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Each month we monitor tax developments that could affect business owners, property investors and SMSF trustees. March brings several important updates, including increased scrutiny around director liabilities for unpaid tax, new clarity from the ATO on home-based businesses and capital gains tax, emerging guidance on inherited homes, and reminders for SMSF trustees about maintaining compliance.
Below are the key issues to be aware of.
Director Penalty Notices: A Wake-Up Call for Business Owners
Running a business comes with many responsibilities, and one of the most critical is staying on top of tax obligations. If a company fails to pay certain taxes, the Australian Taxation Office (ATO) can issue a Director Penalty Notice (DPN), which may make company directors personally liable for unpaid tax debts.
In 2024–25, DPNs increased dramatically, with more than 84,000 notices issued, affecting directors of around 64,000 companies. This surge has prompted a review by the Tax Ombudsman into how the ATO administers and communicates these notices.
What Taxes Can Trigger a DPN?
Directors can become personally liable for unpaid:
PAYG withholding
GST
Superannuation Guarantee Charge (SGC)
There are two types of DPNs.
Non-lockdown DPNs apply where required statements have been lodged but the tax has not been paid. In this case directors generally have 21 days to take action, such as paying the debt, appointing an administrator, or placing the company into liquidation.
Lockdown DPNs apply where lodgement deadlines were missed. In this scenario directors may become automatically liable and cannot avoid the penalty by placing the company into administration or liquidation.
What Business Owners Should Do
Directors should treat tax compliance as a key business risk. Practical steps include:
ensuring all BAS and SGC statements are lodged on time
monitoring cash flow so tax liabilities remain manageable
considering payment plans if the business experiences cash flow pressure
seeking advice immediately if a DPN is received
Ignoring these notices can have serious consequences, including personal financial liability.
Running a Business From Home? Understand the CGT Implications
Many Australians operate small businesses from home. However, recent guidance from the ATO clarifies how this arrangement may affect capital gains tax (CGT) when the property is eventually sold.
Normally, the family home qualifies for the main residence exemption, meaning no CGT is payable on sale. However, if part of the home has been used for business purposes, the exemption may only apply partially.
Some business owners assume that if their home is partly used for business, they may qualify for the small business CGT concessions. The ATO has clarified that this is often not the case.
The Active Asset Test
To access the small business CGT concessions, a property must pass the active asset test. This generally requires the property to be actively used in a business for at least 7.5 years or for at least half of the ownership period.
Importantly, the ATO assesses the entire property, not just the portion used for business.
Where business use is minor, such as a home office or occasional client visits, the property will generally not be considered an active asset.
What This Means in Practice
For example, a small home office used a few hours per week will generally not qualify for the small business CGT concessions.
By contrast, a property where a significant portion is used commercially, such as a shop operating from part of the building, may qualify.
If you run a business from home, it is important to understand the potential CGT implications before selling the property.
New ATO Guidance on Inherited Homes
The ATO has issued draft guidance on how the main residence exemption applies to inherited homes, which may affect estate planning strategies.
In many cases, beneficiaries can sell a deceased person’s former home without paying CGT if certain conditions are met.
Typically this requires either selling the property within two years of the date of death or ensuring the property remains the main residence of a qualifying individual.
The draft guidance clarifies that where a will allows someone to live in the property, the right to occupy must be explicitly granted in the will itself.
If the right to occupy arises through a testamentary trust or discretionary powers, the exemption may not apply.
Why This Matters
For high value properties, the tax implications can be significant. In some cases, failing to meet the exemption conditions could result in substantial capital gains tax liabilities.
Reviewing wills and estate plans may help ensure the intended tax outcomes are achieved.
Keeping Your SMSF Compliant
Self managed super funds (SMSFs) provide flexibility and control, but trustees must ensure all decisions comply with superannuation law.
Two key compliance principles are particularly important.
The Sole Purpose Test
SMSFs must be operated solely for the purpose of providing retirement benefits to members.
This means investment decisions must prioritise the interests of fund members, rather than the interests of related parties or family members.
Arm’s Length Requirements
All SMSF transactions must occur on commercial terms, particularly when dealing with related parties.
Examples include:
leasing SMSF property to a related business at market rent
ensuring lease agreements are properly documented
charging market rates for services performed by related entities
Failing to meet these requirements can lead to compliance breaches, penalties and potentially higher tax rates on SMSF income.
Read more about all these topic in our Monthly Newsletter
Need Advice?
The tax landscape continues to evolve, and small changes in the rules can have significant consequences for business owners, property investors and SMSF trustees.
If any of these updates affect your situation, whether it relates to director responsibilities, running a business from home, estate planning or SMSF compliance, our team at Strategic 360 can help you understand the implications and plan ahead.
Kerrily and Louise – Directors
