Thinking of a Christmas stay in your SMSF property? Think again!

If your SMSF owns a beach house, country cottage or apartment that feels like the perfect Christmas getaway, this is your friendly end-of-year reminder: you and your family can’t use it over the Christmas and New Year period, not even “just for a week,” and not even if it’s sitting vacant.

It’s one of the most common SMSF traps, and it can lead to serious penalties. Here’s why, in plain English.

Why personal use is off-limits

SMSFs receive generous tax concessions but they come with strict rules. The big one is the sole purpose test. This means your SMSF must exist only to provide retirement benefits to members (and their dependants if a member dies). 

Using an SMSF-owned property for a holiday gives you a personal benefit before retirement, which fails that test. The ATO is very clear: residential property held by an SMSF can’t be lived in, stayed in, or used as a holiday home by members or related parties. 

“Related parties” covers anyone closely connected to you or the fund, including all fund members, your spouse, children (including adopted children), and wider family like parents, grandparents, siblings, uncles, aunts, nephews and nieces. It also extends to your business partners and any companies or trusts linked to you.

So even if the place is empty for a few weeks and you think “no harm done,” the rules say otherwise.

What if we pay market rent?

This is where people try to get clever and where things still go wrong.

Even if you pay what looks like market rent, leasing residential property to a member or relative is generally prohibited and can trigger other breaches. 

One key problem is the in-house asset rule. If your SMSF leases an asset to a related party, that asset is usually treated as an in-house asset, and in-house assets must stay under 5% of the fund’s total value. 

Because a holiday home is often a large chunk of an SMSF’s value, renting it to a related party almost always pushes you over that limit, unless your SMSF is extremely large. 

And even if you somehow manage to remain under 5%, the ATO may still say the fund was being run partly for your lifestyle, not purely for retirement which brings you right back to the sole purpose test. 

The bottom line is that paying rent doesn’t make it okay.

What if we are retired – can we use the holiday home then?

The answer is still no. Reaching preservation age or retiring doesn’t automatically give you the right to stay in or live in a property owned by your SMSF. The property remains a fund asset and using it personally would still be considered personal use of an SMSF asset.

If you want to live in the property after retirement, the usual pathway is to transfer the property out of the SMSF into your own name. This is called an in-specie transfer, which simply means the fund transfers the asset to you personally rather than selling it for cash.

Once the property is in your personal ownership, you can use it without breaching the sole purpose test, because it’s no longer an SMSF asset and you’re not receiving a benefit from the fund.

However, an in-specie transfer can only happen after you’ve met a condition of release, for example, retiring after reaching preservation age, or stopping gainful employment after age 60, meaning you’re legally allowed to access your super.

Alternatively, you may be able to buy the property from the fund yourself, provided the sale is conducted on a genuine arm’s-length, commercial basis.

It’s also important to get advice first, because transferring property out of an SMSF can have tax consequences, including potential capital gains tax (CGT).

What happens if you break the rules?

Breaches around personal use of SMSF assets are treated seriously. Possible consequences include:

That’s a steep price for a week at the beach.

What can you do instead?

If your SMSF owns a holiday-style property, the safe approach is simple:

Final word

At this time of year it’s easy to blur the lines between “investment property” and “our holiday place.” But with an SMSF, the lines are firm. If you’re unsure about what’s allowed, how your property is being used, or whether any past use could create an issue, contact us. We can explain the rules in your situation and help you keep your SMSF compliant while protecting your retirement savings.

The 50% CGT discount: More than meets the eye

There is much in the media about how the 50% capital gains tax (CGT) discount has contributed to the housing affordability problem in Australia (although no doubt the problem is a lot more complex than attributing it mainly to any taxation measure or measures).

Nevertheless, the CGT discount looms large for anybody who owns assets that are subject to CGT (and note in this regard a passenger car of any sort – including a vintage car – is not subject to CGT). 

However, the 50% discount may even have relevance to your otherwise CGT-exempt home because you may be subject to a partial exemption due to the way you have used it to produce income or in some other cases. 

Also, you may inherit a home and not satisfy the requirements for a full CGT exemption!

But the rules for applying the discount are not as straightforward as you would think. 

For example, in any case where you make a capital gain you must first apply any prior year or current year capital losses you have before you apply the discount – and this in effect dilutes the value of the discount.

And if the gain arises from the sale of a business asset and if you qualify for the CGT small business concessions, there are other rules to consider before applying the discount (if at all).

Importantly, the full 50% CGT discount is generally not available to foreign residents for assets they acquire after 8 May 2012 (but an apportionment may be applied for any period of residency before becoming a foreign resident). 

Further, even if you are a resident when you sell an asset, the 50% discount may be lost to the extent you were not a resident during the period you otherwise owned it.

But these rules are very messy and need to be looked at closely if the need arises.

