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1.
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Bill to strengthen tax practitioner regulation and foreign resident CGT rules introduced
Schedule 1 to the Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and Other Measures) Bill 2026 (the Bill) will amend the Tax Agent Services Act 2009 (TASA) to expand the Tax Practitioners Board's (TPB) regulatory and enforcement powers.
The amendments introduce new criminal offences for unregistered entities that provide tax agent or BAS services for a fee, advertise such services while unregistered, or falsely represent that they are registered. Increased civil penalties will also apply for certain misconduct, including breaches of the Code of Professional Conduct and false or misleading statements made by unregistered preparers. The Bill further expands the TPB's enforcement powers by introducing infringement notices and enforceable undertakings, broadening its suspension and termination powers, and strengthening its ability to pursue civil penalty outcomes through the Federal Court.
Strengthening the foreign resident CGT regime
Schedule 2 will amend Division 855 of the ITAA 1997, the International Tax Agreements Act 1953 and Schedule 1 to the Taxation Administration Act 1953 to broaden and clarify the scope of Australia's foreign resident CGT regime. This includes widening what is considered "taxable Australian real property" and modifying the principal asset test so that it can be satisfied at any time during the preceding 365 days, rather than only at the time of the CGT event.
The Bill also introduces new notification requirements for certain high-value transactions and amendments relating to declarations used under the withholding regime, intended to keep gains connected to Australian land and natural resources within the Australian tax base and improve consistency in the regime's operation. The amendments follow the government's 2024–25 Budget commitment to strengthen the foreign resident CGT regime and a related 2026–27 Budget announcement regarding the concept of "real property".
All measures will commence at the start of the first day of the first quarter following Royal Assent. The Bill signals a significant tightening of both tax practitioner accountability and the foreign resident CGT regime, and practitioners advising foreign investors or registered tax agents should monitor its progress through parliament.
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ParlInfo - Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and Other Measures) Bill 2026
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2.
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Ruling on granting relief from the effects of a failure to substantiate expenses amended
The ATO has updated its ruling on legislative provisions that may grant relief from the effects of a failure to substantiate expenses.
Taxation Ruling TR 97/24 explains the operation of Subdivision 900-H of the ITAA 1997, as well as other provisions that may grant relief from the effects of a failure to substantiate expenses. The ruling has been amended to include the ATO's approach to people experiencing vulnerability, and has also been updated for currency and to comply with current publishing requirements.
The Addendum applies both before and after its date of issue.
The update is a useful reminder for advisers that the Commissioner retains discretion to grant relief from strict substantiation requirements in appropriate cases, and that this discretion may be exercised having specific regard to a taxpayer's personal circumstances, including vulnerability.
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TR 97/24A2 - Addendum | Legal database
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3.
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Reckless real estate agent's deduction claims largely rejected due to poor substantiation
A real estate agent who claimed deductions of $143,788 for work-related expenses has had limited success before the ART in respect of her claims for car expenses, clothing expenses (which included the cost of a Playboy bunny costume) and "other" work-related expenses.
Facts
The taxpayer was employed as a real estate agent. During the 2022–23 income year, she derived gross income of $300,704, against which she claimed deductions totalling $143,788, comprising car expenses, clothing expenses, other work-related expenses and gifts. Following an audit, the Commissioner disallowed the majority of the deductions and issued an administrative penalty at a 50% base rate for recklessness, with a 20% uplift reflecting a prior audit finding for the 2020–21 year (later remitted).
Decision
The ART held that the taxpayer could not substantiate her estimate of business kilometres under s 28-90(5) of the ITAA 1997, confining her to the cents per kilometre method. On clothing, the Tribunal accepted that embroidered work garments could in principle be deductible, but there was no evidence embroidery had occurred (the logos appeared to be adhesive labels), so the claim failed.
Tools and three substantiated advertising amounts were allowed, but property presentation items, hedging expenditure and unsubstantiated Cairns and Fraser Island travel were disallowed for lack of evidence. Home office running expenses and consumables were allowed to the extent substantiated, but occupancy expenses were denied on the basis that a home study remains an integral part of the home regardless of use. A promotions expenditure claim of $4,499, consistent with gifts typically given by a real estate agent, was allowed.
