Here is a question I get from business owners regularly: “I’ve hired someone as a contractor — I don’t need to pay their super, right?” It’s one of the most common assumptions in Australian business, and it’s often wrong. The ATO does not care what label you put on the arrangement. What matters is the substance of how the person actually works — and if you get that wrong, you are facing the Superannuation Guarantee Charge, which is non-deductible, includes interest, and can land personally on your directors.

This guide walks you through exactly when super for contractors in Australia applies, how the ATO tests whether someone is genuinely a contractor, the specific rules for construction and labour hire, and what the penalties look like if you get it wrong. If you engage contractors or subcontractors in your business, read this before your next quarterly super due date.

The Myth: “They Have an ABN, So I Don’t Owe Them Super”

Having an ABN does not make someone a contractor for superannuation purposes. This surprises a lot of business owners, but the ATO is very clear: the label on the arrangement is irrelevant. What matters is the substance of how the work is actually done.

The Superannuation Guarantee (Administration) Act 1992 defines who is an “employee” for SG purposes more broadly than ordinary employment law. Under the extended definition, a worker can be treated as an employee — and therefore entitled to super contributions — even if they have their own ABN, invoice you as a business, and operate under a contractor agreement.

The ATO has prosecuted business owners who relied on ABNs and contractor agreements while the actual working arrangement looked nothing like a genuine contractor relationship. Do not rely on paperwork alone.

https://www.youtube.com/watch?v=OlNy81ixqJY

The ATO’s Three-Part Results Test

The ATO uses a “results test” to assess whether someone is genuinely a contractor. To pass the test, all three of the following conditions must be met:

• Paid for a specific result. The contractor is engaged to deliver a defined outcome — not simply to show up and work. If you are paying someone by the hour or day without a defined deliverable, this is a strong indicator of employment.
• Supplies their own tools and equipment. The contractor uses their own equipment to perform the work. If your business provides the tools, the vehicle, the machinery, or the software, this weighs against genuine contractor status.
• Bears financial risk for defective work. If the contractor has to fix substandard work at their own cost and time, they bear financial risk. If you simply correct the work or absorb the cost, they do not bear risk — and this factor fails.

All three conditions must be satisfied for the results test to pass. If even one fails, the ATO may determine that the person is a worker for SG purposes, regardless of the contractor agreement.

You can use the ATO’s employee or contractor decision tool to assess your specific arrangements — but run every active contractor through it, not just the ones you are uncertain about.

When SG Applies Even to Contractors

Even if a worker passes the results test and is genuinely a contractor in a commercial sense, there are circumstances where the Superannuation Guarantee still applies. Under the extended definition of “employee” in the SG legislation, you must pay super if:

• The contractor’s contract is wholly or principally for their labour — meaning they are primarily providing their own work and skills, not a commercial product or result
• They earn 90% or more of their income from you in a financial year, making you their principal engager
• They use your tools and equipment rather than supplying their own
• They do not bear financial risk for defective work

If these characteristics are present, the ATO will treat the worker as an employee for SG purposes — even if they invoice through their own ABN. I have seen this catch business owners in trades, cleaning, consulting, IT services, and professional services. The structure of the contract does not protect you if the substance of the arrangement says otherwise.

This is exactly the kind of structural risk that our Virtual CFO service identifies proactively — reviewing contractor arrangements before the ATO does, not after.

Building and Construction: PAYG and SG Can Both Apply

If you operate in the building and construction industry, there is an additional layer of compliance you need to understand. The PAYG withholding regime for contractors applies in this industry, meaning you may be required to withhold tax from payments to contractors — in addition to paying super.

Under the Taxable Payments Reporting System (TPRS), all businesses in the building and construction industry must report contractor payments to the ATO annually. This reporting includes the contractor’s ABN, name, total gross payments, and tax withheld. The ATO cross-references this data against tax returns and super fund records.

The key point: if the ATO determines your contractor is actually a worker for SG purposes, both the superannuation obligation and the PAYG withholding obligation can apply simultaneously. Failing on both fronts doubles your exposure. If you are in construction and engaging subcontractors, review your arrangements against both regimes — the ATO’s TPRS guidance is the starting point.

Labour Hire Arrangements: Who Is Responsible?

If you engage workers through a labour hire firm, the SG obligation generally rests with the labour hire firm — not you. The firm is the employer of record and must pay super contributions on the workers’ earnings.

However, this only protects you if the arrangement is correctly structured. If the labour hire arrangement is misclassified — for example, if the labour hire firm is simply an intermediary that passes workers through without actually employing them — you may be treated as the employer and the SG obligation shifts to you. Get this confirmed in writing in your agreement with the labour hire firm, and ensure they are actually paying super into the workers’ nominated funds.

If you are unsure whether your labour hire arrangement is structured correctly, this is a conversation to have with your tax adviser before the ATO raises it. The ATO is actively scrutinising labour hire arrangements, particularly in industries that rely heavily on contract workforces.

The Superannuation Guarantee Charge: The Real Cost of Getting It Wrong

If you have a super shortfall — whether because you failed to identify that SG applied, paid the wrong amount, or missed a deadline — the ATO replaces the standard super contribution with the Superannuation Guarantee Charge (SGC). The SGC is more expensive than simply paying the super you owed.

The SGC is calculated as follows:

• Shortfall amount — the super contributions that should have been paid, calculated on a broader base that can include payments not normally counted as “ordinary time earnings”
• Nominal interest — 10% per annum on the shortfall, accruing from the start of the quarter the payment was missed
• Administration component — $20 per employee per quarter with a shortfall

The SGC is non-deductible. Regular superannuation contributions you pay on time are deductible business expenses. The SGC is not. This means you bear the full cost in after-tax dollars — making the effective cost significantly higher than the original super obligation.

On top of the SGC itself, the ATO can impose additional penalties of up to 200% of the SGC amount where the failure was deliberate or reckless. Directors can be personally liable through Director Penalty Notices (DPNs), which allow the ATO to pursue company directors personally for unpaid SGC liabilities — including penalties and interest. The director’s personal assets are at risk.

Related reading: Payday Super Starts 1 July 2026: What Melbourne Employers Must Do Right Now — understand the new super payment regime coming into effect and how it changes quarterly obligations for all employers.

The Current SG Rate and Payment Deadlines

From 1 July 2025, the Superannuation Guarantee rate is 12% of ordinary time earnings. This applies to all employees and workers covered by the extended SG definition — including qualifying contractors. You can verify the current rate at any time on ato.gov.au.

Super contributions must be paid into the worker’s chosen superannuation fund (or a default MySuper fund) by the following quarterly deadlines:

Quarter	Period	Due Date
Q1	1 July – 30 September	28 October
Q2	1 October – 31 December	28 January
Q3	1 January – 31 March	28 April
Q4	1 April – 30 June	28 July

Missing a deadline triggers the SGC automatically — even if you pay the super shortly after the due date. There is no grace period. If you pay on 29 October instead of 28 October, you are in SGC territory. Pay early, not late.

SuperStream: How Super Payments Must Be Made

All super contributions must be made electronically through the SuperStream system. You cannot write a cheque to a super fund or transfer money directly from your bank account into a fund outside of this framework.

SuperStream requires you to send both the payment and the associated employee/contribution data through an approved SuperStream channel. Options include:

• Your payroll software (Xero, MYOB, Employment Hero, and others are SuperStream-compliant)
• A SuperStream clearing house — the ATO’s Small Business Superannuation Clearing House (SBSCH) is available at no cost to eligible small businesses through the ATO Business Portal
• A commercial clearing house through your bank or payroll provider

Note that the ATO’s SBSCH counts your contribution as paid on the date you submit it to the clearing house — provided the clearing house processes it before the fund’s deadline. Always allow a few business days between your submission and the quarterly due date.

How to Protect Your Business

The risk here is real, but it is also manageable if you take the right steps proactively. Here is what I recommend to every business owner who engages contractors:

• Run every contractor through the ATO decision tool. Do not assume. Use the ATO’s employee or contractor decision tool for each arrangement, and document the outcome. If the circumstances change (different tools, different income proportions), run it again.
• Review labour hire agreements. Confirm in writing that the labour hire firm is paying SG on your workers. Request evidence — a super fund remittance confirmation is the gold standard.
• Pay quarterly, on time, every time. Late payment is one of the most avoidable mistakes. Set a calendar reminder for 20 October, 20 January, 20 April, and 20 July — one week before each due date — so you have time to process payments without rushing.
• Keep records. Maintain documentation of each contractor engagement, the results test assessment, invoices, and super payments made. If the ATO comes knocking, your records are your defence.
• Get proactive advice. This is exactly the kind of structural compliance risk that a proactive adviser reviews before the ATO does — not after. A good adviser reviews your contractor arrangements as part of normal engagement, flags risks early, and ensures your super obligations are met without you having to think about it every quarter.

At Pinnacle, our Virtual CFO service includes a regular review of your workforce arrangements — payroll, contractors, and super obligations — so compliance gaps get caught before they become ATO notices. If you want that level of oversight in your business, book a no-obligation consultation and we can talk through what that looks like for your situation.

Frequently Asked Questions

Do I have to pay super for a contractor with an ABN?

Not always — but possibly yes. Having an ABN does not automatically exempt a worker from superannuation entitlements. The ATO assesses the substance of the working arrangement, not the label. If the worker provides labour predominantly, uses your tools, derives most of their income from you, and does not bear financial risk for defective work, you will likely owe them super regardless of their ABN. Use the ATO’s employee or contractor decision tool to assess each arrangement.

What is the Superannuation Guarantee Charge?

The Superannuation Guarantee Charge (SGC) is the penalty the ATO imposes when a business fails to pay the correct super by the quarterly deadline. The SGC equals the shortfall amount plus 10% per annum nominal interest plus a $20 per employee per quarter administration fee. Critically, the SGC is non-deductible — unlike regular super contributions, which are a deductible business expense. The ATO can also impose penalties of up to 200% of the SGC for deliberate non-compliance, and directors can be personally liable through Director Penalty Notices.

What is the current super rate for contractors in Australia?

From 1 July 2025, the Superannuation Guarantee rate is 12% of ordinary time earnings. This rate applies in the 2025–26 financial year for all employees and qualifying contractors. The SG rate has been increasing incrementally and is now at its legislated ceiling of 12%. Always verify the current rate at ato.gov.au as rates can change with future legislation.

How do I know if someone is a contractor or employee for super purposes?

The ATO applies a results test with three criteria: the worker must be paid for a specific result, supply their own tools and equipment, and bear financial risk if they need to fix defective work. If all three are met, the worker is likely a genuine contractor. If one or more fails — particularly if the worker provides labour predominantly, earns 90%+ of their income from you, and uses your tools — the SG obligation applies even with a contractor agreement in place. Use the ATO’s online decision tool and document your assessment.

Can a director be personally liable for unpaid contractor super?

Yes. If a company has unpaid SGC liabilities, the ATO can issue Director Penalty Notices to company directors personally. This means your personal assets — not just the company’s — are at risk if super obligations are not met. The director penalty regime applies to SGC, PAYG withholding, and GST obligations. This is one of the strongest reasons to ensure super obligations are identified and paid correctly, not after the fact.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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Motor vehicle tax deductions are one of the most misunderstood areas of Australian tax. Business owners regularly overclaim, underclaim, or make assumptions based on myths rather than actual ATO rules. This post works through the 10 questions we hear most often, with straight answers based on current ATO rules for 2025–26. If you want a detailed guide on how to claim vehicle expenses, see our article on claiming motor vehicle expenses for tax.

For the current figure, see our dedicated guide to the ATO cents per km rate for 2026-27 and how much you can claim.

The figures in this article reflect the 2025–26 income year: cents per kilometre rate of 88 cents, car limit of $69,674, instant asset write-off threshold of $20,000 for businesses with annual turnover under $10 million, and a maximum GST credit of $6,334 on passenger vehicles. Source: ATO — Car expenses.

These answers address common scenarios but are general in nature. If you are unsure which method or structure applies to you, book a no-obligation consultation with our team.

Q1: If my car has business signage, can I claim 100% of expenses?

No — and this is one of the most persistent myths in small business tax.

Business signage on a vehicle does not change how the ATO assesses your claim. You can only deduct the proportion of vehicle expenses that corresponds to actual business use. If you drive a signwritten ute 70% for business and 30% for private purposes, you can claim 70% of expenses — full stop.

The confusion comes from the assumption that making a vehicle look like a work vehicle somehow makes it one for tax purposes. It does not. What matters is how the vehicle is actually used, documented through a logbook or supported by records under the cents per kilometre method. The only situation where 100% deductions are available is where private use is genuinely nil — which is rare for business owners who drive their work vehicle home each day.

Q2: Can I claim car expenses to commute to and from my regular office?

No. Home-to-work travel is private travel under ATO rules.

The ATO’s position has been consistent for decades: ordinary commuting is not deductible. The reasoning is that the choice to live at a distance from your workplace is a private decision.

There are three exceptions worth knowing:

• Travel between workplaces: If you travel directly from one workplace to another in the same day, that travel is deductible.
• Bulky equipment: If your work requires you to transport bulky tools or equipment that cannot be stored at work, and there is genuinely no secure storage available at your workplace, home-to-work travel may be deductible.
• Home as principal place of business: If your home is your genuine principal place of business — you have a dedicated home office and conduct the majority of your income-earning activities there — travel from home to see clients or visit other locations may be deductible. This does not apply simply because you occasionally work from home.

Q3: What is the best method — logbook or cents per kilometre?

It depends on your kilometres and vehicle costs. Here is how to think about it.

There are two methods available for individuals claiming car expenses:

• Cents per kilometre: 88 cents per km for 2025–26, capped at 5,000 km. Maximum claim: $4,400. No logbook required — you need to be able to explain how you calculated your business kilometres.
• Logbook method: You claim the actual business-use percentage of all vehicle running costs, including fuel, insurance, registration, servicing, and depreciation. Requires a logbook covering at least 12 continuous weeks. Once prepared, the logbook is valid for five years if your usage pattern is consistent.

The logbook method wins when you drive more than 5,000 business kilometres per year (since the cents per km method is capped), your vehicle has high running costs, or your business use percentage is above 70–80%. The cents per km method is better when you drive fewer kilometres for business or want a straightforward approach with minimal recordkeeping. Note: companies and trusts cannot use the cents per kilometre method — they must use actual costs.

