Content
- DPN Review: A Wake-Up Call for Business Owners on Personal Tax Risks
- Navigating CGT on Your Home: New ATO Clarity for Home-Based Businesses
- ATO Update on Inherited Homes: What it Means for Your Family’s Wealth
- Keeping Your Self-Managed Super Fund Compliant
This month we focus on key developments and practical guidance for business owners, property holders and SMSF trustees navigating complex tax obligations. We begin with a deep dive into Director Penalty Notices (DPNs), highlighting the Tax Ombudsman’s review in response to a sharp surge in notices and the personal risks directors face if company taxes go unpaid. Next, we clarify the ATO’s updated position on capital gains tax for home-based businesses, emphasising when small business CGT concessions apply — and when they don’t. We also examine the ATO’s draft ruling on inherited homes, exploring how changes to main residence exemptions could affect family estates and estate planning strategies. Finally, we provide practical reminders for SMSF trustees on maintaining compliance, focusing on the sole purpose test and arm’s length requirements for related-party arrangements.
DPN Review: A Wake-Up Call for Business Owners on Personal Tax Risks
Running a successful business is hard work — and sometimes, despite best intentions, tax obligations slip. If the business operates through a company structure, the ATO can issue a Director Penalty Notice (DPN), holding company directors personally liable for unpaid taxes.
In 2024–25, DPNs increased significantly, with tens of thousands of notices issued. The Tax Ombudsman has announced a review into how the ATO administers and manages these notices — a development that all directors should take seriously.
What is a Director Penalty Notice?
If a company fails to pay certain tax obligations — such as PAYG withholding, GST or Superannuation Guarantee Charge (SGC) — the ATO can pursue directors personally for the unpaid amounts.
There are two main types of DPNs:
- Non-lockdown DPNs: These apply where lodgements have been made but payment has not occurred. Directors generally have 21 days to take action (such as paying the debt, appointing an administrator or placing the company into liquidation). Prompt action may allow the penalty to be remitted.
- Lockdown DPNs: These arise where lodgements were not made on time. In this case, directors cannot avoid personal liability by placing the company into administration or liquidation.
The impact can be severe — including personal asset exposure, credit damage and potential bankruptcy.
Why the Ombudsman is Reviewing DPNs
The review will examine how effectively DPNs are being used, how directors are notified, and whether vulnerable directors — including those coerced into roles — are being treated fairly. It forms part of broader government initiatives focused on fairness and improved engagement.
Practical Steps to Protect Yourself
- Stay current with lodgements: Even if payment is not immediately possible, lodging on time can significantly reduce risk.
- Monitor cash flow closely: Tax liabilities should be treated as priority debts.
- Use payment plans where appropriate: Early engagement with the ATO is always preferable to enforcement action.
- Act immediately if a DPN is received: Strict deadlines apply.
The key message is clear: company tax compliance is a personal risk area for directors. Proactive management is essential.
Navigating CGT on Your Home: New ATO Clarity for Home-Based Businesses
Operating a business from home offers flexibility and cost savings. However, when it comes time to sell, capital gains tax (CGT) consequences can be more complex than many expect.
The Active Asset Test
Where part of a home has been used for business purposes, the main residence exemption may be partially reduced. In some cases, taxpayers look to the small business CGT concessions for further relief.
A key requirement is that the property must satisfy the active asset test — meaning it has been actively used in carrying on a business for at least half the ownership period (or 7.5 years).
The ATO’s position is clear: the test applies to the entire property. An asset either qualifies as an active asset or it does not. Incidental business use is generally insufficient.
What This Means in Practice
- Minor business use: A home office or small consulting space will often not be enough to access the small business CGT concessions.
- Significant commercial use: Where a substantial portion of the property is genuinely used in a business, concessions may be available for the non-exempt portion of the gain.
Many homeowners assume claiming occupancy expenses automatically opens the door to CGT concessions. The ATO’s updated guidance confirms this is not the case.
Careful planning and record-keeping are critical well before a sale occurs.
ATO Update on Inherited Homes: What it Means for Your Family’s Wealth
The ATO has issued draft guidance examining how the main residence exemption applies to inherited properties. The focus is on what constitutes a qualifying “right to occupy” under a will.
Why This Matters
Currently, a full CGT exemption may be available if the property is sold within two years of death or if it is occupied by certain qualifying individuals.
The draft guidance suggests that a right to occupy must be clearly granted under the will itself. Broad trustee discretion or informal arrangements may not be sufficient.
Estate Planning Implications
- Review wills carefully: If occupation rights are intended, they should be clearly documented.
- Consider timing: The two-year sale window remains important.
- Seek professional advice: Testamentary trusts and complex estate structures require coordinated tax and legal planning.
Estate planning decisions made today can materially affect future tax outcomes for beneficiaries.
Keeping Your Self-Managed Super Fund Compliant
SMSFs provide flexibility and control, but trustees must ensure all arrangements comply with superannuation and taxation law.
The Sole Purpose Test
An SMSF must be maintained solely for the purpose of providing retirement benefits. Investment decisions must prioritise member retirement outcomes — not the interests of related parties.
Arm’s Length Requirements
All dealings must be conducted on commercial terms, particularly where related parties are involved.
- Leases of SMSF-owned property must reflect market rates and be properly documented.
- Related-party services must be provided on commercial terms.
- All arrangements should be supported by independent evidence to satisfy the fund auditor.
Breaches can result in penalties and, in some cases, higher tax rates applying to fund income.
If you are considering related-party transactions or investments within your SMSF, professional advice is essential before proceeding.
