Selling a property with mixed rental and residential use

The government has shared more details about its proposed new “payday super” plan, which will start on 1 July 2026. What is payday super? Starting in July 2026, employers must pay superannuation guarantee (SG) contributions to their employees at the same time they pay their salary and wages – weekly, fortnightly, or monthly. Currently, employers are legally required to pay their employees’ SG contributions on a quarterly basis. What this means for employers All employers, no matter the size, will have to make SG contributions when they pay their workers. This might affect cash flow, especially for small businesses, and could create an extra administrative burden if they don’t have the right systems in place (such as payroll software, etc). What this means for employees The goal of payday super is to make SG contributions more transparent and help boost retirement savings. For example, according to the Government, a 25-year-old earning the median income and receiving superannuation could have about $6,000 extra by retirement because of the proposed changes. Further details announced The government recently released further policy design details on the payday super measure. Here’s what we know so far regarding the proposed payday super model: Super must reach employees’ funds within 7 days of being paid, except for new employees or small, irregular payments. For new employees, the timeframe will be 14 days after they commenced employment, and SG contributions in relation to small and irregular payments can be made within seven days of the next regular ordinary time earnings (OTE) payment.  Super is still calculated based on an employee’s OTE which includes regular salary and wages but excludes overtime. If employers don’t pay on time, they will continue to face penalties. Small businesses will need to find alternative payroll software solutions to pay their employees’ super as the ATO’s small business clearing house will close from 1 July 2026. Where to from here? The government is still finalising its payday super plan and aims to introduce legislation soon. As always, we’ll keep you updated on this measure as more information comes to hand.

There are many different issues to be considered, and matters to be juggled, when buying a new home (eg, financing, storage of furniture, etc – and timing, of course). But a common issue is whether you should sell your existing home first and then buy – or buy first. (Most “experts” say you should sell first.) But if you are caught in that situation (or choose to be in that situation) where you buy a new home first there is an important tax rule to consider. And this centres on the capital gains tax (CGT) rule that you can’t have two CGT-free homes going for the same period or at the same time. And where you buy a new home before selling the old home you technically have two CGT-exempt homes running at the same time – for which, in principle, you cannot get a full CGT exemption when you later sell one or the other. However, there is an important CGT concession that can help you in this case – and it is the “changing main residence concession”. This broadly grants you a six month period in which both homes will be entitled to the full CGT exemption for your home. In particular, it allows you to claim a full CGT exemption on your original home provided you sell it within six months of buying the new home – even if you have lived in the new home as your main residence for much of that six month period. In other words, it allows you a six month overlap period to treat both homes as your CGT-exempt main residence. However, the practical application of the rules can be complex. For example: What happens if you exceed the six month period? Which home retains the full CGT exemption? And how do you calculate the partial exemption on the other home? What if you rent the original home during that six month period? Do you lose the benefit of the concession in this case? And, crucially, does the ATO have a discretion to extend the six month period in extenuating circumstances? (And the answer to this is “no”!) You may think that this is one of those tax rules that the ATO does not pay a lot of attention to – and you may be right. Nevertheless, it is still the law of the land.