Q4: I bought a work vehicle for $85,000. Can I deduct the full purchase price?

Not if it is a passenger vehicle — the car limit caps your deduction.

For 2025–26, the car limit is $69,674. This is the maximum cost base that can be used for depreciation on a passenger vehicle, regardless of what you actually paid. If you paid $85,000 for a luxury SUV, your depreciation and GST credits are calculated as if the vehicle cost $69,674.

The instant asset write-off ($20,000 for businesses with turnover under $10 million) does not override the car limit for passenger vehicles. If you claim instant asset write-off on an $85,000 car, the maximum write-off in year one is $69,674, adjusted further for any private use percentage.

The car limit does not apply to vehicles that are not “cars” under the tax rules — for example, motorcycles, or commercial vehicles designed to carry more than one tonne (like a ute with a payload over 1,000 kg). This is one reason work utes are popular among tradies — they may fall outside the car limit entirely. Source: ATO — Car limit.

Q5: Can I claim car expenses through my company or trust?

Yes, but fringe benefits tax (FBT) is likely to apply — and this changes the maths significantly.

When a company or trust owns a vehicle and an employee, director, or associate uses it for private purposes, a car fringe benefit arises. The entity can claim a full deduction for vehicle running costs, but must report and pay FBT on the value of the private benefit provided.

The FBT rate is 47%, applied to the taxable value of the car fringe benefit under either the statutory formula method or operating cost method. Keeping a logbook can significantly reduce the taxable value under the operating cost method. Some vehicles used wholly for business — never garaged at home, with no private use — may be exempt from FBT altogether, but this requires strict records and the ATO scrutinises these claims carefully.

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Q6: Do I need to keep a logbook every year?

No — but your logbook must remain representative of your actual use.

A logbook is valid for five income years from the year it was prepared, provided your travel pattern has not changed significantly. You must still record your vehicle’s odometer reading at the start and end of each income year throughout that period.

You need a new logbook if: you change vehicles; your business activities change materially; or your private use increases significantly. If you are audited and your logbook period is unrepresentative of how you actually use the vehicle, the ATO may disallow part or all of your claim.

Q7: My spouse and I share a vehicle for business — how do we claim?

Each person can claim their own business use, provided the claims do not overlap or double-count.

If you and your spouse both use the same vehicle for separate business activities, each of you can claim the proportion of expenses that relates to your own business use. The combined business use percentage cannot exceed 100% of the vehicle’s total use.

For example: you use the car 50% for your business and your spouse uses it 25% for theirs. The remaining 25% is private. You can each claim 50% and 25% of vehicle expenses respectively, on your separate tax returns. Both parties should keep separate logbook entries or kilometre records clearly identifying their trips.

Q8: Can I claim car expenses if I receive a car allowance from my employer?

Yes — but the allowance is taxable income, and your deduction is for actual expenses.

A car allowance paid by your employer must be included in your assessable income. It is not a tax-free reimbursement. You then claim your actual work-related car expenses as a deduction using the cents per kilometre method or logbook method.

If your deductible car expenses exceed the allowance you received, you have a net deduction. If your expenses are less than the allowance, you have a net taxable amount. Employees who receive a car allowance sometimes assume no further action is needed at tax time — this is incorrect. Track your business kilometres throughout the year.

Q9: What GST credit can I claim on a business vehicle purchase?

Up to $6,334 on a passenger vehicle — capped by the car limit, then adjusted for business use.

If you are GST-registered and purchase a vehicle for business use, you can claim an input tax credit of 1/11th of the purchase price. For passenger vehicles, this is capped at 1/11th of the car limit: $6,334 for 2025–26.

If the vehicle is used for a mix of business and private purposes, the GST credit is further reduced proportionally. For example: vehicle purchased for $85,000 (GST-inclusive); car limit applies capping the credit at $6,334; business use is 70%; actual GST credit claimable: $6,334 x 70% = $4,434. Source: ATO — Cars and GST.

Q10: Can I claim private trips that happen to coincide with a business trip?

No — only the business component is deductible, and mixed-purpose travel must be apportioned.

Where a trip has both business and private purposes, only the business component is deductible. The fact that a trip started or ended at a business meeting does not make the entire journey deductible.

For example: you drive from home to a client meeting (30 km each way) and on the way back divert to pick up groceries (5 km additional). The 60 km round trip to the client is potentially deductible. The 10 km grocery diversion is not. This is why a logbook requires you to record start and end points and the business purpose of each trip — vague entries are a red flag in ATO audits. It is also one of the claims highlighted in the current ATO crackdown on personal versus business deductions. Mixed-purpose travel is one of the most common areas of adjustment when the ATO audits sole traders and small businesses.

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Getting Your Vehicle Claims Right

For a complete view of how vehicle claims fit into your tax position, see our tax planning services. Motor vehicle deductions are legitimate and valuable — but only when they reflect genuine business use and are supported by proper records. The two most common mistakes are overclaiming (treating private use as business) and underclaiming (not knowing which method gives the best result). Our detailed guide on motor vehicle tax deductions covers both methods with worked examples. If you want to review your vehicle claims with a registered tax agent before your next return, get in touch.

One question this guide does not cover is what happens when you sell. If your vehicle cost more than the car limit, read selling a car above the car limit before you sign a contract, because the GST and income tax outcomes surprise most owners.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

For vehicle and other business claims done right, work with a proactive tax accountant in Melbourne who reviews your whole position.

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What Is an SMSF Bare Trust?

If you have a self-managed super fund (SMSF) and want to borrow money to purchase an investment asset — particularly commercial or residential property — you will encounter a legal structure called a bare trust. Also referred to as a holding trust or custodian trust, the bare trust is not optional. It is a mandatory requirement under Australian superannuation law whenever an SMSF enters a Limited Recourse Borrowing Arrangement (LRBA).

This guide is written for business owners and professionals who already have an SMSF — or are considering setting one up — and want to understand exactly how the bare trust and LRBA structure works before taking the next step. We cover the legal mechanics, the practical setup process, costs, and the rules you absolutely cannot afford to break.

At Pinnacle Accounting & Advisory, we work with Melbourne business owners who use this structure to purchase their commercial premises inside their SMSF — one of the most powerful and legitimate wealth-building strategies available in Australia. But it only works when it is set up correctly. If you run a trading business, the same holding trust structure is central to buying your business premises through your SMSF.

Why You Can’t Just Buy Property Directly in Your SMSF with Borrowed Money

The Superannuation Industry (Supervision) Act 1993 (SIS Act) contains a strict prohibition: SMSFs generally cannot borrow money. The rationale is simple — superannuation savings are protected retirement assets, and the government wants to prevent SMSFs from taking on debt that could erode members’ retirement balances.

However, Parliament recognised a narrow exception. Under section 67A of the SIS Act, SMSFs are permitted to enter a Limited Recourse Borrowing Arrangement. An LRBA allows the fund to borrow money from a lender (a bank or, in some cases, a related party such as a family member or associated entity) to purchase a single acquirable asset.

The critical condition — and the reason the bare trust exists — is this: the asset purchased with borrowed money cannot be held directly by the SMSF until the loan is fully repaid. The SMSF holds only the beneficial interest in the asset. Legal title must be held by a separate bare trustee. The bare trust is the legal vehicle that makes this possible. Without it, there is no LRBA, and therefore no legal mechanism for an SMSF to borrow at all.

How the Bare Trust Structure Works

Understanding the bare trust requires understanding the full flow of money and legal interests in an LRBA. Here is how it works from start to finish.

Step 1: The Loan

The SMSF borrows money from a lender. This can be a bank (most common for commercial and residential property) or a related party (such as a family member, family trust, or company associated with the SMSF members). Related-party loans must strictly comply with the ATO’s safe harbour terms under PCG 2016/5 — more on this in the compliance section below.

Step 2: The Bare Trustee Purchases the Asset

The loan proceeds flow to the bare trustee — a separate legal entity (almost always a corporate trustee — that is, a company set up specifically for this purpose) that purchases the asset on behalf of the SMSF. The contract of purchase is signed in the name of the bare trustee, not the SMSF trustee. The bare trustee holds legal title to the asset.

Step 3: The SMSF Holds Beneficial Interest

Although the bare trustee holds legal title, the SMSF is the beneficial owner of the asset. All economic benefits — rental income, capital growth — flow to the SMSF. The bare trustee has no active duties and no discretion; it simply holds the asset as directed by the SMSF trustee. The bare trust deed documents this relationship in full.

Step 4: The SMSF Repays the Loan

The SMSF (not the bare trustee) makes all loan repayments using money from its own resources — rental income, member contributions, or other fund assets. The lender’s recourse is limited to the asset held in the bare trust. If the SMSF defaults, the lender can seize and sell the asset in the bare trust, but they cannot touch other SMSF assets (a member’s other investments, cash, listed shares). This is the “limited recourse” in Limited Recourse Borrowing Arrangement.

Step 5: Loan Repaid — Asset Transferred to the SMSF

Once the loan is fully repaid, the asset is transferred from the bare trustee to the SMSF trustee. This is a significant legal step — it requires stamp duty in most states, legal documentation, and notification to the SMSF’s auditor. Some states have concessional stamp duty rates for SMSF property transfers, but this varies and must be confirmed with your solicitor.

Worked Example: Business Owner Buys the Business Premises

David runs a manufacturing business in Melbourne and currently rents a commercial premises for $80,000 per year. His SMSF has $350,000 in cash. He wants his SMSF to purchase the premises (valued at $1.2 million) rather than continuing to pay rent to a third party.

His solicitor and SMSF accountant structure it as follows: David’s SMSF borrows $850,000 from a bank (LRBA). A new company — “Property Holdings Pty Ltd as trustee for the XYZ Bare Trust” — is incorporated as the bare trustee. The bare trustee purchases the commercial property, with legal title in the bare trustee’s name. David’s business then pays $80,000 per year in market rent directly to the SMSF. The SMSF uses this rental income (plus David’s super contributions) to make loan repayments. Once the $850,000 loan is repaid, the property transfers into David’s SMSF outright — now a tax-sheltered asset in a fund that may be in pension phase (zero tax) by the time the loan is cleared.

Setting Up a Bare Trust: Step by Step

Setting up an LRBA and bare trust involves multiple professionals and several sequential steps. Here is the process in full.

• Step 1: Confirm the asset qualifies. The asset must be a “single acquirable asset” as defined by the SIS Act. A commercial property on a single title qualifies. Multiple lots or mixed-use assets can be more complicated — your solicitor must confirm the asset meets the single acquirable asset test before proceeding.
• Step 2: Obtain legal advice and commission the bare trust deed. The bare trust deed must be professionally drafted by a solicitor experienced in SMSF law. It formally documents the relationship between the bare trustee and the SMSF, and must be in place before any asset is purchased. Do not use generic online templates for this — SMSF bare trust deeds have specific requirements.
• Step 3: Incorporate the corporate bare trustee. A new company must be incorporated specifically to act as bare trustee. This company must be separate from the SMSF trustee company — it cannot be the same entity. ASIC charges a registration fee for the new company and indexes its fees each 1 July, so check the current amount on the ASIC fees page before you budget. Professional fees for the set-up sit on top.
• Step 4: Obtain an ABN and TFN for the bare trust if required. The bare trust may need its own ABN for GST purposes, particularly for commercial property. Your accountant will advise whether registration is required based on the asset type and rental income.
• Step 5: Arrange the LRBA. The SMSF trustee applies for the loan from the lender. The LRBA agreement must clearly document: the loan terms, the security (the asset held in bare trust), and the limited recourse nature of the loan. For related-party LRBAs, the terms must match ATO safe harbour rates under PCG 2016/5.
• Step 6: The bare trustee signs the purchase contract. The contract of sale is executed in the name of the bare trustee — for example, “ABC Holdings Pty Ltd ATF the XYZ Bare Trust.” The SMSF trustee’s name must not appear as the purchaser.
• Step 7: Open a separate bank account for the bare trust. The ATO expects that the bare trust’s financial transactions (particularly rental income and loan repayments) are clearly documented. A dedicated bank account assists with this.
• Step 8: Notify the SMSF auditor. The bare trust and LRBA must be disclosed in the SMSF’s annual audit. Your auditor will need copies of the bare trust deed, LRBA agreement, and supporting financials. Failure to disclose is a compliance breach.
• Step 9: Manage the transfer when the loan is repaid. Once the loan is fully repaid, engage your solicitor to transfer legal title from the bare trustee to the SMSF trustee. This involves stamp duty, discharge of mortgage, and update of title documents.

The Business Premises Strategy

The most common and financially compelling use of the SMSF bare trust structure for Pinnacle’s clients is purchasing the business owner’s commercial premises through the SMSF. This strategy is legal, widely used, and — when structured correctly — delivers significant long-term wealth and tax benefits.

How it works: The SMSF (via the LRBA/bare trust) purchases the commercial property. The business (owned separately by the SMSF member or their entity) leases the property back from the SMSF at market rent. This arrangement is permitted under the SIS Act because commercial property can be acquired from, and leased to, related parties — provided the lease is at arm’s length, market-rate terms.

The tax advantage is significant. Rental income received by the SMSF is taxed at 15% (or 0% if the fund is in pension phase). Compare this to rental income received personally, which would be taxed at marginal rates up to 47%. The business also gets a full tax deduction for the rent it pays. The business premises — often a significant asset — is accumulating inside a concessionally taxed environment.

Capital gains on eventual sale are also concessionally taxed. If the property is sold while the SMSF is in accumulation phase, the CGT discount after 12 months brings the effective rate to 10%. In pension phase, the gain may be entirely tax-free. High-income earners should also be aware that Division 293 tax may affect contributions going into the fund to service the LRBA, and those with large super balances approaching $3 million should factor in Division 296 tax, which became law on 13 March 2026 and applies to earnings from 1 July 2026.

One important rule: the rental arrangement must be at market rates and documented properly. The ATO actively reviews related-party leases in SMSF structures. A below-market rent arrangement will put the SMSF’s compliance status at risk.

Critical Rules You Must Not Break

The LRBA and bare trust structure has significant compliance obligations. The ATO actively reviews these arrangements. Breaching the rules can result in the SMSF being made non-complying — meaning the fund loses its concessional tax status and is taxed at the top marginal rate on its entire assets. The following rules are non-negotiable.

