure that their SMSF’s audit has been finalised and the SAR contains the correct auditor details.
Failing to lodge an SAR on time can result in the compliance status of the SMSF on ‘Super Fund Lookup’ being changed to ‘regulation details removed’
ATO warns about GST refund fraud: Check your arrangements
The ATO-led Serious Financial Crime Taskforce (SFCT) has warned businesses against trying to cheat the tax and super system by committing GST fraud. While seeking ways to optimise your tax position is legitimate, it’s important to steer clear of arrangements that could lead you into fraudulent territory. The recent warning highlights the dangers of related-party structuring arrangements that exploit GST rules, noting that getting caught can result in significant penalties.
The schemes of concern involve complex arrangements between related parties, creating artificial transactions to claim high-value GST refunds. This can include false invoicing, misaligned GST accounting methods and duplicating GST credit claims for non-existent transactions.
While some business owners may unknowingly get involved in these practices, believing them to be legitimate tax strategies, the reality is that these arrangements are fraudulent. The SFCT is actively working to identify and prosecute those involved in such schemes.
The ATO has issued several reminders to help businesses avoid involvement in fraudulent activities:
- Registering for an Australian Business Number (ABN) and applying for GST refunds when you’re ineligible is fraud.
- The ATO does not offer loans or administer COVID disaster payments.
- If you’re not operating a business, you don’t need an ABN or to lodge a business activity statement (BAS).
- Backdating business registrations to apply for refunds is a red flag.
- False declarations can affect eligibility for other government payments.
- Sharing your myGov credentials can lead to identity theft.
If you suspect you’ve unintentionally become involved in a GST fraud scheme, it’s vital to act swiftly. The ATO encourages voluntary disclosures, which can lead to reduced penalties. Corrective actions include revising activity statements, cancelling fraudulent ABN registrations and setting up repayment arrangements.
Providing equipment to work from home
Many businesses continue to offer flexible work from home arrangements. To assist, employees are often provided with work-related items to assist them to work from home. In general, where work related items are provided to employees and used primarily for work, FBT shouldn’t apply.
For example, portable electric devices such as laptops and mobile phones provided to employees shouldn’t trigger an FBT liability as long they are primarily used by your employees for work. Multiple similar items can also be provided during the FBT year where required – for example multiple laptops have been provided to the employee – but only of the business has an aggregated turnover of less than $50m (previously, this threshold was less than $10m).
If the employee is using equipment provided by the business for their own private use, normally FBT would apply to the private use. However, the FBT liability can be reduced based on the business use percentage.
If your business employs contractors, you should have a process in place to ensure the correct classification of the arrangements and to determine the ATO’s risk rating. These arrangements should also be reviewed over time.
Even when a worker is a genuine independent contractor, just remember that this doesn’t necessarily mean that the business won’t have at least some employment-like obligations to meet. For example, some contractors are deemed to be employees for superannuation guarantee and payroll tax purposes.