On penalties, although the increased allowances reduced the shortfall amount, the ART found the taxpayer's conduct fell significantly short of the standard expected of a reasonable person, given she continued to claim substantially the same deductions previously denied on audit and did not retain the necessary substantiating material. The imposition of penalties for recklessness under s 284-85 of Schedule 1 to the Taxation Administration Act 1953 was upheld.
The decision is a timely reminder that substantiation failures, particularly where a taxpayer has previously been audited on the same issues, will support a finding of recklessness rather than a mere failure to take reasonable care.
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Marsh and Commissioner of Taxation (Taxation and business) [2026] ARTA 1129 (22 June 2026)
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4.
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PAYG variation for foreign resident CGT withholding draft instrument released
The ATO has issued a draft instrument that varies the amount that an entity acquiring certain CGT assets from a relevant foreign resident must pay to the Commissioner under the foreign resident capital gains withholding regime.
Draft Taxation Administration (PAYG Withholding Variation for Foreign Resident Capital Gains Withholding Payments) Legislative Instrument 2026 repeals, consolidates and replaces 5 existing instruments, making it easier to identify whether a foreign resident capital gains withholding class variation applies. Other than for the variation relating to acquisitions from income tax exempt entities, the draft instrument has the same effect as the instruments it replaces; for that variation, the evidentiary requirements that must be satisfied have been amended.
Under s 14-235(5) in Schedule 1 to the Taxation Administration Act 1953, the Commissioner may vary classes of amounts payable under Subdivision 14-D by legislative instrument. The draft instrument consolidates variations previously dealt with separately for:
- acquisitions from multiple entities;
- deceased estates and legal personal representatives;
- marriage or relationship breakdowns;
- income tax exempt entities; and
- no residue after a mortgagee exercises a power of sale.
For acquisitions from multiple vendors, the amount payable to the Commissioner is varied where the CGT asset is acquired from more than one entity, at least one of which is a relevant foreign resident, and at least one (but not all) of the entities has provided a clearance certificate, non-IARPI declaration, residency declaration or notice of variation. The amount payable is calculated separately for each entity depending on whether such a document has been provided.
Separate variations reduce the amount payable to nil for acquisitions resulting from death (in the circumstances covered by ss 128-15, 128-25 or 128-50 of the ITAA 1997), acquisitions from specified income tax exempt entities, acquisitions arising from marriage or relationship breakdowns covered by s 126-5(1) of the ITAA 1997, and acquisitions resulting from a mortgagee's exercise of a power of sale where there is no residue from the sale proceeds.
Comments on the draft instrument are due by 14 August 2026. Practitioners advising on transactions involving foreign resident vendors should review the draft, particularly the revised evidentiary requirements for acquisitions from income tax exempt entities, before that deadline.
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LI 2026/D18 | Legal database
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5.
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TPB finalises guidance on responsible AI use for tax practitioners
The Tax Practitioners Board (TPB) has finalised guidance to help registered tax practitioners understand how their existing obligations under the Code of Professional Conduct (Code) apply when using artificial intelligence (AI) in their practice.
TPB(GS) 55/2026 The use of Artificial Intelligence and the Code of Professional Conduct explains how existing professional obligations under the Code apply when AI tools are used, highlighting key considerations including competence, reasonable care, confidentiality, record-keeping, professional judgement, and appropriate supervision and control.
When using AI while providing tax agent services, the guidance suggests practitioners consider factors including:
- the nature of the activity to be performed by the AI;
- how and where information is stored and how it is used by the AI;
- the expected use of, or extent of reliance on, the AI's output;
- the abilities and limitations of the AI and the purposes for which it is being used;
- the processes in place to review the AI's output before it is used in professional practice; and
- the appropriateness of the AI for the particular task, the data inputs used, and decisions made by the practitioner while using it.
The guidance statement reinforces that AI is a tool to support, not replace, professional judgement. Tax practitioners remain accountable for the services they provide, including reviewing AI-generated outputs and exercising professional judgement to ensure compliance with their professional obligations. The TPB released the document as an exposure draft on 24 March 2026 before finalising it in this form, and practitioners incorporating AI tools into their practice should assess their processes against the guidance.
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TPB releases guidance on responsible AI use for tax practitioners | Tax Practitioners Board
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6.