No improvements while the loan is outstanding

This is the rule that catches the most people off guard. While the loan is outstanding, the asset in the bare trust can be repaired and maintained, but it cannot be improved. Under the SIS Act, an improvement is anything that changes the character of the asset or makes it a fundamentally different asset. Replacing a roof (maintenance) is fine. Adding a new floor or subdividing the block (improvement/development) is not. If you breach this rule, the LRBA is invalid, and the fund may be treated as non-complying.

Related-party LRBAs must use ATO safe harbour terms

If your SMSF is borrowing from a related party — a family member, family trust, company, or another entity associated with fund members — the loan must comply with the ATO’s safe harbour requirements under PCG 2016/5. This sets out the interest rates, loan terms, and documentation requirements. Safe harbour rates change annually and are indexed to movements in the RBA cash rate. Falling outside safe harbour means the ATO will treat the arrangement as a non-arm’s length transaction, potentially applying non-arm’s length income (NALI) rules, which tax the income at the top marginal rate.

Cannot acquire assets from related parties (with limited exceptions)

An SMSF generally cannot acquire an asset from a related party of the fund. The exception: commercial property can be acquired from a related party, as can listed securities. Residential property cannot be acquired from a related party under any circumstances — not even via an LRBA. Attempting to do so puts the fund in breach of the in-house asset rules and the related-party acquisition prohibition.

Single acquirable asset rule

Each LRBA and bare trust covers a single acquirable asset only. If you want to purchase two properties, you need two separate LRBAs and two separate bare trusts — each with its own deed, trustee company, and bank account. You cannot bundle multiple assets into one arrangement.

Annual SMSF audit must cover the LRBA

Every year, the SMSF’s registered SMSF auditor must audit and verify compliance of the LRBA. This includes reviewing the bare trust deed, confirming the loan terms comply with the SIS Act, verifying loan repayments, and checking that no improvements have been made to the asset. Inadequate audit documentation or disclosure of the LRBA is a reportable breach.

What It Costs to Set Up a Bare Trust

The costs of establishing an SMSF bare trust and LRBA are not trivial — but they need to be weighed against the long-term tax and wealth benefits of the structure. Here is a general cost guide. Government fees are indexed and professional fees vary, so treat these as indicative.

Item	Approximate Cost
Bare trust deed preparation	$1,500 – $3,000
Corporate bare trustee incorporation	ASIC registration fee plus professional fees
ASIC annual review fee (trustee company)	Set by ASIC, indexed each 1 July
LRBA agreement	$1,000 – $2,500
Stamp duty on asset purchase	Varies by state and asset value
Stamp duty on transfer (loan repaid)	Varies — some states have SMSF concessions
SMSF annual accounting + audit (with LRBA)	$3,500 – $6,000+ per year

The most significant variable cost is stamp duty, which is state-specific and asset-value-dependent. Some Australian states provide stamp duty concessions for the transfer of assets from a bare trustee to an SMSF when the loan is repaid — confirm this with your solicitor before proceeding.

Total establishment costs for a typical commercial property LRBA (excluding stamp duty) typically fall in the range of $5,000 – $8,000 in professional fees. For a $1 million commercial property held in an SMSF for 15-20 years, this is a modest one-time cost relative to the compounding tax benefits. To model the tax impact on your overall income position, try our tax calculators.

Talk to Mina About Your SMSF

If you are considering using your SMSF to purchase a property — particularly your business’s commercial premises — Pinnacle Accounting & Advisory can help you understand whether the structure is right for you and what the next steps involve.

We work with clients across Melbourne and Australia on SMSF compliance, LRBA structuring, and long-term tax planning. Book a Consultation to discuss your situation.

How Pinnacle Helps — and What Requires Other Professionals

Setting up an SMSF bare trust and LRBA requires a team of professionals, not just one. Here is how the roles divide.

What Pinnacle handles

• SMSF establishment and trustee structure advice (as your registered tax agent and SMSF accountant)
• Annual SMSF accounting, tax return, and compliance reporting
• LRBA compliance review — ensuring the loan terms meet ATO requirements
• Related-party LRBA review against PCG 2016/5 safe harbour
• Co-ordinating with your solicitor and auditor throughout the process
• Ongoing tax planning — including how the LRBA fits within your broader business and personal tax strategy

What requires a solicitor

• Drafting the bare trust deed
• Drafting the LRBA agreement
• Incorporating the corporate bare trustee
• Managing conveyancing (property purchase and transfer)
• Stamp duty advice and assessment

What requires a licensed financial adviser

• Advice on whether an LRBA is the right investment strategy for your SMSF
• Advice on whether the specific property or asset is a suitable SMSF investment
• Advice on contribution strategies and drawdown planning

Pinnacle is a registered tax agent. We are not licensed to provide financial product advice or legal services. We work alongside your financial adviser and solicitor to ensure the SMSF structure is compliant and tax-efficient.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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Thinking about setting up a self-managed super fund? This step-by-step guide covers everything you need to know — from choosing your trustee structure to registering with the ATO, opening a bank account, and meeting your ongoing compliance obligations.

This guide is written for Australian business owners and professionals who are actively researching whether an SMSF is right for them and want to understand exactly what the setup process involves. We have written it to be practical, not theoretical — because knowing the steps is one thing, but knowing the real-world considerations at each step is what makes the difference.

Before You Start: Is an SMSF Right for You?

Before setting up an SMSF, it is important to be honest about whether it actually suits your circumstances. An SMSF is a powerful structure — but it requires active trustee involvement, carries significant legal obligations, and makes financial sense only above a certain balance threshold.

The following is general information only. The decision of whether to establish an SMSF requires personalised financial advice from a licensed SMSF financial adviser. Pinnacle Accounting & Advisory handles the tax and compliance side of SMSFs — we do not provide financial product advice or recommend whether you should establish a fund.

The balance question

Most industry guidance suggests an SMSF becomes cost-effective when the fund holds approximately $500,000 or more in assets. Below this level, the fixed annual costs of accounting, audit, and legal compliance represent a meaningful percentage of fund assets — potentially outweighing the benefits compared to a well-run industry or retail super fund. That said, specific strategies (such as holding business real property) may justify an SMSF at lower balances in some circumstances. A common reason owners set up a fund is buying their business premises through their SMSF under the business real property rules.

The involvement question

As an SMSF trustee, you are legally responsible for the fund’s compliance — regardless of how much you delegate to professionals. This means you need to actively engage with the fund, understand your legal obligations, review the investment strategy, and keep up with regulatory changes. If you want a “hands off” super experience, an industry or retail fund will serve you better.

Step-by-Step: How to Set Up an SMSF in Australia

Step 1: Choose your trustee structure — individual vs corporate trustee

Every SMSF must have a trustee — either individual trustees or a corporate trustee (a company that acts as trustee). This is one of the most important decisions you will make when establishing the fund.

Individual trustees: Each member of the fund is also a trustee. For a two-member fund, this means two individuals are trustees. There is no separate company to establish or maintain. However, if the membership of the fund changes (e.g. a member dies or leaves), the trustee arrangements must be updated — which can be complex and costly. Individual trustees must hold all fund assets in all trustees’ names, which can create administrative complications when membership changes.

Corporate trustee: A company is established specifically to act as trustee of the SMSF. The members of the fund are the directors (and often shareholders) of the trustee company. Assets are held in the company’s name, making membership changes simpler. Estate planning is also cleaner — when a member dies, their executor steps in as director without needing to retitle assets.

Our recommendation: We almost always recommend a corporate trustee structure, despite the higher setup cost. The long-term administrative and estate planning benefits consistently outweigh the initial cost difference. Setup cost for a corporate trustee: approximately $800–$1,500 including ASIC registration. Ongoing ASIC annual fee: approximately $320.

Step 2: Establish the SMSF trust deed

The trust deed is the legal document that establishes the SMSF and sets out the rules under which it operates — including what types of investments are permitted, how pensions can be paid, and how decisions are made. The trust deed must be prepared by a qualified solicitor.

You should not use a generic or outdated trust deed. The deed needs to be current with Australian super law, and it needs to actually permit the investment strategies you intend to use (for example, if you plan to hold direct property such as residential investment property or limited recourse borrowing arrangements (LRBAs), the deed must explicitly allow this).

Typical cost for trust deed preparation: $1,000–$2,000 through a specialist SMSF legal service.

Step 3: Register the SMSF with the ATO

Once the trust deed is executed, the SMSF must be registered with the Australian Taxation Office to obtain an ABN (Australian Business Number) and TFN (Tax File Number). You will also need to elect for the fund to be regulated — this is what makes it a “complying” SMSF that receives the concessional tax rates.

Registration is completed through the ATO’s online services or with the assistance of a registered tax agent (such as Pinnacle). You must register the fund within 60 days of establishing the trust. Delays can cause problems with rollovers and contributions.

Step 4: Open a dedicated SMSF bank account

The SMSF must have its own bank account — completely separate from personal or business accounts of the trustees or members. All fund income, expenses, contributions, and pension payments must flow through this account. Mixing SMSF and personal funds is a serious compliance breach that can have severe consequences, including the fund losing its complying status.

Choose a bank that clearly identifies the account as belonging to the trustee “as trustee for” the SMSF. Most major Australian banks have dedicated SMSF account products.

Step 5: Roll over existing super (if applicable)

If you have existing super in an industry or retail fund, you may want to roll some or all of it into your SMSF. Before rolling over, consider:

• Whether your existing fund has insurance attached — rolling over may cancel group life or TPD insurance, which you will then need to arrange separately (at individual premiums, which can be significantly higher)
• Exit fees and any exit conditions from the existing fund
• Whether the timing of the rollover aligns with the SMSF’s investment strategy

Rollovers are processed electronically through SuperStream. Your new SMSF must be registered and have an active ABN/TFN before a rollover can be received.

Step 6: Document your investment strategy

The ATO requires every SMSF to have a written investment strategy from day one. The strategy must consider the fund’s investment objectives, the risk profile appropriate for the fund’s members, and the likely return required to meet member retirement needs. It must also specifically address the fund’s approach to holding cash and liquidity.

The investment strategy is not a set-and-forget document — it must be reviewed at least annually. It must also be genuine and specific to your fund, not a copy-paste generic document. A licensed SMSF financial adviser can prepare and maintain your investment strategy.

Step 7: Appoint an accountant for annual compliance

Your SMSF needs a qualified accountant to handle the annual tax and compliance work — preparing the financial statements, the SMSF annual return, and member account reporting. Choose an accountant with specific SMSF experience, not a general practice that treats SMSFs as an afterthought.

At Pinnacle, we specialise in SMSF tax and compliance for business owners and professionals with complex funds. Mina Baselyous holds dual CPA and CTA (Chartered Tax Adviser) qualifications — bringing both accounting and specialist tax expertise to SMSF clients. Book a consultation to discuss your SMSF needs.

Step 8: Appoint an SMSF auditor

Every SMSF must be audited annually by a registered, approved SMSF auditor who is completely independent of the fund’s accountant and trustees. The auditor cannot be your accountant — this is a legal requirement, not just best practice. The auditor reviews both the financial statements and the fund’s compliance with super law, and reports to the ATO.

Frequently Asked Questions

Pinnacle coordinates with independent SMSF auditors on behalf of our clients, providing all required documentation and managing the audit process so trustees do not need to deal with it directly. Typical audit cost: $500–$1,500 depending on fund complexity.

Ongoing Annual Obligations

Setting up an SMSF is just the beginning. Every year, the following must be completed:

• Annual independent audit — must be completed by a registered, approved auditor before the annual return can be lodged
• Annual SMSF tax return and regulatory return — due by 31 October in most cases (or later if lodged through a registered tax agent)
• Member statements — each member must receive an annual statement showing their account balance and transactions
• Investment strategy review — the written investment strategy must be reviewed and the review documented
• Contribution cap compliance — ensuring total contributions (concessional and non-concessional) remain within ATO caps
• Record-keeping — maintaining records of all transactions, trustee decisions, and financial statements for at least 5 years

What Does It Cost to Set Up and Run an SMSF?

Here is a realistic cost guide for setting up and running an SMSF in Australia:

Setup costs (one-time)

• Corporate trustee establishment (company registration + ASIC): $800–$1,500
• Trust deed preparation: $1,000–$2,000
• Professional advice and setup assistance: varies
• Total typical setup cost: $2,000–$4,000+

Annual ongoing costs

• SMSF accounting and tax return preparation: varies significantly by adviser and fund complexity — commonly $2,000–$5,000+
• Independent SMSF audit: $500–$1,500
• ASIC corporate trustee annual review fee: approximately $320
• Licensed SMSF financial adviser fees: varies
• ATO supervisory levy: $259 (2026-27)
• Total typical annual cost: $3,000–$8,000+

At these cost levels, an SMSF generally makes financial sense when the fund holds $500,000 or more in assets. Below this level, costs represent a disproportionate drag on returns in most circumstances.

Common Mistakes to Avoid When Setting Up an SMSF

• Using a generic or outdated trust deed — a trust deed that does not permit your intended investment strategies will prevent you from implementing those strategies without a costly deed amendment
• Mixing personal and fund assets — keeping SMSF assets completely separate from personal funds is a fundamental compliance requirement. Breaches can result in the fund losing its complying status
• Not having a genuine investment strategy — the ATO audits investment strategies and expects them to be specific to the fund’s circumstances, not a generic template
• Missing the annual return lodgement deadline — late lodgement attracts ATO penalties and can trigger an audit
• Investing in prohibited assets — SMSFs cannot invest in certain related-party assets (other than business real property purchased at arm’s length). Understanding what is and is not permitted before investing is critical
• Cancelling insurance without replacement cover — rolling over from an existing fund without first arranging alternative insurance can leave you uninsured
• Ignoring contribution caps — excess contributions attract significant additional tax. Keeping track of contributions across all funds throughout the year is essential

How Pinnacle Helps with SMSF Setup and Compliance

Pinnacle Accounting & Advisory works with SMSF trustees at every stage — from the initial setup through to ongoing annual compliance and strategic tax planning. Here is how we help:

• Setup assistance — working with you and your legal adviser to get the structure right from day one, including trustee structure advice and ATO registration
• Annual SMSF tax return and financial statements — accurate, on-time lodgement each year
• Member reporting — member statements and account reporting
• Audit coordination — working with your independent auditor and providing all documentation required
• Tax planning — contribution strategies, pension phase timing, CGT planning within the fund, and Division 296 planning for high-balance members
• Division 296 guidance — if your SMSF balance is approaching $3 million, we model your exposure and help you develop a proactive tax response. Read our Division 296 explained guide for more detail
• Division 293 guidance — if you are a high-income earner, you may be paying an additional 15% tax on super contributions. Read our Division 293 tax guide to understand how to manage this cost
• Superannuation contribution strategies — from concessional contribution limits and personal deductible contributions to catch-up contributions and spouse super strategies. See our guide to superannuation strategies for business owners

We work alongside your licensed SMSF financial adviser, not instead of them. Our role is the tax and accounting side; their role is the investment strategy and financial advice. Together, we give you a comprehensive SMSF advisory team.

