Archives: Investax FAQs

In Australia, many workers in industries such as mining, oil and gas, construction, and large infrastructure projects operate under FIFO (fly-in fly-out) arrangements. Under this setup, employees travel to remote job sites for rostered periods and stay there temporarily, while maintaining their usual home in another location—often in a major city.

Because FIFO workers are required to live away from their normal residence for work, employers may provide a living away from home allowance (LAFHA) to help cover additional accommodation and food costs. However, for the employer to access concessional fringe benefits tax treatment on this allowance, strict compliance requirements must be met—and one of the key requirements is obtaining a LAFHA declaration from the employee.

A FIFO LAFHA declaration is a formal statement confirming important details such as the employee’s normal place of residence, the temporary location they are staying in for work, and the period during which they are living away from home. This declaration supports the position that the employee is genuinely living away from home on a temporary basis, rather than relocating permanently.

If this declaration is not obtained, the employer may not be able to apply the available exemptions, which could result in the full allowance being subject to fringe benefits tax. For this reason, while it may seem like a simple form, the LAFHA declaration is a critical document to ensure the FIFO arrangement remains compliant and tax-effective for both the employer and the employee.

Buying an investment property through a trust is a strategy commonly used by property investors in Australia who want flexibility in income distribution, asset protection, and long-term tax planning. However, whether a trust structure is appropriate depends on your personal financial situation, your tax position, and your long-term investment strategy.

A trust is a legal arrangement where a trustee holds and manages assets on behalf of beneficiaries. For property investment, the most commonly used structure is a discretionary trust, often referred to as a family trust. This structure allows the trustee to distribute rental income or capital gains among beneficiaries each year. In some cases, this flexibility can help manage the overall tax position of a family group if beneficiaries are on different marginal tax rates.

Trust structures are also sometimes used for asset protection. Because the property is owned by the trust rather than an individual, it may provide a level of separation between personal assets and investment assets, depending on the circumstances and how the structure is established.

However, there are several disadvantages investors should carefully consider before buying property in a trust.

Common disadvantages of buying property through a trust include:

• rental losses from negatively geared properties generally cannot be distributed to beneficiaries and must remain within the trust
• many Australian states provide no land tax threshold, or a much lower threshold, for properties held in a trust
• foreign owner land tax surcharges may apply if foreign beneficiaries are not properly excluded in the trust deed
• trust distributions are subject to increasing scrutiny under section 100A integrity rules
• additional costs such as trust setup fees, annual accounting costs, and ongoing compliance requirements

For these reasons, the decision to purchase an investment property through a trust should ideally be made before signing a contract of sale. Transferring a property into a trust later can trigger both stamp duty and capital gains tax.

Whether a trust is the right structure ultimately depends on your tax position, asset protection objectives, and long-term investment plans, which is why many property investors seek specialist tax advice before purchasing an investment property.

 

This is a very common question among company directors and business owners who already have their own company or trust and are used to receiving contract income through those structures.

In Australia, a director of a company is treated as a common law employee of that company in relation to their director duties. This means any director’s fee must be recognised as personal income of the individual director. It cannot be reclassified as contract income and paid to the director’s separate company or to a trust.

While it is sometimes possible for contractors and business owners to provide services and receive contract income through their company or trust, this treatment does not apply to director duties. A director cannot act as a contractor to the same company for their role as a director, and they cannot issue an invoice from their company or trust for director services.

Even if the director instructs the company to pay the director’s fee to their company or trust bank account, the Australian Taxation Office will still treat that amount as personal income of the director. The paying company must still meet its employer obligations, including payg withholding, superannuation guarantee, and other compliance requirements.

Incorrectly paying director fees to a company or trust instead of the individual can create compliance risks for both the company and the director, including penalties and additional tax exposure.

If you are a company director, business owner, employee, or contractor and are unsure whether income should be paid to you personally, to your company, or to your trust, it is important to get this right from the beginning. Contact Investax to ensure your company and trust structure is compliant and aligned with your long-term tax and business strategy.

It depends on the facts and the pattern of behaviour.

Division 7A allows a company loan to be repaid before the company’s tax return due date to avoid a deemed dividend. However, the tax law includes anti-avoidance rules that allow the ATO to ignore a repayment where it is not genuinely reducing the loan on a lasting basis.