Selling a property that may have been used for mixed rental and residence purposes has a lot of capital gain tax (CGT) issues – and some of these also involve exercising good judgment as to how to best use the relevant CGT concessions. By way of example, if you retain your original home and rent it after you have purchased your new home, you will have to make a decision about whether you want to retain a full CGT exemption on the original home (or maximise it, at least) or whether you want the full exemption to apply to the new home. (But there are also ways that you can, in effect, have your cake and eat it too!) On the other hand, where you rent a property first and then afterwards live in it, then various concessions that may help reduce your CGT liability may not be available. Further, there are important CGT rules and concessions that apply to a home that has been used for such mixed use where the owner dies and then it is later sold by beneficiaries. These can be complex, but if applied with good planning can have (very) good outcomes. And then, of course, there is the issue of how you actually calculate any partial capital gain (or loss) in respect of a property that has been used for both rental and as a residence in circumstances where it is not possible to get a full exemption on it. And these calculation issues can involve determining whether you can use a market value cost at any time in the process and how you can account for any non-deductible mortgage interest (and other non-deductible costs). There is also the issue of whether you need to write-off any amounts for which you have claimed a deduction (such as building write-off deductions). In this regard, there is also the issue of whether you have actually claimed write-off amounts and therefore whether you need to write the amounts back in in any way (and the result may surprise you). And crucially, there is also the issue of whether any partial capital gain can qualify for the very generous 50% CGT discount. (And in this regard, interestingly the tax concession that costs the government the most in foregone revenue in most financial years is the CGT discount applying to a partial exemption on a home!) Of course, there are a lot of planning issues surrounding a property that you purchase with mixed intentions of both wanting to live in it and rent it. For example, if you live in it first on a genuine (bona-fide) basis then you can access a concession that allows you to retain its full CGT exemption for up to six years. Furthermore, if you rent it for more than six years and have to calculate a partial CGT exemption you can usually get the benefit of a market value cost at the time you first rent it to calculate this partial gain. As can be seen, there are an array of CGT issues surrounding the selling of a property used for mixed rental and residence use – including the need to determine how to best use (and choose) various concessions to minimise any potential CGT liability. So, if you are in this position – or even thinking of buying a property that may be used for this mixed purpose – come and have a chat to us.

Selling a property that may have been used for mixed rental and residence purposes has a lot of capital gain tax (CGT) issues – and some of these also involve exercising good judgment as to how to best use the relevant CGT concessions. By way of example, if you retain your original home and rent it after you have purchased your new home, you will have to make a decision about whether you want to retain a full CGT exemption on the original home (or maximise it, at least) or whether you want the full exemption to apply to the new home. (But there are also ways that you can, in effect, have your cake and eat it too!) On the other hand, where you rent a property first and then afterwards live in it, then various concessions that may help reduce your CGT liability may not be available. Further, there are important CGT rules and concessions that apply to a home that has been used for such mixed use where the owner dies and then it is later sold by beneficiaries. These can be complex, but if applied with good planning can have (very) good outcomes. And then, of course, there is the issue of how you actually calculate any partial capital gain (or loss) in respect of a property that has been used for both rental and as a residence in circumstances where it is not possible to get a full exemption on it. And these calculation issues can involve determining whether you can use a market value cost at any time in the process and how you can account for any non-deductible mortgage interest (and other non-deductible costs). There is also the issue of whether you need to write-off any amounts for which you have claimed a deduction (such as building write-off deductions). In this regard, there is also the issue of whether you have actually claimed write-off amounts and therefore whether you need to write the amounts back in in any way (and the result may surprise you). And crucially, there is also the issue of whether any partial capital gain can qualify for the very generous 50% CGT discount. (And in this regard, interestingly the tax concession that costs the government the most in foregone revenue in most financial years is the CGT discount applying to a partial exemption on a home!) Of course, there are a lot of planning issues surrounding a property that you purchase with mixed intentions of both wanting to live in it and rent it. For example, if you live in it first on a genuine (bona-fide) basis then you can access a concession that allows you to retain its full CGT exemption for up to six years. Furthermore, if you rent it for more than six years and have to calculate a partial CGT exemption you can usually get the benefit of a market value cost at the time you first rent it to calculate this partial gain. As can be seen, there are an array of CGT issues surrounding the selling of a property used for mixed rental and residence use – including the need to determine how to best use (and choose) various concessions to minimise any potential CGT liability. So, if you are in this position – or even thinking of buying a property that may be used for this mixed purpose – come and have a chat to us.