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Serious hardship; film producer released from GIC portion of income tax debt
The ART has released a semi-retired film producer/writer from the general interest charge (GIC) component of his income tax debt. It found that, although the taxpayer's personal circumstances did not warrant release from the entirety of his tax debt (which included a director penalty debt ineligible for release), his age and potential financial capacity meant that a partial release would enable him to address his remaining tax liabilities.
Facts
The taxpayer had been a producer and writer of films and documentaries. From 2005 to 2020, he lodged his income tax returns late, sometimes many years late and only after compliance action was taken, incurring administrative penalties for the 2005 to 2011 years in addition to his accumulating tax debt. His accumulated liabilities comprised an income tax debt of $128,581 for the 2005, 2006, 2008, 2010, 2011, 2012 and 2014 years (which included a significant GIC component), plus a separate director penalty liability relating to a company of which he had been a director and secretary.
In 2023 the taxpayer applied for release from both debts, which was refused on the basis that he had consistently failed to meet his tax obligations and that release would not relieve his financial hardship given his other, ineligible debts. He sought review by the ART after his objection was refused.
Evidence showed the taxpayer and his wife relied mainly on the age pension, supplemented by part-time work and family loans, with no superannuation, discontinued insurance policies, payment plans with utility companies, and no evidence of lifestyle assets or discretionary expenditure. The Commissioner argued there was no causal link between the income tax debt and any hardship, since the taxpayer's other debts were so significant that hardship would persist even with release, and that his poor compliance history weighed against the discretion being exercised.
Decision
The ART was satisfied the taxpayer was experiencing serious hardship, as his household expenses exceeded income with no discretionary expenditure capable of being modified, but found insufficient evidence that the tax debt itself was a significant impediment to future work as a producer.
The Tribunal considered that the taxpayer would suffer serious hardship if required to pay the full income tax debt, and that releasing part of the debt would give him a meaningful opportunity to address the remainder, having regard to his demonstrated capacity to do so. It was therefore appropriate to release him from the debt to the extent of the accrued GIC (slightly more than a third of the income tax debt), but not appropriate to release the entire debt, having regard to his previous lack of attention to his tax affairs.
The decision illustrates that a taxpayer's poor compliance history will not necessarily preclude relief on hardship grounds, but is likely to limit the ART's willingness to release more than the portion of debt attributable to accrued charges.
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Barron and Commissioner of Taxation (Taxation) [2026] ARTA 1330 (15 July 2026)
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7.
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Tax Ombudsman review highlights bias risk in ATO decision-making
The Tax Ombudsman has released a review into the ATO's controls for managing the risk of bias in decision-making and disclosures, finding that the ATO should do more to recognise bias as a risk and strengthen the controls designed to manage it.
The review examined whether the ATO's current controls promote unbiased decision-making in high-risk compliance and enforcement activities, support appropriate, proportionate and fact-based communications (including internal information sharing and external disclosures), and are operating effectively in practice.
The Ombudsman found that some ATO processes were not designed to counter bias and that staff were not explicitly prompted to consider the risk of bias in decision-making or to retain an open mind when considering the facts. The review also raised concerns that once a taxpayer is labelled as "bad" or "high risk", the ATO assumes ongoing wrongdoing and it can be difficult for the taxpayer to remove that label.
The review recommends that the ATO assure itself and the community that its controls against bias and prejudice in compliance and enforcement actions and decision-making are working effectively, and develop and implement a plan to address identified gaps in bias controls, including strengthening explicit bias checks, training, assurance guidance, data and monitoring, and the language used in disclosures.
ATO response
The ATO accepted both recommendations, stating this would "reinforce community confidence in the integrity of our decisions and actions". The ATO has committed to commencing an internal review of existing controls followed by a phased, risk-based approach to provide assurance that controls relevant to managing bias risk are operating effectively, and to developing and implementing a plan to address any identified gaps, which may include guidance, training, assurance activities, monitoring and continuous improvement of decision-making practices.
The review is a reminder that perceptions of bias in ATO compliance and enforcement decisions remain a live concern, and taxpayers subject to adverse ATO characterisations may wish to consider whether the review's findings are relevant to their own dealings with the Commissioner.
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Bias-isnt-always-seen_Review-Report.pdf
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