Avoiding the ATO's Top 3 Traps for Businesses

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We love hearing from our clients and a positive review gets our podcast started on the right foot. And we are back! Leo Baker here, and Mia, today we are doing something very special. The ATO has given us a peek behind the curtain, a look into their diary for the year ahead, and to help us translate it all, we’ve brought back a very special guest. That’s right! Please welcome back to the studio our very own ATO-whisperer, the man who reads tax rulings for fun, Harvey Green! Welcome, Harvey! Thanks for having me, Mia, Leo. It’s great to be back. And you’re right, the ATO has published its new ‘naughty list’ for 2026, and there are a few things on there that business owners really need to be aware of. I love it! The ATO Naughty List! So, what have we got today? A new hit list for wealthy families, a ticking time bomb for new companies, and I hear you’ve brought us a campfire horror story about GST? That’s a perfect summary, Leo. It’s going to be a big one. Let’s get right into it. The ATO's Hit List for 2026. Harvey, what’s at the top of their list for privately owned and wealthy groups? Well, the list has a few of the usual suspects, but the one they seem to be screaming from the rooftops about right now is the Family Trust Election, or FTE. Family Trust. Sounds so wholesome and friendly! Like a family picnic. Why is the ATO getting suspicious about the family picnic? Because, Leo, they’ve seen too many picnics where people invite guests who weren't on the original invitation list. In simple terms, a Family Trust Election is something you do to make a discretionary trust simpler to deal with for certain tax rules, especially around tax losses and franking credits. It’s like giving your trust a members-only club jacket. A members-only jacket, I like that. So, what’s the catch? The catch is a monster called Family Trust Distribution Tax. If your trust, wearing its exclusive club jacket, makes a distribution of income or capital to someone who is *not* in the defined family group, you get hit with a penalty tax at the highest marginal rate. We’re talking nearly 50 cents in the dollar. Fifty cents! So if my nephew marries someone the family isn't wild about, and I give them a gift from the trust to help with a house deposit, the ATO could take half of it? That’s the risk, and the rules about who is officially 'in the family' are much narrower and more complex than people think. Where people get into trouble is they make an election to solve a small, short-term problem, like a $1,000 tax loss, without realising they’ve created a 47% tax problem for generations to come. The ATO keeps raising this, which is their way of saying, ‘We’re watching you, and we’re serious.’ So the message is: don't put on the club jacket unless you’ve read the very, very fine print on the club’s constitution. What’s next on the hit list? Next is a vague but ominous one: restructuring to access tax concessions. That sounds like people moving the furniture around just before the tax inspector arrives to make the room look smaller. That’s not a bad analogy, actually. The classic example is with the Small Business Capital Gains Tax Concessions. There was a famous case where a business was just a little too big to qualify for these incredibly generous concessions. So, right before they sold the business, they went through a complex restructure, essentially splitting it in two. Like a magician sawing a person in half. And did the ATO applaud the magic trick? Not at all. The court looked at it and said, ‘We can see exactly why you did this. There was no real commercial reason for this restructure; it was done purely to get a tax benefit you weren't entitled to.’ They invoked the general anti-avoidance rule, Part IVA, and denied the concessions. The ATO is telling us they’re seeing more of these magic tricks, and they are not impressed. Okay, this is fascinating. Let’s move on to our second topic. Harvey, you called this one a 'ticking time bomb' for new companies. It’s about franking credits and something called a ‘bucket company’. It sounds like a mob movie. It can be just as dramatic if you get it wrong. The issue is about something called the 45-day holding rule for franking credits. Let’s break that down. Franking credits are the little bonus you get with a dividend because the company has already paid tax. What’s the 45-day rule? Okay, let’s use an analogy. Imagine a franking credit is a ‘Buy One, Get One Free’ pizza voucher that comes taped to a pizza box. The pizza box is the share. The ATO says you can’t just buy the pizza, rip the voucher off, and then sell the pizza two minutes later. To be allowed to use that voucher, you have to prove you’re a genuine pizza lover. You have to hold that pizza box—the share—'at risk' for at least 45 days. You have to commit. I am always committed to pizza. So I have to hold the share for 45 days to get the credit. Simple enough. What does this have to do with a new company? This is the trap the ATO has laid out. Let’s follow the timeline. On Day 1, a big company pays a dividend—the pizza with the voucher—to a shareholder, which is your family trust. Your trust now holds the share. On Day 30, you’re having a chat with your accountant and you decide you need a new company to