Making contributions later in life Superannuation laws have been simplified over recent years to allow older Australians more flexibility to top up their superannuation. Below is a summary of what you need to know when it comes to making superannuation contributions. Adding to super The two main types of contributions that can be made to superannuation are called concessional contributions and non-concessional contributions. Concessional contributions are before-tax contributions and are generally taxed at 15% within your fund. This is the most common type of contribution individuals receive as it includes superannuation guarantee payments your employer makes into your fund on your behalf. Other types of concessional contributions include salary sacrifice contributions and tax-deductible personal contributions. The government sets limits on how much money you can add to your superannuation each year. Currently, the annual concessional contribution cap is $30,000 in 2024/25. Non-concessional contributions are voluntary contributions you can make from your after-tax dollars. For example, you may wish to make extra contributions using funds from your bank account or other savings. As such, non-concessional contributions are an after-tax contribution because you have already paid tax on these funds. Currently, the annual non-concessional contribution cap is $120,000 in 2024/25. Super contribution options for people under 75 If you’re under 75, you can make and receive various types of contributions to your superannuation, such as: Compulsory superannuation guarantee contributions Salary sacrifice contributions Personal non-concessional (after-tax) contributions Contributions from your spouse Downsizer contributions from selling your home Personal tax-deductible contributions Work test rule relaxed After age 67, you’ll need to meet the “work test” or qualify for a “work-test exemption” to make personal tax-deductible contributions. To satisfy the work test, you must work at least 40 hours during a consecutive 30-day period each financial year. Prior to 1 July 2022, the work test applied to most contributions made by individuals aged between 67 to 75, but now it only needs to be met for personal tax-deductible contributions. The good news is that you don’t need to meet the work test for other types of contributions, so being retired won’t stop you from contributing to superannuation. If you don’t meet the work test condition, you can use the “work test exemption” on a one-off basis if your total superannuation balance on the previous 30 June was less than $300,000 and you satisfied the work test requirements last financial year. Meeting this requirement will allow you to also make personal tax-deductible contributions to superannuation. Super contribution options for people over 75 Once you turn 75, most superannuation contributions are no longer allowed. The only exceptions are compulsory superannuation guarantee contributions from your employer (if you’re still working) and downsizer contributions from selling your home. If you’re about to turn 75 or have just passed that milestone, you still have one final chance to make or receive other contributions. Superannuation funds can accept contributions for up to 28 days after the month you turn 75. For example, if you turn age 75 in October, the contribution must be received by your superannuation fund by 28 November. Final word Changes to the contribution rules now allow more flexibility for people in their 60s and 70s to add to their superannuation. So whether you are still working or retired, you can continue to make superannuation contributions to benefit you in retirement and beyond.

Making contributions later in life Superannuation laws have been simplified over recent years to allow older Australians more flexibility to top up their superannuation. Below is a summary of what you need to know when it comes to making superannuation contributions. Adding to super The two main types of contributions that can be made to superannuation are called concessional contributions and non-concessional contributions. Concessional contributions are before-tax contributions and are generally taxed at 15% within your fund. This is the most common type of contribution individuals receive as it includes superannuation guarantee payments your employer makes into your fund on your behalf. Other types of concessional contributions include salary sacrifice contributions and tax-deductible personal contributions. The government sets limits on how much money you can add to your superannuation each year. Currently, the annual concessional contribution cap is $30,000 in 2024/25. Non-concessional contributions are voluntary contributions you can make from your after-tax dollars. For example, you may wish to make extra contributions using funds from your bank account or other savings. As such, non-concessional contributions are an after-tax contribution because you have already paid tax on these funds. Currently, the annual non-concessional contribution cap is $120,000 in 2024/25. Super contribution options for people under 75 If you’re under 75, you can make and receive various types of contributions to your superannuation, such as: Compulsory superannuation guarantee contributions Salary sacrifice contributions Personal non-concessional (after-tax) contributions Contributions from your spouse Downsizer contributions from selling your home Personal tax-deductible contributions Work test rule relaxed After age 67, you’ll need to meet the “work test” or qualify for a “work-test exemption” to make personal tax-deductible contributions. To satisfy the work test, you must work at least 40 hours during a consecutive 30-day period each financial year. Prior to 1 July 2022, the work test applied to most contributions made by individuals aged between 67 to 75, but now it only needs to be met for personal tax-deductible contributions. The good news is that you don’t need to meet the work test for other types of contributions, so being retired won’t stop you from contributing to superannuation. If you don’t meet the work test condition, you can use the “work test exemption” on a one-off basis if your total superannuation balance on the previous 30 June was less than $300,000 and you satisfied the work test requirements last financial year. Meeting this requirement will allow you to also make personal tax-deductible contributions to superannuation. Super contribution options for people over 75 Once you turn 75, most superannuation contributions are no longer allowed. The only exceptions are compulsory superannuation guarantee contributions from your employer (if you’re still working) and downsizer contributions from selling your home. If you’re about to turn 75 or have just passed that milestone, you still have one final chance to make or receive other contributions. Superannuation funds can accept contributions for up to 28 days after the month you turn 75. For example, if you turn age 75 in October, the contribution must be received by your superannuation fund by 28 November. Final word Changes to the contribution rules now allow more flexibility for people in their 60s and 70s to add to their superannuation. So whether you are still working or retired, you can continue to make superannuation contributions to benefit you in retirement and beyond.