These rules, set out in section 109R of the Income Tax Assessment Act 1936, are intention-based. Importantly, intention is not determined by what a taxpayer says, but by what a reasonable person would conclude from the surrounding facts and behaviour.

In practice, the ATO does not usually form a view based on a single isolated transaction. Instead, concern typically arises where there is a repeated pattern — for example, where loans are repaid shortly before year end and similar amounts are withdrawn again soon after, year after year. Over time, this pattern can indicate that repayments are only temporary and that company funds are being recycled.

Where such a pattern exists, the ATO may disregard the repayments, treat the loans as still outstanding, and apply Division 7A, potentially resulting in taxable deemed dividends.

That said, even a one-off arrangement can still fall within these rules if the surrounding circumstances clearly point to an intention to repay and re-borrow, particularly where the repayment is funded by further company loans.

Only where a loan is genuinely repaid, not effectively recycled, and does not fall within Division 7A would fringe benefits tax then be considered — and only if the loan arises from an employment relationship rather than share ownership.

In simple terms: The risk is not a single transaction in isolation, but a repeated pattern that shows company money is being temporarily “parked” to avoid tax.

 

If you own a holiday home in Australia, you cannot automatically claim full tax deductions. Under current Australian Taxation Office guidance, holiday home tax deductions may be denied if the property is not mainly held to earn rental income, even if it is rented out for part of the year.

The ATO’s view is that where a holiday home is used significantly for private or personal purposes, the leisure facility rules in section 26-50 can prevent deductions such as loan interest, council rates, land tax, and repairs and maintenance. In simple terms, if the property looks more like a lifestyle asset than a genuine rental property, the deductions are at risk.

The ATO has acknowledged that this position was not clearly communicated in earlier guidance. As a result, it has confirmed it will not actively review holiday home deductions incurred before 1 July 2026, provided the arrangement was entered into before 12 November 2025. This transitional relief gives existing holiday homeowners time to review how their property is used and structured.

Where a holiday home is used partly to earn rental income and partly for private use, expenses must be apportioned on a fair and reasonable basis. Accepted methods include time-based apportionment, area-based apportionment, or a combination of both. Any alternative method must be clearly supported if reviewed.

The ATO applies a risk-based approach. Holiday homes that are genuinely available for rent at market rates, especially during peak periods, and used minimally for personal purposes are considered lower risk. Properties where personal use is prioritised, peak periods are blocked out, or rental efforts are limited are considered higher risk and more likely to attract attention from the Australian Taxation Office.

The key takeaway is that holiday home tax deductions depend on commercial intent, not ownership alone.

From 1 February 2024, the ATO introduced a new method for calculating the electricity cost of charging a fully electric vehicle at home. Under this practical compliance guideline, you can claim 4.20 cents per kilometre travelled to cover the cost of charging your electric car at your residence. This rate is designed to simplify the process by removing the need to calculate the exact amount of electricity drawn from your household power supply.

To use this method, you only need to keep accurate odometer records showing the total kilometres travelled during the financial year. The rate can be applied to business-use kilometres for individuals claiming a deduction in their tax return, or to work-related kilometres for employers calculating benefits and costs associated with employee vehicle use.

If some of your charging is done at home and some at public or commercial charging stations, you can claim a mix of the standard 4.20 cent rate and actual commercial charging costs. This requires a reasonable method of estimating what proportion of travel was supported by home charging versus public charging.

It is important to note that this method only applies to fully electric vehicles. Plug-in hybrids are not currently eligible for the 4.20 cent rate (unless the ATO finalises the draft guideline dealing with hybrids). Until that happens, owners of hybrids must rely on actual electricity and fuel records.

You can also choose not to use the 4.20 cent shortcut and instead claim actual electricity costs. To do this, you must have reliable evidence that clearly separates the electricity used to charge your vehicle from the rest of your household consumption. This usually requires a smart charger, an app-based recording system, or another accurate measurement method.

 

The 45-day rule, often referred to as the holding period rule, is designed to prevent taxpayers from claiming franking credits on shares that they have not held for a sufficient period of time. The Australian Taxation Office (ATO) introduced this integrity measure to ensure that only genuine long-term investors—not short-term traders—benefit from imputation credits attached to dividends.