distribute some of that money to. So you set up ‘Leo’s Glorious Holdings. A fine name for a company. It’s born on Day 30. Exactly. Then, on Day 60, after the 45-day period is over, the trustee of your family trust decides to distribute that dividend and the franking credit to the brand-new ‘Leo’s Glorious Holdings’. Here’s the problem: The ATO’s official view is that Leo’s Glorious Holdings **cannot** use the franking credit voucher. What?! That’s outrageous! My trust held the share for the whole time! It was at risk! I demand to speak to the manager of the ATO! The ATO’s argument is that the entity claiming the credit—your new company—must have been exposed to the risk for the full 45 days. But your company didn't even *exist* for the first 30 days of that period. It couldn't have been at risk because it was just a twinkle in the corporate registrar’s eye. So even though the trust held the share correctly, the new company that receives the dividend is disqualified. That is a brutal technicality. It is, and while some experts disagree with the ATO’s interpretation, the ATO is actively reviewing this and denying the franking credits. Fighting them is a long and expensive battle. The practical takeaway is simple risk management. Let me guess: set up my glorious company *before* the pizza party starts? Precisely. Make sure your bucket companies are incorporated before any dividends are paid. Don’t be late to the party. Okay, I feel like I need a stiff drink after that one. Let’s move to our final segment. Leo, you called this a campfire horror story. I did. Harvey, gather round the campfire, turn on your torch, and tell us the spooky story of the Bath Family Trust and the Case of the Vanishing GST Credits. It was a dark and stormy night… No, actually, it was a swimming pool construction business. In 2012, their computer was stolen. They fell behind on their paperwork, as small businesses sometimes do. Life got in the way. It wasn’t until March 2018 that they finally got everything sorted and lodged a whole stack of their overdue Business Activity Statements, some dating all the way back to 2012. Okay, so they did the right thing eventually. They reported all their sales for those old periods and declared the GST they owed. So, naturally, they should be able to claim the GST credits for all their costs and purchases from those same periods, right? To balance it out? That’s what they thought. But the ATO replied with a terrifying whisper… No. The tribunal confirmed that the business had to pay every single dollar of GST on their sales from 2012, but their claim for GST credits on their purchases from 2012 was denied. It had vanished. You are kidding me! How is that possible? That’s a one-way street paved with nightmares! It’s because of a deadly timing mismatch in the law. The ATO has four years to *review* your BAS from the date you *lodge* it. So when the trust lodged their 2012 BAS in 2018, the ATO’s clock started ticking, and they could demand the GST. But the law says a business only has four years to *claim* a GST credit from the *due date* of the original BAS. That clock had started ticking back in 2012 and the four-year time limit had long since expired. So the ATO’s right to take your money was alive and well, but your right to claim your credits was dead and buried. That is one of the most unfair things I’ve ever heard. It’s a brutal trap, and it catches so many people who fall behind. The moral of this horror story is terrifyingly simple: Lodge your BAS on time. Even if you can’t afford to pay it, you must lodge the form. Lodging preserves your right to claim your credits. If you lodge late, your credits can disappear forever. Wow. Okay, my blood is officially running cold. Let’s recap. Harvey’s message from the ATO underworld is: check who's in your family trust's exclusive club, set up your companies before the dividend pizza party starts, and for the love of all that is holy, lodge your BAS on time! That’s a perfect summary. Harvey, thank you so much for translating these terrifying tales for us. It really shows that this complex end of town is where professional advice isn’t just a good idea, it's absolutely essential armour. My pleasure. It’s all about knowing where the traps are before you step in them. It’s not just what you know, it’s what you know to ask your accountant! A perfect place to end. And that brings us to the end of another episode! We hope today's discussion has provided you with valuable insights and helps you navigate your financial world with greater confidence. Before we go, a quick but important reminder: The information and strategies shared on this podcast are for general informational purposes only and do not constitute specific tax or financial advice. Everyone's situation is unique, and tax laws are complex and constantly evolving. For personalized advice tailored to your specific individual or business needs, we always recommend consulting with a qualified professional. You can connect with our team at Aevum Accounting visit our website to learn more. Thank you so much for tuning in! If you enjoyed this episode, please consider subscribing, leaving us a review, and sharing it with anyone who might benefit. Until next time, stay savvy, stay proactive, and keep building your financial future! From all of us at Aevum Accounting, goodbye for now!