With apparently at least one in three marriages ending in divorce – and with countless more defacto relationships breaking down – the capital gains tax (CGT) roll-over provisions for “marriage and relationship breakdowns” has assumed increasing relevance. These rules provide for the “roll-over” of any capital gain on the transfer of assets between the separating parties so that there is not any immediate CGT liability in the circumstances. However, they (like all CGT concessions) are subject to important conditions to be met and special rules that apply to certain categories of assets. The first and foremost of these conditions is that the transfer of the asset must take place in accordance with one of the specific ways set out in the provisions – and these are essentially by way of a relevant court order or a defined financial or maintenance agreement. And here’s the first big planning opportunity: if one of the parties wants to realise a capital loss on an asset that they propose to transfer to the other spouse, then don’t transfer it under any of the ways specified in the CGT rollover provisions – do it by way of a private agreement with the other party. The second key rule is that the roll-over does not apply unless the asset is transferred to the other spouse. It cannot be transferred to the other spouse’s discretionary trust or private company. It cannot even be transferred to the estate of the other spouse if that spouse dies during the separation proceedings. The only possible exception to this rule is if the asset is transferred to a “child maintenance trust” – and even then strict conditions would apply. In addition, not all assets can get roll-over under these rules. For example, trading stock is excluded and would be subject to the normal rules that apply to the disposal of trading stock outside the ordinary course of business. Of course, if the rollover applies it does not mean CGT is avoided; it just means that it is deferred until the spouse to whom the asset is transferred later sells the asset or it is subject to a CGT event in their hands. However, in this case they would generally acquire the other party’s “cost base” for the purposes of calculating any capital gain or loss. And they would also generally be entitled to the CGT 50% discount if it was held for the required time. Nevertheless, there is an important and tricky rule that applies where the asset that is transferred is a dwelling (eg, a rental property) which is used for another purpose in the hands of the other spouse (eg, their home). In this case, the spouse who acquires the asset will be liable for CGT for the gain that accrued while it was a rental property – even though it became their home from the time they acquired it from the other spouse until they later sold it. Suffice to say, this type of scenario requires some careful negotiations between the parties before such a transaction is undertaken to make sure everything is “fair” for all the parties. There are also special rules that apply when, say, an asset that is held by a family company or trust is transferred out of that company or trust to the other party as part of a settlement agreement. Again, these rules can be complex and require good advice to ensure that all the issues are managed effectively. So, all in all, if you are facing any spousal separation issues come and speak to us first about the ins-and-outs of the rules that apply on any transfer of assets. And perhaps some of the impact of divorce or separation can be alleviated by making sure that the CGT rollover is used most effectively – because like death, divorce affords certain tax planning opportunities.

