Ledger & Law

Edition 3 – October/November 2025

This month we keep it simple:

• what the ATO is watching in 2025–26
• what you should do before month‑end, and
• a deep dive on earn‑outs, MNAV and scrip‑for‑scrip you can use with clients right away.

Top up your mug—by your last sip you’ll be across the moving parts that matter.

ATO spotlight: private‑groups Areas of focus (2025–26)

The ATO has refreshed its program for privately owned & wealthy groups. Headline priorities for 2025–26 include:

• Using business money for private purposes, especially Div 7A exposure and lifestyle assets held via entities.
• Succession planning transactions (restructures, inter‑generational transfers, exits) to ensure concessions/rollovers are correctly applied and not stretched beyond their intent.
• Industry hotspots: property & construction, private equity and international dealings.
• Core obligations: correct reporting of income/CGT, claiming concessions only where eligible, and timely lodgment/payment across the group.

The ATO’s evergreen “What attracts our attention” hub also spotlights non‑lodgment, trust distribution risks, international transactions, private company benefits (Div 7A), property development classification, business structure risks, and succession planning tax risks—a handy checklist for engagement letters and governance tune‑ups.

Make it practical — 5 actions before 30 November to help your clients prepare for any ATO audits

1. Div 7A hygiene: reconcile UPEs/loans, minimum yearly repayments and s109N terms; review any private use of business assets that could look like extraction of value. Map remediation steps in board minutes.
2. Trust distribution pack: evidence purpose & benefit for adult‑child/related‑entity distributions; re‑check deed powers, streaming mechanics and resolution timing windows. (See our August “test send” outline of trust risks for your talking points.)
3. Succession transactions: if a restructure/exit is on the cards, pre‑flight eligibility for small business CGT concessions and govern the earn‑out terms now.
4. International dealings: confirm registrations, document all related party transactions and confirm reporting across the group; ensure cross‑border loans and IP charges align with ATO guidance.
5. Property & construction: validate treatment (revenue vs capital) and GST classifications on developments and disposals.

Treasury notice — superannuation tax & indexation (October 2025)

Treasury has announced changes to target superannuation concessions and support low‑income workers.

Headline points:

Division 296 design adjusted:

• Introduces a second threshold at $10m to further target concessions for very large balances.
• Indexes both the $3m and $10m thresholds.
• Applies the measure to realised earnings (not unrealised).
• Start date pushed back one year—to enable consultation and legislation (from 1 July 2026)

LISTO boost (from 1 July 2027):

• Low‑Income Superannuation Tax Offset increases by $310 to $810 and eligibility rises to $45,000, benefiting ~1.3m Australians (around 60% women).

Payday Super (context):

• Legislation introduced to require SG on payday from 1 July 2026; updated SGC framework and choice‑of‑fund rules to support compliance.

Why it matters for practitioners:

• Large‑balance clients need scenario modelling for realised gains and threshold indexation under the revised Div 296.
• Payroll and cash‑flow planning must account for payday SG and the updated SGC penalty cadence.

Key super rates & thresholds (FY26) — quick reference

• SG rate: 12% (from 1 Jul 2025). (Treasury/ATO guidance; employers must align payroll now.)
• Concessional cap: $30,000 (no change from FY25).
• Non‑concessional cap: $120,000 (no change from FY25; bring‑forward $360,000).
• Transfer Balance Cap (general): $2.0m (up from $1.9m).

Passing the Torch

Earn‑outs, MNAV and scrip‑for‑scrip: 3 traps and 3 fixes

You’ve told us this is where deals often fray.

Here’s a practical roadmap to keep concessions intact without slowing the transaction

Trap 1: Look‑through earn‑out right conditions not hard‑wired

To access Subdivision 118‑I (look‑through treatment), the right must:

• involve future, not‑reasonably‑ascertainable benefits,
• be contingent on economic performance,
• relate to an active asset,
• be delivered within 5 years and be arm’s length.

If you stray, you can be pushed back to “separate asset” treatment with upfront valuation headaches.

Fix: Bake in non‑assignability, confirm the ≤5‑year outside limit, and tie benefits to clear performance metrics.

Add a “tax intent & cooperation” clause to compel the data pack you’ll need for return amendments and scrip allocations.

Trap 2: Small Business Maximum Net Asset Value (MNAV) and earn‑outs—double‑counting (or over‑estimating)

For the Maximum Net Asset Value test, the ATO’s guidance lets you choose how to reflect a look‑through earn‑out (including choosing market value = $0 for the right) when the statutory conditions are met; that avoids inflating net assets with contingent amounts just before sale.

Fix: Document eligibility for 118‑I, then evidence your MNAV choice (and why it’s reasonable) in the deal file—before signing.

Trap 3: Scrip‑for‑scrip + earn‑out—losing deferral on later shares

Where an earn‑out is later satisfied in shares under the same arrangement, those shares can generally sit within Subdivision 124‑M deferral, while cash top‑ups are recognised as additional capital proceeds in the (amended) year of sale.
Fix: Align SPA mechanics so later Earn‑Out Shares are expressly issued as replacement interests under the same arrangement; pair this with an information covenant (pricing certificates / VWAP) to support proceeds and cost‑base apportionment.
Click here to read an expanded article