Ready to get started? Book a consultation with Mina to discuss your SMSF. You can also visit our SMSF accountant Melbourne page for a full overview of the services Pinnacle provides.

Frequently Asked Questions — Setting Up an SMSF

How long does it take to set up an SMSF?

The typical timeline from decision to operational SMSF is 2 to 6 weeks, depending on the complexity of the structure and how quickly you can complete the required steps. Establishing the corporate trustee, executing the trust deed, and registering with the ATO are the most time-sensitive steps. Rolling over from existing super funds typically adds additional time — usually 1 to 3 weeks after the fund is registered.

Do I need a corporate trustee or can I use individual trustees?

Both are legally permissible. Pinnacle generally recommends a corporate trustee structure for its flexibility, easier asset retitling when membership changes, and cleaner estate planning outcomes. The additional upfront cost ($800–$1,500 for company setup) is typically well worth the long-term administrative benefit, particularly for funds that are likely to be held for 20+ years.

Can I set up an SMSF on my own without professional help?

Technically, yes — the ATO allows trustees to manage some aspects themselves. However, establishing and maintaining a legally compliant SMSF involves complex legal documentation, ongoing ATO reporting, and annual audit requirements. Most SMSF trustees work with a combination of a registered tax agent (accountant), licensed SMSF financial adviser, independent auditor, and solicitor. Attempting to manage all of this without professional support is a common source of compliance breaches that can have severe financial and regulatory consequences.

What is the difference between an SMSF and an industry super fund?

An SMSF gives you direct control over the fund’s investments and structure — you choose what the fund invests in (within ATO rules), and you manage the compliance. An industry super fund is managed by professional trustees; you choose from a menu of investment options but have no direct control. SMSFs typically have higher fixed costs but offer greater flexibility and control. Whether the flexibility justifies the cost depends on your balance, investment strategy, and engagement level.

What happens to my SMSF when I retire?

When you reach preservation age and meet a condition of release, you can commence drawing a pension from your SMSF. In pension phase, earnings from assets supporting the pension are generally tax-free. You must pay yourself at least the minimum annual pension amount prescribed by the ATO based on your age and account balance. The fund continues to need annual accounting, audit, and reporting — the compliance obligations do not end at retirement. Estate planning for the fund — how benefits will be paid to beneficiaries — also becomes an important consideration.

Can I have just one member in an SMSF?

Yes. Single-member SMSFs are permitted under Australian law. However, a single-member SMSF requires either two individual trustees (the member plus one other person who is not employed by the member) or a corporate trustee with the member as the sole director. Most single-member SMSFs use a corporate trustee to avoid the complication of finding a second individual trustee.

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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From 1 July 2026, a new tax applies to Australians with superannuation balances above $3 million. Division 296 tax is now law — and if your total super balance is approaching that threshold, you need to understand what it means and start planning now.

Want a quick estimate first? Try our Division 296 tax calculator to see the additional tax on the earnings of your super balance above $3 million.

This guide explains exactly how Division 296 works, who it affects, how the tax is calculated, and what SMSF members with large balances should be doing right now to manage their exposure. For a deeper, action-focused walkthrough, see our guide on Division 296 for business owners and SMSF trustees.

What Is Division 296 Tax?

Division 296 is a measure introduced by the Australian Government to reduce the tax concessions available to individuals with very large superannuation balances. The name refers to the division of the Income Tax Assessment Act 1997 that contains the new rules.

In simple terms: if your total superannuation balance (TSB) exceeds $3 million at the end of a financial year, you will pay an additional 15% tax on the super earnings attributed to the portion of your balance above that threshold. Combined with the existing 15% earnings tax that super funds already pay in accumulation phase, the effective tax rate on those earnings rises to 30%.

For members with balances above $10 million (the Very Large Super Balance Threshold, or VLSBT), an additional 10% Division 296 tax applies on top — bringing the effective total tax rate on earnings from that portion to 40%.

Division 296: The Legislative Journey — Now Confirmed Law

Division 296 had a long and contested legislative history. The measure was first proposed in the 2023-24 Federal Budget as the “Treasury Laws Amendment (Better Targeted Superannuation) Bill.” In its original form, the Bill attracted significant controversy because it proposed to tax unrealised capital gains — meaning SMSF members could face a tax liability on paper gains from assets they had not yet sold, including illiquid assets such as commercial property or unlisted shares.

The original Bill failed to pass the Senate. A revised version — the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 — was reintroduced in early 2026 with a significant and important change: unrealised capital gains were removed from the earnings definition.

This revised Bill passed the House of Representatives on 5 March 2026 and the Senate on 10 March 2026. The Building a Stronger and Fairer Super System Act 2026 received Royal Assent on 13 March 2026 and is now law. Division 296 tax applies from 1 July 2026.

How Division 296 Tax Works

The thresholds

For the 2026-27 financial year:

• Large Super Balance Threshold (LSBT): $3,000,000
• Very Large Super Balance Threshold (VLSBT): $10,000,000

Both thresholds apply to your total superannuation balance (TSB) — the sum of all your super interests across all funds (not just your SMSF), measured at 30 June each year. If your TSB exceeds the LSBT, Division 296 applies to the portion above it.

What earnings are taxed?

Under the final law — crucially different from the original proposal — Division 296 applies to realised earnings only. This includes:

• Dividends received
• Interest income
• Rental income
• Realised capital gains (assets that have been sold)

Unrealised capital gains — increases in the paper value of assets you still hold — are not included. This was the most contentious element of the original proposal, and its removal was a significant concession in the revised legislation.

How the tax is calculated — the proportion method

Division 296 tax is not applied to all of your SMSF’s earnings. Only the proportion of earnings attributable to the balance above the $3 million threshold is subject to the additional tax. The calculation works as follows:

• Calculate the proportion of your TSB that exceeds the LSBT: (TSB – LSBT) ÷ TSB
• Apply that proportion to your realised earnings for the year
• Apply 15% Division 296 tax to that amount

Worked example: $4.5 million TSB

Assume: TSB at 30 June 2027 = $4,500,000. Realised earnings for the year = $180,000 (comprising dividends, interest, rent, and realised capital gains on shares sold during the year).

• Amount above LSBT = $4,500,000 – $3,000,000 = $1,500,000
• Proportion = $1,500,000 ÷ $4,500,000 = 33.33%
• Earnings subject to Division 296 = 33.33% x $180,000 = $60,000
• Division 296 tax = 15% x $60,000 = $9,000

The ATO calculates and issues the Division 296 tax assessment to the individual (not the fund). Members can choose to pay the tax personally or elect to release funds from their super to meet the liability.

Who Is Actually Affected?

Division 296 applies to any individual whose total superannuation balance at 30 June exceeds $3 million — across all super funds, not just SMSFs. Estimates suggest this currently affects approximately 80,000 to 100,000 Australians, representing around 0.5% of super fund members.

The group most commonly affected includes:

• Business owners who have accumulated significant SMSF balances, often through commercial property held in super
• High-income professionals (doctors, lawyers, engineers, executives) who have maximised super contributions over a long career
• Retirees who built substantial super balances before the introduction of transfer balance caps
• Farmers and property owners whose SMSF holds real property with significant unrealised (but now also realised) gains

The inflation indexing problem — more Australians will be caught over time

One of the most significant policy concerns with Division 296 is that the $3 million threshold is not indexed to inflation. Over time, as super balances grow through both investment returns and ongoing contributions, more Australians will be caught by this threshold. The government has stated it will consider indexation in future, but at present there is no legislative commitment to index the LSBT.

For younger high-income earners who are diligently maximising their super contributions, a $3 million balance by retirement is an increasingly realistic prospect — particularly over a 30 to 40 year working career. If you earn above $250,000 and are maximising your super contributions, you may also face Division 293 tax on top of your usual super contributions tax. Division 296 planning should therefore not be seen as exclusively a problem for those who are already above the threshold. If you are on track to approach $3 million, understanding the implications now gives you far more options.

Key Issues for SMSF Members to Consider

Liquidity planning for illiquid assets

SMSF members whose funds hold illiquid assets — commercial property, unlisted shares, or private business interests — face a particular challenge. Even though Division 296 (in its final form) does not tax unrealised gains, rental income from commercial property is still a realised earning that will be subject to the tax if the member’s TSB exceeds $3 million.

If the SMSF is generating rental income from a commercial property worth $3 million, and the total TSB is above the LSBT, the Division 296 tax assessment will need to be paid — either from personal funds or by releasing cash from super. If the fund does not have sufficient liquid assets to fund the release, this can create cash flow pressure. Planning for this liquidity requirement well in advance is essential.

Contribution strategy review

For members approaching (but not yet above) the $3 million threshold, it may be worth reviewing contribution strategies. Continuing to maximise contributions into a fund that will soon be subject to Division 296 tax may be less tax-efficient than alternative wealth-building approaches. A licensed SMSF financial adviser, in consultation with your tax adviser, can model the after-tax outcomes of different contribution scenarios.

Pension phase and the tax-free earnings benefit

Members who have commenced a pension from their SMSF may have some assets in pension phase where earnings are currently tax-free. However, Division 296 applies based on the total superannuation balance, not just the accumulation phase balance. Members in pension phase who have a TSB above $3 million will still be assessed for Division 296 tax. The interplay between pension phase and Division 296 is an area requiring specific advice.

What Should You Do Now?

If your total superannuation balance is above, or approaching, $3 million, here are the key actions to consider:

• Review your SMSF’s investment mix — understand what realised earnings your fund is likely to generate each year and model the potential Division 296 liability
• Assess liquidity — ensure the fund holds sufficient liquid assets to fund Division 296 tax payments without forced asset sales
• Review your contribution strategy — consider whether it remains optimal to maximise contributions into super, or whether alternative structures may deliver better after-tax outcomes
• Consider your pension structure — the transfer balance cap still applies, and pension phase planning remains important alongside Division 296 considerations
• Get specialist tax and financial advice — Division 296 planning requires both tax expertise (Pinnacle can assist with this) and financial advice from a licensed SMSF financial adviser

How Pinnacle Helps SMSF Members Navigate Division 296

At Pinnacle Accounting & Advisory, Mina Baselyous (CPA + CTA) works directly with SMSF clients who are affected by — or approaching — the Division 296 threshold. Our work includes:

• Modelling Division 296 tax exposure for your specific TSB and investment mix
• Reviewing your SMSF’s liquidity position and planning for tax payment obligations
• Contribution strategy review in light of Division 296 and other super caps
• Coordination with your licensed SMSF financial adviser and auditor as part of your wider advisory team
• Annual SMSF tax return preparation and compliance
• SMSF establishment — if you are considering setting up an SMSF for the first time, we ensure the structure is optimised for Division 296 from day one
• LRBA compliance — if your SMSF holds or is considering property via a Limited Recourse Borrowing Arrangement and bare trust, we review the structure for compliance and tax efficiency

We work alongside your licensed SMSF financial adviser — not instead of them. For questions about investment strategy and whether to remain in super, you will need financial advice. For the tax planning and compliance side, Pinnacle is here to help.

Book a consultation to discuss how Division 296 affects your SMSF and what planning steps make sense for your situation. You may also find our SMSF services page useful for understanding the full scope of what Pinnacle provides.

Frequently Asked Questions — Division 296

Has Division 296 actually passed? Is it definitely law?

Yes. The Building a Stronger and Fairer Super System Act 2026 received Royal Assent on 13 March 2026 and is now Australian law. Division 296 tax applies from 1 July 2026. There is no further legislative uncertainty — this is no longer a proposal.

Does Division 296 tax unrealised capital gains?

No — and this is a critical difference from the original proposal. The final law taxes realised earnings only: dividends, interest, rent, and realised capital gains on assets that have been sold. Unrealised capital gains — the increase in value of assets you still hold — are not included in the Division 296 earnings calculation. This was the most controversial element of the original Bill and was removed from the final legislation.

Who pays the Division 296 tax — the SMSF or me personally?

The ATO calculates Division 296 tax and issues an assessment to the individual member, not the fund. You can pay the tax from your personal funds, or you can elect to release money from your super to pay it. If you elect to use super funds, the ATO will instruct the trustee to release the amount. This is an important distinction — it means the SMSF’s assets are not automatically reduced; the liability lands with you personally first.

Will the $3 million threshold increase with inflation?

Not at present. The $3 million Large Super Balance Threshold is not indexed to inflation under the current law. Future governments may choose to index it, but there is no current legislative commitment to do so. This means more Australians will be caught by Division 296 over time as super balances grow.

I am in pension phase. Does Division 296 still apply to me?

Yes. Division 296 applies based on your total superannuation balance, which includes both your accumulation interests and the value of your pension interests. Being in pension phase does not exempt you from Division 296 if your TSB exceeds $3 million. The specific tax treatment of earnings in pension phase and the interaction with Division 296 is complex — speak with a qualified tax adviser for advice specific to your situation.

Can I just withdraw my super to get below $3 million?

This is a question many affected members are asking. The short answer is: it depends on your circumstances. If you are past preservation age and meet a condition of release, you can withdraw from super. However, withdrawals may have their own tax implications, and money withdrawn from super loses access to the concessional tax environment permanently. Whether this makes sense for you depends on your overall wealth, your age, and your expected earnings both inside and outside super. This requires specific financial and tax advice — not a decision to be made without modelling the full after-tax outcomes.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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Choosing between a company and a trust depends on your goals: a company offers limited liability and a flat tax rate of 25% or 30%, ideal for retaining profits, while a discretionary trust offers flexible income distribution and strong asset protection. Many established businesses use both, a company owned by a trust.