If you run a small business through a company and you decide to sell it, you have the choice of either selling the business assets themselves (together with any goodwill) or selling your shares in the company. Usually, such decisions are made on the basis of relevant commercial considerations (eg due diligence and future liability issues). However, if you are seeking to access the CGT small business concessions on any sale - then you should also consider whether it is better to sell the business assets per se or the shares in the company. While in principle, there should be no difference in terms of the CGT outcome in selling either, it may well be easier to access the concessions by adopting one approach over the other. For example, if you sell the business assets at the company level you will need to find one or more controllers of the company (ie broadly someone with a 20% or more interest in it at the relevant time) in order to be able to access the concessions. And, depending on the circumstances, this can be both easier and harder than it looks. Furthermore, in case of the “retirement exemption”, it is necessary to actually pay any exempted capital gain to this controller in order to be able to use the concession (or to put it into their superannuation if they are under 55 at the relevant time). On the other hand, if you can use the “15 year exemption”, it is enough that such a person exists - without the need to pay the exempted gain to them. Most importantly however, if you choose to sell the shares in the company, the company itself must have certain attributes – the most important of which is that 80% or more of its assets (by market value) must be assets used in carrying on a business. This, in turn, raises the thorny issue of how money in the bank is to be treated – and there is often a fine line between whether it is considered to be used in carrying on a business or not. Furthermore, if the company has “controlling interests” in any other entity, then the assets of any such entity has to be also taken into account in determining if this test is met. And, of course, as with the application of the CGT small business concessions in any circumstances, the “taxpayer’’ must satisfy either the $2m turnover test or the $6m maximum net asset value (MNAV) test. And where shares or units are sold, the “taxpayer’’ is the individual who owns the shares and where the business assets are sold the “taxpayer” is the company or trust itself. In either case, the tests can be difficult to apply because the “taxpayer’’ includes affiliates and connected entitled (ie related parties).  And by way of example, if you sell the business assets of a company and you use the $6m MNAV test, then any person who has a 40% or more shareholding in the company will be a connected entity and their assets (other than personal ones such as super and their home) will also have to be taken into account. Importantly, this can include investment properties and shares. And then there is the difficult task of determining what liabilities relate to those assets for the purposes of this test – especially where the business assets are sold. Suffice to say, the issues surrounding the question of whether you should sell the business assets of a company or the shares in them when seeking to apply the CGT small business concessions are complex. Furthermore, the same issues arise in respect of deciding whether to sell the units in a unit trust that operates a small business or the assets of the business itself. In any of these scenarios we are here to help – as this is a matter which clearly requires the expertise of a tax professional.

A person who is not a resident of Australia for tax purposes is nevertheless liable for capital gains tax (CGT) on certain assets located in Australia. And these assets are assets which have a “fundamental” connection with Australia – and are broadly as follows: real property (ie, land) located in Australia – including leases over such land; certain interests in Australian “land rich” companies or unit trusts; business assets used in carrying on a business in Australia through a “permanent establishment”; and options or rights over such property. This means that such assets will be subject to CGT in Australia regardless of the owner’s tax residency status. Importantly, in relation to real property, this also includes a home that the foreign resident may have owned in Australia. And this home will not be entitled to the CGT exemption for a home if the owner is a foreign resident when they sell or otherwise dispose of it. Furthermore, a purchaser of property from a foreign resident will be subject to a “withholding tax” requirement, whereby they have to remit a certain percentage of the purchase price to the ATO as an “advance payment” in respect of the foreign resident’s CGT liability. However, this requirement is subject to certain thresholds and variations. Importantly, a foreign resident will generally not be entitled to the 50% CGT discount on any capital gain that is liable to CGT in Australia – subject to an adjustment for any periods when they owned the asset when they were a resident of Australia. In relation to a foreign resident’s liability for CGT on certain interests in Australian “land rich” companies or unit trusts, this rule broadly requires the foreign resident to: own at least 10% of the interest in the company or trust at the time of selling the interest (or at any time in the prior two years); and at the time of sale, more than 50% of the assets of the company or trust (by market value) are attributable to land in Australia. This means that interest owned by foreign residents in private companies and unit trusts can potentially be caught by these rules. Moreover, the application of these rules can be very difficult, particularly as a foreign resident can be caught by them at certain times and not others. It is also worth noting that if someone ceases to be an Australia resident and becomes a foreign resident for tax purposes, then they will generally be deemed to have sold such interests at that time and be liable for CGT on them. However, this is subject to the right to opt out of this deemed sale rule – but this “opt-out” has other important CGT consequences. On the other hand, the rule that applies to make a deceased person liable for CGT in their final tax return for assets that are bequeathed to a foreign resident beneficiary does not apply to certain assets – and these assets are any of the above assets with a “fundamental” connection with Australia. And this may be further complicated by the fact that, for example, at the time of making the will, the beneficiary may not have been a foreign resident. The application of Australia’s CGT rules to foreign residents can be very complex – especially given the “variable” nature of some of the rules. Therefore, it is vital to speak to us if you have a “foreign residency” issue.