Note that not all taxpayers can use the discount. For example, a company does not get it (albeit, it has lower tax rate of generally 30%). And superfunds (including SMSFs) are only entitled to a 33 1/3% discount.

Likewise, not all capital gains qualify for the discount. Typically, capital gains which arise from granting legal rights to another person or entity do not qualify for the discount – such as gains from granting a restrictive covenant to your employer or granting an easement over land.

Finally, in order to qualify for the CGT discount, you must have owned the asset that gave rise to the capital gain for at least 12 months – and the ATO takes the view that this does not include the day you legally acquired the asset nor the day you sold it. 

So, it really means you need to have held the asset for 367 days – or 368 days in a leap year!

As with anything to do with tax, even the CGT discount is not straightforward. So, as always, make sure you seek our advice on any such matters.

Who can make a claim against a deceased estate?

In Australia, the law recognises that a will maker may sometimes fail to make adequate provision for close family or dependants. In that situation, certain people can ask the Supreme Court for a share, or a larger share, of the deceased’s estate. This is usually called a family provision claim or a claim against a deceased estate. 

Although each state and territory has its own Act, they all broadly follow the same idea:

Who is generally allowed to claim?

The exact list differs slightly by state, but across Australia the following categories are commonly eligible: 

1. Spouses and de facto partners

2. Children

Biological and adopted children are generally eligible in every jurisdiction. 

Step-children may be eligible in some states either directly (for example in Victoria and Western Australia) or where they were financially dependent or part of the deceased’s household. 

3. Former spouses or partners

Most states allow a former spouse or domestic partner to claim, usually where there has not already been a full and final family law property settlement, or where there are special “factors warranting” an application. 

4. Other dependants

Many Acts also allow claims by:

Because the detail differs, someone who is eligible in one state may not be eligible in exactly the same way in another, so local advice is important.

Being eligible is only the first step

Even if you fit into one of these categories, the Court will not automatically change the will. It must decide whether, looking at all the circumstances, adequate provision has been made for you.

Across Australia, courts generally look at similar factors, such as: 

Judges often talk about “what a wise and just” person, or what the “community” would generally regard as fair in the circumstances would have done, without simply rewriting the will from scratch. 

Time limits and next steps

Time limits to make a family provision claim are strict and vary by state. The Court will only extend time beyond these time limits in limited situations. 

If you think you may have a claim, it is generally sensible to get prompt advice from a wills and estates lawyer. 

Christmas and tax

With the festive season fast approaching, business owners will be turning their mind to year-end celebrations with both employees and clients.

Knowing the rules around Fringe Benefits Tax (FBT), GST credits and what is or isn’t tax deductible can help keep tax costs to a minimum.

Holiday celebrations generally take the form of Christmas parties and/or gift giving.

Parties

Where a party is held during a working day, on business premises, attended by current employees only and costs less than $300 a head (GST inclusive), FBT does not apply. However, the cost of the function will not be tax deductible and GST credits cannot be claimed.

Where the function is held off business premises, say at a restaurant, or is also attended by employees’ partners, FBT applies where the GST-inclusive cost per head comes to $300 or more, the costs are tax deductible and GST credits are available.

However, FBT will not apply where the per person cost is below the $300 threshold if it can reasonably be regarded as an exempt minor benefit – ie, one that is only provided irregularly and infrequently. Where FBT does not apply because of the minor benefit rule, the cost will not be deductible and GST credits will not be available.

Where clients also attend, FBT will not apply to the cost applicable to them, but those costs will not be tax deductible and GST credits will not be available. Where there is a mix of attendees, you may need to keep track of who participated in the function.

Gifts

First, you need to work out whether the gift itself is in the nature of entertainment – for example, movie or theatre tickets, admission to sporting events, holiday travel or accommodation vouchers.

Where the recipient of an entertainment gift is an employee (or an associate of an employee) and the GST-inclusive cost is below $300, the minor benefit exemption should apply so that FBT is not payable, in which case the cost will not be tax deductible and GST credits are not claimable. For larger entertainment gifts to employees, however, FBT applies, the cost is deductible and GST credits can be claimed.

Where the gift is not in the nature of entertainment and it falls below $300, the FBT minor benefit exemption should apply – for example, Christmas hampers, bottles of alcohol, pen sets, gift vouchers. But because the entertainment rules don’t apply, the cost of the gift is tax deductible and GST credits are claimable.

Where a gift is made to a client, the $300 FBT minor benefit exemption falls by the wayside, but as long as it is not an entertainment gift and it was made in the reasonable expectation of creating goodwill and boosting future business it should be deductible to the business. GST credits are also claimable, while the amount is uncapped (within reason).

Best approach for employees

Provided partying is not a regular thing in your business, taking employees out for Christmas lunch escapes the FBT net, as long as the cost per head stays below the $300 threshold. While the cost of the function will be non-deductible, and no GST credits are available, that generally has less of a cash-flow impact on the business than the grossed-up FBT amounts.