Choosing between a company and a trust is one of the most consequential decisions an Australian business owner will make — and it’s one that most people get wrong, either by choosing based on cost alone or by defaulting to whatever their first accountant set up years ago without thinking about whether it still fits. The right structure can save you tens of thousands of dollars in tax each year and protect everything you’ve built. The wrong structure can cost you far more. Let me break down the real differences between a company and a trust so you can make an informed decision.

Key Differences at a Glance

Both companies and trusts are used to operate businesses and hold assets in Australia. They are both separate from you personally in important ways, but they work very differently:

• A company is a separate legal entity incorporated under the Corporations Act 2001. It has its own legal identity, can enter contracts, owns its own assets, and pays its own tax.
• A trust is a legal relationship — not a separate legal entity — in which a trustee holds and manages assets for the benefit of beneficiaries. A discretionary (family) trust gives the trustee flexibility to decide who receives income each year.

The ATO provides guidance on business structures, but the nuances of which is right for you requires professional advice specific to your situation.

Tax Treatment: Company vs Trust

Tax is where the differences become most significant:

Company tax rates:

• Base rate entity (small company with passive income less than 80% of total income and aggregated turnover under $50 million): 25%
• All other companies: 30%

Trust taxation:

• A trust itself does not pay income tax — instead, income is distributed to beneficiaries who each pay tax at their own marginal rate
• Undistributed trust income is taxed at 47% in the hands of the trustee — a strong incentive to distribute every year
• Individual beneficiaries can receive trust income at their personal marginal rates: 0% for those under the tax-free threshold, 19% for income $18,201–$45,000, 32.5% for $45,001–$135,000, 37% for $135,001–$190,000, and 45% (+2% Medicare levy) above $190,000

The key advantage of a trust is income splitting: the trustee can direct income to beneficiaries in lower tax brackets each year, minimising the overall family tax bill. A company cannot do this — profits stay in the company at 25–30% until paid out as dividends, at which point individual tax rates apply.

However, companies have a flat rate that is often lower than the top marginal rate, making them attractive for retaining profits in the business without distributing them.

Asset Protection: Company vs Trust

Both structures provide asset protection, but in different ways:

Company: A company provides limited liability to its shareholders — your personal assets are not at risk for the company’s debts (with exceptions, such as personal guarantees and director liability under insolvent trading laws). However, assets inside the company are exposed to creditors of the company.

Trust: Assets held by the trustee on behalf of the trust’s beneficiaries are generally protected from the personal creditors of those beneficiaries (since beneficiaries don’t own the assets). A discretionary beneficiary has no guaranteed entitlement, so creditors have very limited rights over trust assets.

In practice, trusts often provide superior asset protection when properly structured — particularly because the discretionary nature means no beneficiary can be said to “own” a specific share of the trust. This makes it harder for creditors to get their hands on trust assets compared to company assets.

Flexibility and Distributions

This is where trusts have a clear edge:

• A trust can distribute different amounts to different beneficiaries each year based on what makes sense from a tax perspective. Got a spouse who’s had a low-income year? Distribute more to them. Adult child studying with no income? Consider distributing to them (subject to the ATO’s rules on distributions to under-18s and the Section 100A integrity rules).
• A company can only pay dividends in proportion to shareholding. If you own 70% and your spouse owns 30%, dividends must be paid in that ratio. You cannot pay your spouse more just because it’s tax-effective this year.

The flexibility of a trust is genuinely powerful — but it must be exercised carefully and with proper documentation. Missing the 30 June resolution deadline, for instance, results in all trust income being taxed at 47%.

When a Company Wins

A company structure tends to be the better choice when:

• You need to retain profits in the business long-term — paying 25–30% company tax while reinvesting is far better than paying 47% personally
• You’re operating in an industry where a trust is not appropriate or creates complications (some professional services like law require specific structures)
• You want certainty of ownership — shares are clearly defined and easily transferred, making companies cleaner for equity arrangements with co-founders, investors, or key employees
• You’re planning to bring on outside investors, who expect a corporate structure
• You want to take advantage of the small business CGT concessions on sale of a business — these can be accessed through a company structure as well as a trust

When a Trust Wins

A trust tends to be the better choice when:

• You have a family group with varying income levels and want to split income tax-effectively each year
• You want maximum asset protection and don’t need outside investors
• You’re holding investment assets (property, shares) that you expect to sell eventually — the 50% CGT discount flows through to individual beneficiaries from a trust, not from a company
• You want flexibility to adapt distributions year to year
• You’re in the startup or growth phase of a business and not yet retaining significant profits

Using Both Together: The Trust + Bucket Company Structure

The most tax-effective structure for many successful Australian business owners is actually a family trust combined with a bucket company. Here’s how it works:

• The business operates through (or under) a family trust
• The trustee distributes income to beneficiaries in lower tax brackets first
• Any excess income (that would otherwise be taxed at 47% in the hands of a high-income beneficiary) is instead distributed to the bucket company
• The bucket company pays company tax at 25–30% on that income
• Profits accumulate in the bucket company, ready to be invested or eventually paid out as dividends

This structure can dramatically reduce the overall tax paid on business profits. For example, a $100,000 distribution to a high-income beneficiary at 47% costs $47,000 in tax. The same $100,000 distributed to a bucket company at 25% costs only $25,000 — a saving of $22,000 on a single year’s distribution. Explore comprehensive tax planning strategies here.

How Pinnacle Approaches This With New Business Owners

When a new business owner comes to Pinnacle — whether they’re just starting out or have been operating for years under a suboptimal structure — we take a holistic view of their situation before making any recommendations.

We look at: current income and projected growth, family situation (spouse income, adult children), the nature of the business (professional services, trading, investment), plans for eventual sale or exit, and risk profile. From there, we model the tax outcomes under different structure scenarios so you can see clearly what each option actually means in dollar terms.

Many business owners come to us having never had this conversation with their previous accountant. That’s a missed opportunity we’re committed to fixing. Structure is not set-and-forget — as your business grows and your personal circumstances change, your structure should evolve with you.

Ready to review your structure? Get in touch with Pinnacle today. For a broader look at all structure options available to Australian business owners — including sole trader and partnership — read our complete business structures guide, or explore our dedicated business structuring services. You can also read about the different classes of shares a company can issue.

Frequently Asked Questions

Can I change from a trust to a company later?

Yes, but restructuring has tax consequences — it can trigger CGT on assets transferred and, in some states, stamp duty. The ATO does provide some restructure concessions under Division 122 of the ITAA 1997, but these are complex. It’s much better to get the structure right from the start, which is why upfront structural advice is so valuable.

Is a trust better than a company for tax?

It depends entirely on your circumstances. A trust offers more flexibility for income splitting across a family group. A company is better for profit retention at lower rates. The best outcome often comes from using both — a family trust distributing to a bucket company. Speak to Mina to model the right approach for your situation.

Do trusts pay company tax?

No. A trust distributes its income to beneficiaries, who pay tax at their own rates. If income is not distributed, the trustee pays tax at 47% — which is why annual trustee resolutions are critical. A corporate beneficiary (bucket company) will pay company tax on its share of trust income.

What are the compliance costs of a trust vs a company?

Both have compliance obligations. A company must file an annual tax return, maintain proper financial records, and meet ASIC obligations. A trust must file an annual tax return and, critically, pass trustee resolutions by 30 June each year. If you use a corporate trustee, you have the ongoing ASIC obligations of that company as well. Your accountant can manage all of this for you.

Can a trust and company be used together?

Absolutely — and for many business owners, this is the optimal structure. A family trust distributes income to a corporate beneficiary (bucket company) to cap the tax rate at 25–30%, rather than letting excess income hit a high-income individual at 47%. This is a well-established and ATO-compliant strategy when properly implemented.

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This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

Frequently Asked Questions

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Negative gearing has been one of the most debated tax strategies in Australia — especially following the 2025-26 Federal Budget discussions around housing affordability. Every election cycle, negative gearing returns to the headlines, drawing fierce opinions from economists, politicians, and property investors alike.

But behind the debate lies a straightforward tax mechanism that hundreds of thousands of Australian investors use every year. Understanding how it actually works — and when it makes sense for your situation — is far more valuable than the political noise.

In this guide, we’ll explain exactly what negative gearing is, how the tax deduction works in practice, what costs you can and can’t claim, how it intersects with capital gains tax, and what the 2026-27 Budget reforms to negative gearing and CGT, now law and applying from 1 July 2027, mean for property investors. Whether you’re considering your first investment property or reviewing an existing portfolio, this guide gives you the full picture.

What Is Negative Gearing?

A property — or any income-producing investment — is negatively geared when the costs of owning it exceed the income it generates.

In practice, this means your rental income is less than your total expenses for the year. The shortfall — that annual loss — can then be deducted against your other income, such as salary, wages, or business income. This reduces your overall taxable income and, as a result, your tax bill.

It’s worth noting that negative gearing isn’t exclusive to property. The same rules apply to shares purchased with a loan, managed funds, and other income-producing investments. But in Australia, negative gearing is most commonly associated with residential investment property — and that’s where most of the policy debate has been focused.

Here’s a straightforward example to illustrate the concept:

• Rental income: $28,000 per year
• Total costs (loan interest, council rates, insurance, depreciation): $38,000 per year
• Net rental loss: $10,000

That $10,000 loss is deductible against your other income. If you’re on a 37% marginal tax rate, your tax saving is $3,700 per year — reducing the real after-tax cost of holding the property from $10,000 to $6,300.

The reason investors accept an annual cash shortfall is the expectation that the property will grow in value over time. The strategy is to claim tax deductions today — reducing the net cost of holding the investment — then sell at a profit years later and pay capital gains tax at a discounted rate. For more on how tax planning strategies integrate with your overall financial structure, see our guide to tax planning for business owners and investors, and our perspective on whether a property capital gain is real wealth or just inflation.

How Negative Gearing Reduces Your Tax — A Worked Example

Let’s look at a realistic example to see exactly how negative gearing affects someone’s tax position.

Sarah is a project manager earning $120,000 per year. She’s in the 37% marginal tax bracket. She owns a rental property that generates $24,000 in rent per year, but her annual holding costs are:

Expense	Annual Amount
Loan interest	$28,000
Council rates	$1,200
Landlord insurance	$1,800
Depreciation (plant & equipment)	$4,000
Total costs	$35,000

Net rental loss: $35,000 − $24,000 = $11,000

This $11,000 loss is offset against Sarah’s employment income:

• Taxable income without property: $120,000
• Less: rental loss: −$11,000
• Adjusted taxable income: $109,000

At a 37% marginal rate, the tax saving on $11,000 is approximately $4,070 per year.

So while Sarah’s property is technically “losing” $11,000 on paper, her real after-tax cost is only $6,930 per year — because the ATO effectively subsidises $4,070 of that loss through reduced income tax. Meanwhile, Sarah expects the property to appreciate in value over time. When she eventually sells, if she’s held it for more than 12 months, she’ll qualify for the 50% CGT discount — meaning she’ll only pay tax on half the capital gain. (As explained below, for CGT events from 1 July 2027 the 50% discount is being replaced by cost base indexation plus a 30% minimum tax on capital gains, so gains accruing after that date are treated differently.)

This is the core logic of negative gearing: short-term tax deductions, long-term capital growth.

What Costs Can You Deduct?

Not all property expenses are treated equally by the ATO. There are two categories: those you can claim immediately in the year incurred, and those you must depreciate over time.

Immediately Deductible (in the year incurred)

You can claim the following in full in the income year you incur them:

• Loan interest (on the investment loan only — not any personal portion)
• Property management fees
• Council rates and water rates
• Landlord and building insurance
• Repairs and maintenance (restoring to original condition — not improvements)
• Body corporate and strata levies
• Advertising for tenants
• Pest control, cleaning, and gardening
• Accounting fees related to the investment
• Legal expenses for lease preparation (not property acquisition)

Depreciated Over Time (not immediately deductible)

Two categories of capital expenses must be claimed over time rather than upfront:

1. Capital works — Division 43: If the property was constructed after 15 September 1987, you can claim 2.5% of the original construction cost per year for 40 years. Many investors overlook this deduction entirely, often because they don’t have a quantity surveyor’s report to quantify it.
2. Plant and equipment depreciation: Depreciable assets with a limited effective life — dishwashers, carpets, blinds, hot water systems, air conditioners — are depreciated over their ATO-specified effective life. The effective life schedules are published by the ATO and vary by asset type.

Important exclusions:

• Travel expenses to inspect your rental property are no longer deductible — this was abolished from 1 July 2017.
• Expenses for periods when the property was used privately must be apportioned accordingly.
• Purchase costs (stamp duty, legal fees on acquisition) are capital costs that increase your cost base for CGT purposes — they are not immediate deductions.

A qualified quantity surveyor’s depreciation report typically costs $500–$800 but can uncover thousands of dollars in annual deductions. For the ATO’s full guidance on rental deductions, visit ato.gov.au.

Capital Gains Tax and Negative Gearing — The Full Picture

Negative gearing only makes financial sense if you genuinely expect the property to appreciate in value. The annual cash shortfall — even after the tax benefit — must ultimately be recovered through a profitable sale.

When you sell, you’ll pay capital gains tax on the profit: the sale price minus your cost base (which includes the original purchase price, buying costs such as stamp duty and conveyancing fees, and the cost of capital improvements made during ownership).

The critical concession for individual investors: if you’ve held the property for more than 12 months, you qualify for the 50% CGT discount. You only include half the capital gain in your assessable income for that year. This is the rule for CGT events up to 1 July 2027; for gains accruing after that date, see the section below on the 2026-27 Budget reform.

This creates a deliberate tax asymmetry that high-income investors actively use:

• Annual rental deductions: claimed at your full marginal rate (up to 47% including the Medicare levy)
• Capital gain on eventual sale: effectively taxed at roughly half your marginal rate (after the 50% CGT discount)

The strategy is to claim full deductions at a high rate now, then pay tax on the gain at an effective lower rate later. This is why negative gearing is so commonly used by high-income earners — the annual tax benefit reduces the cost of holding the asset while capital growth builds long-term wealth. See also our article on Division 7A loans and how tax rules interact with different investment structures.

The 2026-27 Budget Reform: What Actually Changed

Throughout 2025-26, negative gearing was a flashpoint in Australia’s housing affordability debate. Labor’s longstanding position was to “quarantine” negative gearing losses, so that losses on established property could only be deducted against rental income, not against salary or business income. In the 2026-27 Federal Budget, handed down on 12 May 2026, the Government acted, and the changes have since been legislated.

