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As 2024 comes to a close, it is useful to reflect on key developments in the tax landscape for small and medium-sized accounting firms.
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Top tax changes in 2024
24 December 2024
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As 2024 comes to a close, I thought it would be useful to reflect on key developments in Australia’s tax landscape. This article is particularly focused on the changes that I consider most relevant to small and medium-sized accounting firms. There were other changes, but I consider these to be the most impactful for these sized firms.
I refer to the top nine changes of 2024 (in my view), ranked from least to greatest impact, to help accountants prioritise their attention and better serve their clients. My objective is to mention the items without going into much detail.
So, the countdown begins.
Deductibility of financial advice fees (TD 2024/7)
The ATO issued TD 2024/7 in September, reaffirming the treatment of financial advice fees.
The determination specifies:
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Fees for advice on prospective investments are not deductible under section 8-1.
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Initial advice on pre-existing investments at the start of an engagement is also not deductible.
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Ongoing, regular financial advice fees remain deductible if related to income-producing activities.
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Tax-related advice is deductible to the extent it directly pertains to tax obligations.
This guidance reinforces existing principles but is noteworthy due to the frequency of clients obtaining financial advice. I note that this TD is only applicable to individuals who do not conduct an investment business.
Federal Court Decision: Cheung v Commissioner of Taxation
This November 2024 decision addressed a $33 million gift received by an Australian resident from a non-resident relative. The court ruled the gift was not income, emphasising the importance of the ATO needing evidence to back up its assessments.
However, it does provide a warning for accountants and their clients that taxpayers must prove amounts received from non-residents are gifts and not income under ordinary concepts. Due to Australia’s multicultural population, gifts from offshore relatives are a common situation.
For accountants, this case underscores the importance of keeping clients mindful of documentation to accompany the gift, if possible.
Guidance on section 99B: PCG 2024/3 and TD 2024/9
The ATO finalised PCG 2024/3 and TD 2024/9, addressing Section 99B of the Tax Act 1936.
Key highlights include:
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Section 99B applies to Australian residents receiving amounts or benefits (usually) from non-resident trusts.
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Trust corpus and pre-CGT gains are excluded.
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Accountants must work with clients to obtain offshore trust records to calculate taxable amounts accurately.
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Low-risk scenarios include deceased estates distributing less than $2 million within 24 months of death or loans or property provided on commercial terms.
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Section 99B compliance is challenging due to the need to obtain offshore records.
Moloney v Commissioner of Taxation: Small business CGT concessions
This AAT case highlighted the risks surrounding the $6 million maximum net asset value test.
A key issue was the valuation of shares in a company during an internal restructure. The case emphasised:
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The importance of robust and defensible valuations.
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Increasing challenges in passing the $6 million test as asset values rise without indexation.
For accountants, this is a reminder to carefully assess valuations in transactions relying on small business CGT concessions.
Truck driver case: Deductibility of meal expenses
I included this due to so many accountants in public practice having truck drivers as clients. It is important to note that this was in relation to an employee long-haul truck driver.
AAT case Duncan v Commissioner explored whether a truck driver’s meal expenses were deductible without substantiation. The surprising aspect of this decision was that the allowance received by the driver (around $40 per day) was held to be for accommodation and not for meals! This meant that the substantiation exception that applies where a person spends less than the ATO-designated reasonable amounts was not applicable to the taxpayer.
I have expected transport associations and large transport companies to raise this as an issue with the government as it means that many employee truck drivers will have to keep all of their receipts for food and drink while travelling in order to obtain a deduction for these items.
Defining employees for tax and superannuation (TR 2023/4)
An update to TR 2023/4 addressed the definition of employees for tax and superannuation purposes, reflecting recent High Court rulings. Key principles include:
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Comprehensive contracts now dominate the assessment of employment relationships.
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The multifactorial approach has been sidelined.
This change requires accountants to focus on contractual terms (alone) when determining employee status for PAYG and superannuation compliance purposes.
Payroll tax and medical practitioners
State revenue authorities have provided varying guidance on payroll tax for medical practitioners who are general practitioners. Accountants with medical practice clients must:
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Stay informed of state-specific announcements.
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Advise clients on compliance risks, not forgetting medical practitioners outside general practice.
I included this on my list due to many accountants in public practice having medical practitioners in their client base.
Draft PCG 2024/D2: Personal services income and Part IVA
This long-awaited draft guidance connects personal services income (PSI) rules with the general anti-avoidance provisions under Part IVA. Key points:
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Income splitting through personal services entities risks Part IVA application, even when PSI rules are satisfied.
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The draft focuses on tertiary-qualified professionals but omits broader small business considerations.
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Significant compliance burdens may arise if the draft is finalised as written.
Accountants should prepare for potential changes impacting small businesses reliant on PSI earning structures when the PCG is finalised. It is my position that the draft PCG proceeds on a technical flaw. Nevertheless, I doubt that the finalised version will be much different from the draft version.
In 2025, this could be a major issue for accountants as they try to determine what their clients who derive PSI through personal services entities should do in relation to the ATO guidance. This area of the laws cries out for test cases to resolve the uncertainty.
I am also firmly of the view that the ATO should withdraw all rulings on this matter that were issued prior to the introduction of the PSI rules in 2000. These rulings are out of date, confusing and misleading.
Amendments to the Tax Agent Services Act
This has to be the number one issue for owners of small and medium-sized accounting firms to deal with. Particularly for small accounting firms, the amount of work involved in complying with the new rules is significant. The soothing messages coming from the Tax Practitioners Board with the purpose of saying there isn’t much work to do is inconsistent with the hundreds of pages of guidance that has been produced by the TPB on these changes and the Code of Professional Conduct, in general.
Most accounting practices, if they want to seriously follow the new rules, have a lot of work in front of them. Having spent many hours thinking about and reading about these changes I can only come to the view that most accounting firms will have to devote considerable time to compliance in order to be ready for 1 July 2025 (for firms under 100 employees).
Unfortunately, I suspect that many small firms will see this as being in the ‘too hard’ basket and run the risk of being investigated by the TPB. If I am right in this prediction, this will be a poor outcome.
In brief, the changes of 2024 to the Tax Agent Services Act were:
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Disqualified entity provisions: Applying from 1 January 2024, among other things, accountants need revised contracts for individuals providing tax agent and BAS agent services on their behalf. This includes employees and any other party assisting the tax practitioner.
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Significant breach provisions: Among other things, this requires one tax agent to report another tax agent for a ‘significant breach’ of the Code of Professional Conduct. This applied from 1 July 2024.
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Code Item 17 legislative determination: This very controversial determination imposing 8 obligations on tax practitioners. This includes the mandatory responsibility to report clients to the ATO given the required egregious behaviour. Further, tax practitioners must now have in place by 1 July 2025 (for small firms) or 1 January 2025 (firms of 100+) a quality control system that gives them reasonable confidence they are complying with all aspects of the Code of Professional Conduct. In my view, this will create a big workload for most small accounting firms – if they aspire to comply with the new requirements.
Looking ahead to 2025
As we move into 2025, accountants should monitor potential tax policy changes associated with the federal election and the outcome of the Full Federal Court’s decision in the Bendel case, which could reshape Division 7A compliance where a trust distributes to a private company.
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