For employees and their associates, non-entertainment gifts under $300 are a good way to go. Making a non-entertainment gift costing up to $299 is a very tax effective way of showing your appreciation. And because the $300 cap applies separately to each benefit, depending on how generous you feel, you could also make a gift costing up to $299 to the partner or spouse of an employee, which effectively doubles the $300 minor benefits cap.

Where the cost of a non-entertainment gift costing up to $299 is not subject to FBT, it will be tax deductible, with an entitlement to GST credits, giving you the best of both worlds.

Best approach for clients

While FBT is off the table for business clients, making a non-entertainment gift (tax deductible; no dollar limit within reason) is actually much more tax effective than wining and dining a key client (non-deductible entertainment). If you put some thought into what gift to buy a client and perhaps deliver it yourself, you might make much more of an impact than inviting them to share a restaurant meal in their already crowded Christmas calendar.

If you’re not sure and you need help in sorting out the tax treatment of your upcoming holiday celebrations and gifting, don’t hesitate to give us a call.

Renting your holiday home

With summer around the corner and beach holiday homes back on the agenda, perhaps it is time to revisit a few tax matters about their use.

And the big issue is how you claim expenses if your holiday home is only rented for part of the year.

Well, the ATO takes the view that you can claim expenses for the property based on the extent that they are incurred for the purpose of producing rental income, but that you’ll need to apportion your expenses if your property is available for rent for only part of the year. 

Moreover, it has to be genuinely available for rent! The ATO says that factors that may indicate a property isn’t genuinely available for rent include:

The ATO also requires you to apportion your expenses if you charge less than market rent to family or friends to use the property. And in this case, the general rule is that you can only claim expenses up to the amount of rent derived – so that you have a tax neutral outcome

Importantly, the ATO also says that it may not be appropriate to apportion all expenses on the same basis. For example, expenses that relate solely to the renting of your property are fully deductible and you don’t need to apportion them based on the time the property was rented out. Such expenses include real estate commissions and the costs of advertising for tenants 

And again you can’t claim a deduction for expenses that relate to periods when the property is not genuinely available for rent or periods when the property is used for a private purpose or for the part of the property that isn’t rented out; eg, the cost of cleaning your holiday home after you, your family or friends have used the property for a holiday or a repair for damage.

Oh, and finally just a word on selling the property. 

If you have never lived in it as your home, then you will be subject to CGT if you sell it (unless you bought it before 20 September 1985). And this will be the case regardless of whether you only used it as a holiday home or you partly rented it as well 

Importantly, in calculating the capital gain you can include in its cost all the non-deductible costs of owning or holding the property such as mortgage interest, insurance, repairs, council rates etc, – and even those costs of having the lawns mown regularly. However, you will need to have kept appropriate records of these expenses to do use them.

And of course, you are entitled to the 50% CGT discount to reduce the amount of any assessable gain.

These then are some of the important things about tax and holidays homes. But there are a lot more things that you need to know. So, come have a chat to us about it if you want.

Division 296 tax revisited

Big news for anyone with a large super balance – the government has gone back to the drawing board on the controversial Division 296 tax, and the changes are a big step toward fairness and common sense.

A quick recap

When the Division 296 tax was first announced in 2023, it caused an uproar. The main problem? It would have taxed unrealised gains, that is, paper profits you haven’t actually made yet and set a $3 million threshold that wasn’t indexed meaning it wouldn’t rise with inflation.

After a wave of feedback from the industry, the government has listened. The Treasurer’s new announcement, made in October 2025, fixes some of the biggest issues. The revamped version is designed to be fairer, simpler, and more in line with how tax usually works.

The plan is to start the new system from 1 July 2026, with the first tax bills expected in 2027–28.

What’s changing

Here’s what’s new under the revised Division 296 tax:

So what does this mean in practice? Think of it as a tiered tax system:

Basically, the more you have in super, the higher the tax rate on your earnings above those thresholds.

How it will work

Super funds will continue reporting members’ balances to the ATO, which will figure out who’s over the $3 million mark. If you are, your fund will tell the ATO your actual earnings (not paper gains). The ATO will then calculate how much extra tax you owe.

We don’t yet have the fine print on what exactly counts as “realised earnings,” but it’s likely to mean profits you’ve actually made, similar to how taxable income is treated now.

What’s still up in the air

While these updates make the system much fairer, there are still a few unanswered questions:

What it means for you

If your super balance is over $10 million, the proposed rules mean that a portion of your superannuation earnings could attract a higher tax rate of up to 40%.

For people with between $3 million and $10 million, the new system could also change how much tax applies to their super earnings, depending on how the final legislation defines “realised gains.”

But don’t rush. These rules aren’t law yet, and if you take your super out, it’s hard to put it back because of contribution limits. It’s best to wait for the final legislation and get professional advice before making any decision to withdraw benefits from super.