Where things stand now (as at September 2026): the changes are law. The ATO confirms on its new-legislation guidance that, from 1 July 2027, negative gearing is limited to new builds and the 50% CGT discount is replaced by cost base indexation plus a 30% minimum tax on capital gains for individuals, trusts and partnerships (Australian Taxation Office, reforming negative gearing and capital gains tax). The measures were legislated as the Treasury Laws Amendment (Tax Reform No. 1) Act 2026.

What this means in practice is important: negative gearing is being limited to new builds, not abolished. An investor who buys established residential property after Budget night (7:30pm AEST, 12 May 2026) can still deduct rental losses against their residential property income and carry unused losses forward, but from 1 July 2027 they can no longer deduct those losses against other income such as wages. Properties held before Budget night are grandfathered and continue under the current rules, and investors in eligible new builds keep both negative gearing and the choice of the 50% CGT discount.

The practical takeaway: the worked examples above reflect the rules that apply up to 1 July 2027, and that continue to apply to grandfathered and eligible new-build properties. If you are buying established residential property now, factor in that from 1 July 2027 the loss will offset property income only, not your salary or business income. Work with a registered tax agent to model your specific position, and verify the current rules directly with the ATO before making decisions.

Who Benefits Most from Negative Gearing?

Not every investor benefits equally from negative gearing. The tax advantage is directly proportional to your marginal tax rate — the higher your rate, the larger the benefit.

• High-income earners (37% or 45% marginal rates) receive the largest tax benefit. A $10,000 net rental loss saves between $3,700 and $4,700 per year in tax. For investors in lower tax brackets, the benefit is proportionally smaller.
• Investors with significant interest costs (high loan-to-value ratios) are more likely to be negatively geared, particularly in the early years of the loan when the outstanding principal — and therefore interest — is at its highest.
• Properties in genuine capital growth corridors — established inner-city suburbs in Melbourne and Sydney, and high-demand growth areas — are better suited to the strategy than low-growth regional markets where capital appreciation may not materialise to justify the annual shortfall.
• Investors who can comfortably service the cash shortfall. Negative gearing is not appropriate for investors who are stretched to their borrowing limit. The annual after-tax cash shortfall must remain manageable in all market conditions — including when interest rates rise.

Common Negative Gearing Mistakes

Negative gearing is a legitimate and well-established tax strategy, but the ATO actively scrutinises rental property deductions. These are the most common mistakes we see investors make:

1. Claiming capital expenses as immediate deductions. Replacing an entire bathroom suite is a capital improvement — not a repair. Repairs restore something to its original condition; improvements go beyond that. Getting this wrong is one of the ATO’s key audit triggers for rental properties.
2. Failing to apportion expenses. If your investment property was rented for only part of the year, or if you or family members used it personally at any point, all expenses must be apportioned for the periods of genuine rental use only.
3. Poor record-keeping. The ATO requires records to be kept for five years after lodging your return. This includes loan statements, rental statements from your property manager, invoices for all expenses, and rental agreements. Missing records at audit time can result in deductions being disallowed.
4. Mixing investment and personal loan funds. If you redraw on your investment property loan for personal purposes — a holiday, home renovations — you lose deductibility on that portion of the interest going forward. This is extremely difficult and costly to untangle once it has occurred.
5. Over-estimating capital growth. The investment must make commercial sense. If the capital growth assumption is unrealistic, the annual cash shortfall can compound over many years without the eventual upside to compensate.
6. Not commissioning a depreciation report. A quantity surveyor’s depreciation schedule typically costs $500–$800 and can reveal thousands in annual deductions — particularly Division 43 capital works deductions — that many investors simply don’t know to claim.

Negative Gearing vs Positive Gearing — Which Is Better?

Negative gearing attracts most of the attention, but understanding positive gearing helps you choose the right strategy for your circumstances.

Negatively geared: The property costs more to hold than it earns. You claim a deduction against other income now and aim for capital growth later. Best suited to high-income earners who can afford the annual shortfall and are focused on long-term wealth accumulation.

Positively geared: The property earns more than it costs. The surplus is additional taxable income each year, but your cash flow is positive without relying on capital growth to make the investment viable. Often better suited to investors who need income now — such as retirees or those in lower tax brackets where the negative gearing benefit would be minimal anyway.

Neither approach is universally superior. The right strategy depends on your marginal tax rate, your cash flow needs, your investment horizon, and the specific property you’re buying. A well-structured portfolio often includes both — negatively geared growth assets alongside positively geared yield properties that provide ongoing income. For a tailored analysis, our Virtual CFO service can model the actual numbers for your situation.

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⚠️ General Advice Warning: The information on this page is general in nature and does not constitute personal financial, tax or legal advice. Tax laws change regularly and what applies to negative gearing in Australia may be different by the time you read this. Always seek tailored professional advice from a registered tax agent before making investment decisions.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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Salary sacrificing lets nurses pay for certain expenses from pre-tax salary, which reduces taxable income and can lift take-home pay. Public and not-for-profit health employees often access generous FBT concessions, packaging living expenses up to an annual cap plus a separate meal entertainment cap, on top of salary sacrificing into super.

If you’re a nurse working in a public hospital, you may be leaving thousands of dollars on the table every year without knowing it. Salary sacrifice — particularly the FBT exemption available to public hospital nurses — is one of the most underutilised tax strategies in Australian healthcare. Yet most nurses have never been shown how to use it properly.

The good news? You don’t need a complicated strategy or a business structure to access these savings. In many cases, a simple conversation with your payroll department can put an extra $3,000 to $4,000 back into your pocket every year — completely legally.

In this guide, I’ll walk you through exactly how salary sacrifice works for nurses in Australia, including the powerful FBT exemption available to public hospital staff, how super and novated leases fit in, and the common mistakes that cost nurses money every year.

What Is Salary Sacrifice?

Salary sacrifice is an arrangement between you and your employer where you agree to receive a lower gross salary in exchange for your employer providing certain non-cash benefits. The key benefit? Those packaged items come out of your pre-tax income, which means your taxable income drops — and so does the tax you pay.

Here’s a simple example. If you earn $85,000 per year and you salary sacrifice $10,000 worth of approved benefits, you only pay income tax on $75,000. At the 32.5% marginal rate, that saves you around $3,250 in income tax.

Salary sacrifice is available to most Australian employees, but the types of benefits you can package — and how tax-effective they are — depends heavily on your employer. For nurses, the employer you work for makes an enormous difference.

The Big One: The FBT Exemption for Public Hospital Nurses

This is the section that will change how you think about your pay packet. If you work at a public hospital, you have access to one of the most generous tax concessions available to any employee in Australia — and most nurses don’t fully use it.

Why Public Hospitals Are Different

Under Australian tax law, public hospitals are classified as Public Benevolent Institutions (PBIs) under the Fringe Benefits Tax Assessment Act 1986. Because of this classification, the Australian Taxation Office grants them a special FBT exemption that allows their employees to salary package a generous amount of living expenses completely free of Fringe Benefits Tax.

For other employers, salary packaging benefits usually attracts Fringe Benefits Tax at a rate of 47%, which eats into most of the tax saving. But for PBI employers like public hospitals, that FBT simply doesn’t apply — up to a certain threshold.

The $9,010 Living Expenses Cap

As a nurse employed by a public hospital (or other PBI employer), you can salary package up to $9,010 per year in living expenses completely tax-free. This figure is set by the ATO and applies for the current FBT year.

What counts as “living expenses” under this cap? Essentially, almost any personal expense you already pay:

• Mortgage repayments or rent payments
• Credit card bills
• Personal loan repayments
• Car registration and insurance
• Utility bills (gas, electricity, water)
• School fees
• Groceries and everyday household costs

That’s right — you can have your employer pay your rent or mortgage directly from your pre-tax salary, completely free of FBT. This is an enormous concession that is simply not available to most Australians outside of the PBI sector.

The $2,650 Meal Entertainment Cap

On top of the $9,010 living expenses cap, public hospital nurses can salary package an additional $2,650 per year in meal entertainment expenses — things like restaurant meals and café expenses. This is a separate cap and does not reduce your $9,010 living expenses entitlement.

A Real Numbers Example

Let’s make this concrete. Consider a nurse earning $85,000 per year at a public hospital in Australia. By salary packaging the full $9,010 in living expenses, their taxable income drops to approximately $75,990.

At the 32.5% marginal income tax rate, that single move saves approximately $2,927 in income tax per year. If they also salary package the full $2,650 in meal entertainment, that’s an additional tax saving of around $861.

Total potential annual tax saving: approximately $3,788 — just from these two benefits alone.

That’s nearly $4,000 per year back in your pocket, every single year, for the rest of your nursing career — simply by filling out a form with your payroll team.

Important: This Is Not Available at Private Hospitals

It’s critical to understand that this FBT exemption is tied to your employer’s PBI status — not to you personally as a nurse. If you move from a public hospital to a private hospital, you lose access to this concession entirely. Private hospitals are generally not classified as PBIs, so their employees are subject to standard FBT rules. The $9,010 and $2,650 caps simply do not apply.

Some private sector aged care providers and certain charities are classified as PBIs — so if you work in those settings, it’s worth checking your employer’s status with your HR or payroll team. When in doubt, ask.

Super Salary Sacrifice — Available to All Nurses

Super salary sacrifice is available regardless of whether you work at a public or private hospital. It works by making additional concessional (pre-tax) contributions to your superannuation fund, reducing your taxable income in the process.

Here’s why it’s powerful:

• Contributions into super are taxed at just 15% inside the fund
• Compare that to your marginal income tax rate of 32.5% to 45% depending on your income
• The difference is pure tax saving

For the 2025-26 financial year, the concessional contributions cap is $30,000 per year. This cap includes your employer’s compulsory Super Guarantee (SGC) contributions of 11.5%, so the amount you can contribute personally will depend on what your employer puts in.

There’s also a carry-forward provision. If your total super balance is under $500,000 and you haven’t maxed out your concessional cap in previous years, you may be able to carry forward unused cap amounts and make larger contributions this year. This can be especially useful if you’ve had time out of the workforce or worked part-time.

Super salary sacrifice is particularly worth considering for nurses who are:

• In their 40s or 50s and wanting to accelerate their retirement savings
• In higher-income brackets (earning over $120,000) where the income tax saving is significant
• Looking to reduce assessable income before an important financial decision (like a property settlement)

You can read more about concessional contributions limits on the ATO website.

Novated Car Leases for Nurses

A novated lease is a three-way arrangement between you, your employer, and a finance company that allows you to lease a vehicle using pre-tax salary. Most public hospitals and major health networks offer novated leasing as part of their salary packaging program.

The tax benefit comes from the fact that your car repayments — including fuel, registration, insurance, tyres, and servicing — are all paid from pre-tax dollars. You also save GST on the purchase price and running costs.

For public hospital nurses, novated leases can be structured within or alongside the $9,010 FBT cap depending on how your salary packaging provider sets it up. Private hospital nurses can still access novated leases, but standard FBT rules will apply on the private use component.

Novated leases work best for nurses who:

• Drive significant distances — to and from work, between sites, or for work-related travel
• Are in the market for a new vehicle anyway
• Can commit to a 2-5 year lease term

Before entering a novated lease, it’s worth having an accountant review the numbers to make sure it stacks up for your situation. The savings are real, but so are the obligations.

Portable Electronic Devices and Laptops

Nurses can also salary sacrifice portable electronic devices that are primarily used for work purposes. This includes:

• Laptops and tablets (for clinical documentation, research, or continuing education)
• Smartphones (used for work communications and clinical apps)

These items are exempt from FBT if they’re primarily for work use, and you can package one device per category per FBT year. This means you could package both a laptop and a smartphone in the same year as separate exempt items.

For nurses who use their own devices for accessing clinical systems, patient management apps, or professional development, this concession can save several hundred dollars per year. See your employer’s salary packaging guide or speak with Pinnacle to understand how this applies in your situation.

Private vs Public Hospital — What’s the Difference?

This comparison is so important it deserves its own section. Here’s a clear breakdown:

Public hospital nurses (PBI employees):

• Super salary sacrifice
• Novated car lease
• Portable electronic devices
• $9,010 per year in living expenses, completely FBT-free
• $2,650 per year in meal entertainment, FBT-free

Private hospital nurses:

• Super salary sacrifice
• Novated car lease (with FBT on private use)
• Portable electronic devices
• No access to the $9,010 living expenses or $2,650 meal entertainment FBT exemptions

The gap in value is significant. A public hospital nurse can access close to $4,000 per year in tax savings that a private hospital nurse simply cannot access. If you’re considering a move between sectors, it’s worth factoring this in — a slightly lower salary at a public hospital could still leave you better off after accounting for the additional salary packaging benefits.

Some private sector aged care providers and charities may also be classified as PBIs. If you work in aged care or the not-for-profit sector, it’s worth checking your employer’s FBT status with HR or payroll before assuming you don’t have access to these concessions.

How to Get Started with Salary Packaging at Your Hospital

The process is more straightforward than most nurses expect. Here’s what to do:

1. Contact your payroll or HR department. Ask whether your employer offers salary packaging and which benefits are available.
2. Find out which salary packaging administrator your hospital uses. Most major public hospitals use specialist administrators such as McMillan Shakespeare, RemServ, or SmartSalary. They handle all the paperwork and can explain your options.
3. Set up your packaging elections. You’ll nominate which benefits you want to package (living expenses, meal entertainment, etc.) and the amounts. Most administrators have online portals where you can do this.
4. Review annually. Your circumstances change — so should your salary packaging strategy. Don’t set and forget. Review your elections at least once a year, especially if your income, family situation, or employer changes.

You don’t need an accountant to set up salary packaging through your employer’s approved administrator. But a tax adviser can help you optimise the strategy — particularly around balancing living expenses packaging with super contributions, or understanding the interaction between salary packaging and your tax return.

At Pinnacle, we work with nurses and healthcare professionals to build a tax strategy that makes the most of every concession available to them. Our tax planning service includes a review of your salary packaging elections as part of a broader strategy.