Under this rule, you must hold shares “at risk” for at least 45 continuous days to be eligible to claim franking credits as a tax offset. For preference shares, the required holding period is 90 days. The ATO requires that when counting the days, you must exclude the day of acquisition and the day of disposal.

The “at-risk” condition means that you must retain the economic exposure to the shares during this period. If you use hedging strategies, options, or other arrangements that effectively eliminate your risk of loss or opportunity for gain, the ATO may consider that you were not holding the shares at risk, and the franking credit claim could be denied.

This rule applies to individuals, companies, and trusts that receive franked dividends. However, there is a small shareholder exemption—if your total franking credit entitlement for the year is $5,000 or less, the 45-day rule does not apply.

Example:
Suppose you purchase 1,000 shares in an Australian company on 1 April and receive a fully franked dividend on 30 April. You sell those shares on 20 May. Because you held the shares for only 49 days, but the day of purchase and sale are excluded, your effective holding period is 47 days. In this case, you meet the 45-day rule, and the franking credits can be claimed. However, if you had sold the shares just a few days earlier, you might not qualify.

Key takeaways:

• Must hold shares “at risk” for at least 45 days (or 90 for preference shares).
• Exclude the day of purchase and the day of sale when counting days.
• Applies to both individuals and entities receiving franked dividends.
• $5,000 exemption applies for small shareholders.
• Designed to prevent dividend trading and short-term manipulation.

 

Reference –  “Franking tax offsets 

 

Many investors begin their investment journey without considering estate planning or asset protection. It is only after they build a substantial asset base or experience major life events such as divorce, a family death, or financial difficulties that they start thinking about how to protect their assets and pass them on to their children. If you hold assets in your personal name and want to ensure that your children and grandchildren are the ones who benefit from those assets, a testamentary trust is one of the most effective ways to keep your property portfolio within the family after your passing.

Established through your Will, it allows your assets to be managed by trusted individuals (trustees) for the benefit of your chosen beneficiaries — typically your children and family members.

Unlike direct inheritance, which transfers ownership immediately, a testamentary trust gives you greater control and protection. It helps safeguard family wealth from potential risks such as divorce settlements, bankruptcy, or financial mismanagement by beneficiaries. You can also specify how and when your children access their inheritance, ensuring financial discipline and long-term benefit.

From a tax perspective, testamentary trusts offer valuable flexibility. Income distributed to minor children can be taxed at ordinary adult rates, not at the penalty rates usually applied to minors, which can lead to significant family tax savings.

If your goal is to ensure your wealth supports only your intended family members while providing both protection and flexibility, a testamentary trust can be a crucial component of your estate planning.

The 30 day rule applies to employees who receive shares or rights (such as options) through an Employee Share Scheme (ESS) where tax is deferred until a later time. The rule determines when you are taxed on those shares and helps ensure that the tax outcome matches the real value you receive.

When you receive shares under a tax-deferred ESS, you do not pay tax when the shares are first granted. Instead, you are taxed later at a “deferred taxing point.” This deferred taxing point usually happens at the earliest of:

• When you sell the shares,
• When the shares are no longer subject to any restrictions,
• When you stop working for the employer, or
• 15 years after you received the shares.

However, the 30 day rule changes this timing if you sell the shares or rights within 30 days after the deferred taxing point. In that case, the taxing point moves from the original vesting date to the actual sale date.

This rule is designed to make sure you are taxed on the value you actually received from the sale, rather than on the value of the shares at an earlier date. It keeps the calculation fair and prevents small timing differences from creating unexpected tax results.

Example:
Suppose you receive 2,000 shares in your company through an ESS that qualifies for tax deferral. The shares vest and restrictions are lifted on 1 July 2025, creating a deferred taxing point. If you sell those shares on 20 July 2025—within 30 days—the taxing point will move to the sale date (20 July). You will then be taxed based on the share price on 20 July rather than the price on 1 July.

If you sell the shares after 30 days, the original taxing point (1 July) will apply. In that case, you will first pay tax on the discount at the deferred taxing point, and later, when you sell the shares, any extra profit will be treated as a capital gain.

The 30 day rule helps simplify taxation for employees who sell their shares soon after they become unrestricted. It prevents double taxation and ensures fair treatment between employees who keep their shares and those who sell them soon after vesting.

For official reference, see the ATO guidance under Employee Share Schemes – Employer Reporting Requirements: ato.gov.au.