Common Mistakes Nurses Make with Salary Sacrifice

After working with healthcare professionals on their tax strategies, I see the same mistakes come up repeatedly:

1. Not using the full cap. Many nurses only package a portion of the $9,010 living expenses cap, leaving the rest unused. Every dollar of unused cap is a missed tax saving.
2. Not packaging super in high-income years. If you’re earning overtime, working double shifts, or receiving a significant pay rise, that’s often the best year to maximise your super contributions and bring your taxable income down.
3. Forgetting to update when changing jobs. If you move from a public hospital to a private one, you lose your PBI status immediately. Your salary packaging needs to be reviewed and restructured.
4. Not keeping records of how benefits are used. Your salary packaging administrator tracks most things, but you should keep your own records — especially for meal entertainment claims.
5. Assuming it’s too complicated. Many nurses assume salary sacrifice involves complex forms and ongoing admin. In practice, the administrator does most of the work. A single setup conversation can unlock years of tax savings.

Frequently Asked Questions

Am I eligible for the FBT exemption as a nurse?

Eligibility depends on your employer, not your profession. If you work for a public hospital or another organisation classified as a Public Benevolent Institution, you have access to the $9,010 living expenses and $2,650 meal entertainment FBT exemptions. If you work for a private hospital or a non-PBI employer, these specific exemptions do not apply — though you can still salary sacrifice super and a novated car lease.

Can I salary sacrifice at a private hospital?

Yes, but your options are more limited than at a public hospital. Private hospital nurses can still salary sacrifice into super and access a novated car lease, but they do not have access to the FBT-free living expenses and meal entertainment caps available to PBI employees. Standard FBT rules apply, which significantly reduces the tax benefit of packaging general living expenses.

What is the maximum I can salary package tax-free as a public hospital nurse?

For the current FBT year, public hospital nurses can package up to $9,010 per year in living expenses and an additional $2,650 per year in meal entertainment, both completely free of Fringe Benefits Tax. On top of this, you can contribute up to the concessional super cap of $30,000 per year (including your employer’s SGC contributions). These figures are set by the ATO and may change from year to year.

Does salary sacrifice affect my home loan borrowing capacity?

This is worth checking with your mortgage broker before making changes. Salary sacrifice reduces your gross income as reported to lenders, which can affect your assessed borrowing capacity. Some lenders “gross up” the packaged amount and treat it as income — but not all do. If you’re planning to apply for a home loan in the next 12 months, discuss the timing of your salary sacrifice elections with your broker and accountant beforehand.

Should I salary sacrifice super or living expenses?

For public hospital nurses with access to the FBT exemption, the living expenses and meal entertainment caps are usually the highest priority — they’re dollar-for-dollar savings with no FBT cost. Super salary sacrifice is a great next step, especially if you’re approaching retirement or in a high marginal tax bracket. The right answer depends on your individual circumstances, which is where a personalised consultation with a tax adviser can make a real difference.

Ready to Review Your Salary Sacrifice Strategy?

If you’re a nurse and you haven’t fully explored your salary packaging options, there’s a good chance you’re paying more tax than you need to. The FBT exemption alone can be worth close to $4,000 per year — and that’s before we look at super, novated leases, or other strategies.

At Pinnacle Accounting & Advisory, Mina Baselyous works with nurses and healthcare professionals to build tax strategies that are practical, compliant, and tailored to their actual situation. Book a Consultation and let’s work out exactly what you could be saving.

Book a Consultation →

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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Nurses Are Among Australia’s Most Overworked — and Undertaxed — Professionals

If you’re a registered nurse, enrolled nurse, midwife, or nursing student in Australia, there’s a good chance you’re leaving money on the table every time you lodge your tax return. Nurses are on the front line of Australia’s healthcare system — working long shifts, buying their own equipment, paying out of pocket for registration fees and continuing education, and travelling between hospitals or clinics. Many of those costs are deductible. Most nurses don’t claim all of them.

This guide walks through every major nurse tax deduction available under Australian law for the 2025-26 financial year. I’m Mina Baselyous — CPA and Chartered Tax Adviser at Pinnacle Accounting & Advisory in Melbourne — and I’ve helped many healthcare professionals maximise their refunds by understanding exactly what the ATO allows and what it doesn’t.

Whether you work in a public hospital, a private clinic, an aged care facility, or through a nursing agency, this guide has you covered.

What Counts as a Tax Deduction?

Before diving into the specifics, it helps to understand the ATO’s three golden rules for deductions. An expense is deductible if:

• You incurred it in earning your income — there’s a direct connection between the expense and your work as a nurse.
• It’s not private or domestic — personal expenses (groceries, gym, haircuts) don’t count, even if they indirectly help you perform your job.
• You haven’t been reimbursed — if your employer paid for it, you can’t also claim it as a deduction.

You must also keep adequate records — generally receipts or bank statements — for any claim over $300, and you need a record of all claims regardless of amount.

For full ATO guidance, see the ATO’s deductions page.

Uniforms and Protective Clothing

This is one of the most commonly misunderstood deductions for nurses. You can claim:

• Compulsory uniforms — scrubs or nursing attire that are specific to your employer (e.g., have a logo, required colour scheme, or are stipulated in your employment agreement). If your employer says “wear these blue scrubs with our logo,” that’s deductible.
• Protective footwear — non-slip nursing shoes or steel-capped boots required for your ward or operating environment.
• Compression stockings — if they’re medically required for your role (e.g., long shifts in surgical units), these may be claimable as protective clothing.
• Laundry costs — $1 per load for work-related clothing (up to $150 without receipts). If you’re washing scrubs separately from personal clothing, track the loads. Over $150, you’ll need receipts.

You cannot claim plain clothing you choose to wear to work — even if it’s all black and you only wear it for nursing shifts. If it’s not specific to your employer and could be worn on the street, the ATO says no.

AHPRA Registration and Professional Memberships

Registered nurses in Australia must maintain their registration with the Australian Health Practitioner Regulation Agency (AHPRA). The annual AHPRA registration renewal fee is 100% tax deductible because it’s a direct requirement for you to practise as a nurse.

Other deductible memberships and registrations include:

• Australian Nursing and Midwifery Federation (ANMF) union fees — fully deductible as a work-related expense
• Australian College of Nursing (ACN) membership fees
• Specialty college fees — such as ACORN (perioperative nurses), ACEM (emergency), ACCCN (critical care), or any other specialty professional body you belong to
• Professional indemnity insurance — if you pay this personally (rather than through your employer), it is fully deductible

Keep the annual renewal notices and membership invoices — they’re straightforward to claim and add up quickly.

Professional Development and Self-Education

Nurses are required to complete Continuing Professional Development (CPD) each year to maintain AHPRA registration. That requirement creates a direct link to deductibility. You can claim:

• CPD course fees and registration costs
• Conferences and seminars — including travel and accommodation to attend (see car travel section)
• Textbooks and study materials directly related to your current nursing work
• Journal subscriptions — nursing or medical journals relevant to your specialty
• Internet usage for study — the work-related proportion of your home internet connection

One important distinction: self-education expenses are deductible only if the study is connected to your current job, not if you’re studying to enter a completely new career. For example:

• A registered nurse studying for a Graduate Certificate in Intensive Care Nursing — deductible (directly connected to current nursing work)
• A hospital cleaner studying to become a nurse — not deductible (qualifying for new employment)
• An enrolled nurse studying to become a registered nurse — this is a grey area, and we’d recommend getting specific advice from a registered tax agent like Pinnacle before claiming

If you’re unsure whether your course qualifies, reach out to our team for tailored advice before lodgement.

Work-Related Car Travel

Car travel is one of the larger deductions available to nurses — but there are strict rules about what qualifies. The ATO is very clear: your regular commute from home to your usual place of work is not deductible.

What you can claim:

• Travel between two workplaces on the same day — e.g., leaving your main hospital and driving to a clinic or aged care facility for an agency shift
• Travel to CPD training or conferences where the venue is not your regular workplace
• Travel for community or home visits — district nurses and community health nurses who travel between patient homes during a shift can claim this travel
• Travel to pick up or deliver equipment or supplies for your employer

There are two methods for calculating car deductions:

• Cents per kilometre: 88 cents per km for 2024-25; 92 cents per km for 2025-26. You can claim up to 5,000 km per year without a logbook. Keep a diary or app record showing each journey, purpose, and distance.
• Logbook method: If your work-related driving exceeds 5,000 km per year, a logbook can give a higher deduction. Maintain the logbook for at least 12 continuous weeks to establish your business-use percentage.

Agency nurses who work across multiple hospitals in a week often have substantial car deduction entitlements — it’s worth tracking carefully.

Tools and Equipment

Any tools or equipment you purchase for work that your employer does not provide are deductible. Common examples for nurses include:

• Stethoscope
• Blood pressure cuff
• Nursing watch (fob watch)
• Medical scissors and forceps
• Penlight torch
• Pulse oximeter
• Drug reference guides or apps (paid subscriptions)

The rule is straightforward:

• Items costing $300 or less can be fully deducted in the year of purchase
• Items costing over $300 must be depreciated over their effective life (e.g., a high-end stethoscope costing $500 would be claimed over several years)

If you use the item partly for work and partly personally, you can only claim the work-related portion. Keep the receipt and note the percentage of work use.

Phone and Internet

Most nurses use their personal phone for work — checking rosters, communicating with ward staff, accessing medication reference apps, or reviewing patient handover notes. The work-related portion of your phone and internet bill is deductible.

The ATO recommends keeping a usage diary for four consecutive weeks to establish the percentage of work versus personal use. That percentage then applies to your annual bill.

For most nurses, the work-related proportion sits somewhere between 25% and 50%, depending on your role. A nurse coordinator or team leader who uses their phone heavily for rostering and communication may have a higher percentage than a bedside nurse with limited phone use during shifts.

Home Office Expenses

For many nurses, this deduction won’t apply — you can’t claim a home office deduction just because you look at your roster or occasionally send a work email from home.

However, if you genuinely work from home — for example, you do documentation, clinical charting, or education in a dedicated home workspace — you can claim a deduction using the fixed rate method: 70 cents per hour for every hour you work from home. This covers electricity, internet, and stationery used while working from home.

To claim this, you must:

• Keep a record of the actual hours you work from home (a diary or calendar entries)
• Have a genuine work-from-home arrangement — not just occasional tasks

Nurse educators, clinical nurse consultants, and nurses who complete significant documentation at home are the most likely to qualify.

Union Fees and Professional Subscriptions

Union fees are one of the most straightforward nurse tax deductions. If you’re a member of the Australian Nursing and Midwifery Federation (ANMF) or any other union, those fees are fully tax deductible.

Professional subscriptions that are relevant to your nursing work are also deductible — including:

• Medical and nursing journal subscriptions
• Clinical app subscriptions (e.g., AMH, MIMS, Epocrates) used for patient care
• Online CPD platform subscriptions

If you’re not sure whether a subscription qualifies, the key question is: “Do I need this to do my job?” If the answer is yes, it’s likely deductible.

What Nurses Cannot Claim

Just as important as knowing what to claim is knowing what not to claim. The ATO audits healthcare workers regularly, and incorrect deductions attract penalties.

Nurses cannot claim:

• Ordinary clothing — even if you only wear it for nursing shifts. Scrubs without a logo that could be worn outside work are not deductible.
• Grooming and personal care — haircuts, skincare products, manicures, or perfume, even if you present professionally at work.
• Home-to-work travel — your commute is a private expense regardless of how far you live from the hospital.
• Meals and snacks — food eaten during your shift is not deductible unless you’re on an overnight trip away from your regular workplace.
• Gym memberships or fitness costs — even if fitness is important for the physical demands of nursing.
• Personal use portion of phone or internet — only the work-related percentage is deductible.
• Parking at your usual workplace — parking fees paid at your regular hospital are not deductible (unlike parking at a second workplace or for CPD travel).

Record-Keeping Tips for Nurses

Good record-keeping is the difference between a confident tax claim and a stressful ATO audit. Here’s what I recommend to every healthcare professional I work with:

• Download the ATO myDeductions app — it’s free and lets you photograph receipts, record car trips, and track deductions throughout the year instead of scrambling at tax time.
• Keep all receipts for items over $300 and anything you plan to claim. Even for items under $300, having a receipt makes your claim bulletproof.
• Keep a car logbook or travel diary — record each work-related journey with date, start and end destination, purpose, and distance.
• Run a four-week phone usage diary at some point during the year — this establishes your work-use percentage for the full year.
• Save your AHPRA renewal invoice and all membership receipts — these are easy to forget but add up to several hundred dollars a year.
• Note any work clothing purchases at the time of purchase — don’t rely on memory months later.

The ATO requires you to keep records for five years from the date you lodge your tax return. Digital storage (photos or PDF scans) is acceptable.

The Bottom Line: Get Every Dollar You’re Entitled To

Nurses dedicate their careers to caring for others. The last thing you should have to worry about is whether you’re maximising your tax return. With AHPRA fees, CPD requirements, professional memberships, equipment costs, and work-related travel, a well-prepared nurse tax return can include thousands of dollars in legitimate deductions.

The challenge is that the ATO’s rules are specific — and getting them wrong in either direction (claiming too little or claiming incorrectly) costs you money. Working with a registered tax agent who understands the healthcare sector means your return is lodged correctly, compliantly, and with every deduction you’re entitled to.

At Pinnacle Accounting & Advisory, we work with nurses, midwives, and allied health professionals across Melbourne and Australia-wide. Our tax planning service is designed to help you keep more of what you earn — not just at tax time, but throughout the year.

Ready to get started? Book a Consultation with our team and let’s make sure your next tax return is the best one yet.

Frequently Asked Questions — Nurse Tax Deductions Australia

Can I claim my AHPRA registration fee?

Yes — the annual AHPRA registration renewal fee is 100% tax deductible for registered nurses and midwives. It’s a mandatory requirement to practise, which makes the connection to earning income direct and clear. Keep your renewal invoice as your receipt.

Are nursing scrubs tax deductible?

Only if they are a compulsory uniform specific to your employer — for example, scrubs with your hospital’s logo, or a specific colour mandated by your workplace policy. Generic scrubs without identifying features that could be worn outside work are generally not deductible. If in doubt, check your employment agreement or ask your manager for written confirmation that the uniform is compulsory.

Can I claim my nursing degree as a tax deduction?

It depends on your current employment. If you are already working as a nurse and studying a postgraduate qualification directly connected to your current role (e.g., Graduate Certificate in Critical Care Nursing), the course fees are likely deductible. However, if you’re studying to become a nurse for the first time, those costs are not deductible because you’re qualifying for new employment rather than improving your current skills. The ATO is clear on this distinction — always check before claiming.

How much can I claim without receipts?

You can claim up to $300 in total work-related expenses without receipts (except for car expenses, which have their own rules). For laundry of work uniforms specifically, you can claim up to $150 without receipts using the ATO’s rate of $1 per load. For any amount over these thresholds, receipts or bank statements are required.

Can agency nurses claim travel to different hospitals?

Yes — this is one of the strongest deductions available to agency nurses. Travel between two workplaces on the same day is deductible. If you leave your regular base or home between shifts and travel to a different hospital for an agency placement, that travel is claimable. The key is that you’re travelling between places of work, not commuting from home to a single regular workplace. Agency nurses who work across multiple sites should keep a detailed travel diary throughout the year.

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General Advice Warning: The information on this page is general in nature and does not constitute personal financial, tax or legal advice. Tax laws change regularly and your individual circumstances will affect what deductions you can claim. Always seek tailored professional advice from a registered tax agent before acting on anything you read here.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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A testamentary trust is a trust created through a person’s will that comes into effect after they die. It holds assets for beneficiaries and offers significant tax advantages, particularly for minor children who can be taxed at adult rates on trust income, along with asset protection and control over how the inheritance is used.

This guide is part of our complete guide to trusts in Australia.

Most Australians have a will. But having a will and having a will that actually protects your family’s wealth are two very different things. A will that simply divides your estate between your beneficiaries — however well-intentioned — leaves that wealth exposed to tax, creditors, relationship breakdowns, and poor financial decisions the moment it changes hands.

A testamentary trust changes that. It is the estate planning structure that wealthier families have relied on for decades, and one that remains vastly underutilised by everyday Australians who could benefit most from it.

In this guide, we explain exactly what a testamentary trust is, how it works, and why it may be the most important estate planning decision you make for your family.

What Is a Testamentary Trust?

A testamentary trust is a legal trust created by the terms of your will that comes into existence only upon your death. Unlike a family trust (also called an inter vivos trust or living trust), which you establish and control during your lifetime, a testamentary trust does not exist while you are alive — it is created by your will and activated when your estate is administered.

The trust is established through a specific clause in your will — the trust deed — that sets out who the trustee is, who the beneficiaries are, and how the assets should be managed and distributed. When you die, instead of your estate passing directly to your beneficiaries, it passes into the testamentary trust. The trustee then manages those assets on behalf of the beneficiaries according to the terms you specified.

You can have a single testamentary trust covering all beneficiaries, or separate trusts for each child or family group. Most estate planning advisers recommend a separate trust for each branch of the family to maximise flexibility and protection.

How Does a Testamentary Trust Work?

The mechanics are straightforward. When you die, your estate is first administered through probate — the legal process of validating your will. Once probate is granted, instead of the assets being distributed directly to your beneficiaries, they flow into the testamentary trust. The trustee takes legal ownership of those assets and manages them for the benefit of the beneficiaries.

In a discretionary testamentary trust, the trustee has full discretion to distribute income and capital to any beneficiaries within the trust’s defined class, in any proportions, at any time. This flexibility is central to the trust’s tax efficiency.

A simple example illustrates the difference:

Imagine a parent dies leaving an $800,000 estate to their three adult children. Under a simple will, each child receives approximately $267,000 directly. That money becomes part of their personal wealth — taxed in their name, accessible to their creditors, at risk in any relationship breakdown.

Under a testamentary trust, the $800,000 flows into a trust managed by a trustee. The trustee invests the assets and each year distributes income — say, 5% returns generating $40,000 — across the family group in the most tax-effective way. The trustee can distribute to adult children, their spouses, and importantly, their minor children (grandchildren of the deceased), splitting income across multiple tax-free thresholds. None of the capital is immediately at risk from any single beneficiary’s personal circumstances.

The Tax Advantage That Makes Testamentary Trusts Exceptional

The most significant benefit of a testamentary trust — the one that separates it from every other estate planning structure — is how minor beneficiaries (children under 18) are taxed on distributions.

Under Division 6AA of the Income Tax Assessment Act 1936, income distributed to minor children from living trusts (such as family trusts or discretionary trusts established during your lifetime) is taxed at punitive penalty rates. A child receiving $18,200 from a family trust pays tax at the top marginal rate on amounts over $416 — resulting in an effective tax rate approaching 66% on that income. This is commonly called the kiddie tax.

However, under section 102AG of the Income Tax Assessment Act 1936, income distributed to minors from a testamentary trust is treated differently. It is taxed at ordinary adult marginal tax rates — not the penalty rates.

This means a 10-year-old grandchild receiving $18,200 in income distributions from a testamentary trust pays zero tax — that amount sits precisely at the tax-free threshold for an adult. The same child receiving $18,200 from a family trust would face a tax bill of approximately $12,000.

For a family with multiple minor grandchildren, this difference compounds significantly year after year. It is the primary reason that high-net-worth families and business owners structure their estates around testamentary trusts rather than simple direct inheritances. The ATO provides guidance on deceased estates and testamentary trusts and how income distributions are assessed.

Other Key Benefits of a Testamentary Trust

Tax efficiency for minor beneficiaries is the headline benefit, but testamentary trusts offer a range of protections that make them valuable for almost any estate above $500,000.

Asset Protection from Creditors

Assets held in a testamentary trust are legally owned by the trust, not the individual beneficiary. This means those assets are generally protected from the beneficiary’s creditors — whether arising from a business failure, personal bankruptcy, or a court judgment. If a beneficiary faces financial difficulty, the trustee can suspend or redirect distributions until the risk passes. The trust assets remain intact and out of reach.

Protection in Relationship Breakdown

Under Australian family law, trust assets can be treated differently to personal assets in property settlements. Assets held in a testamentary trust — particularly where the beneficiary does not have direct control over distributions — may receive a degree of protection from a separating spouse’s claims, compared to assets received directly as an inheritance. Speak with your legal adviser about how this applies to your specific circumstances.

Flexibility for Changing Circumstances

Life changes. A simple will cannot account for changes in a beneficiary’s tax situation, financial needs, or personal circumstances that happen years after your death. A testamentary trust gives the trustee ongoing discretion to adjust distributions as circumstances evolve — directing more income to a beneficiary who needs it, or less to one who is already in a high tax bracket.

Control and Conditions

As the will-maker, you can set conditions on how and when capital is accessed. For example, you might specify that a beneficiary cannot access trust capital until they turn 25, ensuring that young adults have time to mature before receiving a significant inheritance. This level of control is impossible with a simple direct inheritance.

Blended Family Protection

For those in second marriages or blended families, a testamentary trust provides a mechanism to ensure assets ultimately reach your intended beneficiaries — your children from a previous relationship — rather than passing to a surviving spouse who may later remarry or leave the estate to unintended parties.

Testamentary Trust vs Family Trust — What Is the Difference?

Many Melbourne business owners already have a family trust and wonder how a testamentary trust relates to it. They serve different purposes and are not interchangeable. For a broader overview of all Australian business structures — including how family trusts, companies, and multi-entity setups compare — see our complete guide to business structures in Australia.

Feature	Testamentary Trust	Family Trust (Discretionary)
When created	On the will-maker’s death	During the person’s lifetime
How funded	Assets from the deceased estate	Any assets transferred into the trust
Tax on minors	Adult marginal rates (including tax-free threshold)	Penalty rates under Division 6AA
Asset protection	Strong — assets are not owned personally by beneficiaries	Moderate — depends on structure
Probate required	Yes — estate must go through probate first	No — assets already held in trust
Control by creator	Set in the will — fixed at death	Active control during lifetime

The critical difference is the tax treatment of minor beneficiaries. A family trust cannot offer the same tax efficiency for distributions to children under 18 — only a testamentary trust qualifies for adult marginal rates under section 102AG. Many families use both structures: a family trust for business and investment assets during their lifetime, and a testamentary trust in their will to protect and distribute their estate after death. These two structures are complementary, not alternatives.

For a deeper look at how family trusts work during your lifetime, read our guide on how to set up a family trust in Australia and how family trust distributions are taxed.

Who Should Consider a Testamentary Trust?

The straightforward answer is: anyone with an estate worth protecting. The following situations make a testamentary trust particularly valuable:

• Business owners with significant assets — property, business equity, or investments — who want to protect that wealth for the next generation
• Parents of minor children who want their children to receive income at tax-effective rates rather than at penalty rates
• Parents of children with disabilities who need ongoing, managed financial support without losing access to government entitlements — a protective testamentary trust can be structured specifically for this purpose
• People in blended families who want to ensure their assets reach their biological children rather than a new partner’s estate
• Anyone with a combined estate above $500,000 — the tax savings on distributions to minor beneficiaries alone can offset the cost of the structure within a few years
• People with concerns about a beneficiary’s financial responsibility — whether due to addiction, poor money management, or relationship instability — where a direct inheritance could be quickly dissipated

If you are a Melbourne business owner working with an accountant in Melbourne on your business structure, your estate plan should be part of the same conversation. What you build during your lifetime needs to be protected after it.

How to Set Up a Testamentary Trust

A testamentary trust must be established correctly to be effective. It is not a form you fill in — it requires coordinated legal and accounting input from the start.

Step 1 — Get professional legal and accounting advice. A testamentary trust involves both legal drafting (your will) and tax planning (the trust structure). Your solicitor and your accountant need to work together from the outset. A will drafted without tax input may miss critical opportunities; tax advice without legal implementation produces nothing.

Step 2 — Identify the assets to flow into the trust. Decide which assets will pass through your estate and therefore into the testamentary trust, and which are better held elsewhere. Superannuation, for example, passes outside the estate via a binding death benefit nomination and is not automatically covered by the trust.

Step 3 — Draft the trust deed as part of the will. Your solicitor drafts the testamentary trust provisions into your will. The deed specifies the terms — how the trustee operates, who the beneficiaries are, and any conditions or limitations you want to impose.

Step 4 — Name the trustee. The trustee is the person or entity responsible for managing the trust assets after your death. This is commonly a surviving spouse, an adult child, or a professional independent trustee. Always name a successor trustee in case your first choice cannot or will not act.

Step 5 — Define the beneficiary class. Specify who can benefit from the trust — typically your children, grandchildren, their spouses, and future descendants. A broad beneficiary class gives the trustee maximum flexibility to distribute income in the most tax-effective way.

Step 6 — Review the will and trust every three to five years. Your family circumstances, asset base, and the tax laws change. A testamentary trust set up in 2020 may need updating by 2025. Regular reviews with your accountant and solicitor ensure the structure remains optimal.

For more on structuring your affairs tax-efficiently, explore our tax planning services for Melbourne business owners.

Common Mistakes to Avoid

The most expensive estate planning mistake is not making one — it is making the wrong one and not realising until it is too late to correct.

Leaving children as direct beneficiaries in a simple will. This is the default for most Australians. It is also the most costly — income tax, creditor exposure, and relationship risk are all avoidable with the right structure in place.

Not nominating a successor trustee. If your named trustee dies, becomes incapacitated, or refuses to act, and you have no successor nominated, a court may need to appoint one. This delays administration, adds cost, and removes your control over who manages the trust.

Failing to account for superannuation. Superannuation does not form part of your estate and is not covered by your will. To direct your super to specific beneficiaries, you need a valid, current binding death benefit nomination (BDBN) with your fund. Without one, your super trustee has discretion over who receives your benefit — which may not align with your intentions. The ATO provides guidance on death benefit nominations for superannuation members.

Setting it up once and never reviewing it. Tax laws change. Your family changes. Your assets change. A testamentary trust drafted in isolation from your ongoing financial planning quickly becomes outdated. Treat it as a living part of your financial structure, not a set-and-forget document.

Frequently Asked Questions

Does a testamentary trust avoid probate?

No. A testamentary trust is created by your will, so the estate must still go through probate before assets can flow into the trust. Probate validates the will and grants the executor legal authority to deal with the estate. Only after probate is granted can the executor transfer assets into the testamentary trust. If avoiding probate is a priority, holding assets in a family trust or directing superannuation via a binding death benefit nomination during your lifetime achieves that goal — but the testamentary trust itself requires probate as a first step.

Can I have both a family trust and a testamentary trust?

Yes, and many Melbourne business owners do. A family trust holds and manages assets during your lifetime, while the testamentary trust in your will governs what happens to your estate after you die. The two structures serve different functions and complement each other well. Assets already held in a family trust at the time of your death do not automatically flow into the testamentary trust — only assets that form part of your personal estate at death will do so.

What happens to my SMSF — is it covered by my will?

No. Your self-managed superannuation fund (SMSF) is not covered by your will and does not automatically flow into a testamentary trust. Superannuation passes outside your estate and is governed by your SMSF’s trust deed and any binding death benefit nomination you have in place. To ensure your super reaches the beneficiaries you intend, you must have a valid, current BDBN with your fund. Speak to your accountant about reviewing your SMSF’s death benefit arrangements as part of your broader estate plan.

Who can be trustee of a testamentary trust?

Almost anyone you trust who has legal capacity to act. Commonly, the trustee is the surviving spouse, an adult child, or a professional trustee such as a solicitor or a trustee company. The trustee carries significant responsibility — managing investments, making distribution decisions, filing annual tax returns for the trust, and acting in the best interests of all beneficiaries. Choose someone with sound judgement and financial literacy, or consider a professional trustee where conflicts of interest between family members are a concern.

How much does it cost to set up a testamentary trust?

A will containing testamentary trust provisions typically costs between $1,500 and $3,500 in legal fees, depending on the complexity of your estate and the number of trusts involved. Once active, the trust requires annual tax returns and ongoing trustee management, which add to the administrative cost. However, the tax savings on distributions to minor beneficiaries alone can recover the setup cost within one to two years for a modest estate generating reasonable investment returns. The cost of not having one is almost always greater over time.

Can I change a testamentary trust after I set it up?

Yes — while you are alive. Because the testamentary trust exists within your will, you can amend or revoke it at any time by updating your will through a codicil or a new will entirely. Once you die, the trust terms are fixed and the trustee must act within the powers granted by the trust deed. This is why regular reviews during your lifetime are so important — changes in tax law, family structure, or your asset base may all require corresponding updates to the trust’s provisions.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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