February 2025 Newsletter

Please click on the following link to view this month's newsletter for February 2025. We would like to highlight the following articles:-

Recovering from a natural disaster: what you need to know about tax

Natural disasters such as fires, floods, earthquakes, and cyclones can have significant financial and tax implications. Insurance payouts may be taxable depending on the asset involved:

Main residence & personal assets: Generally not taxable.
Rental properties & income-producing assets: If the insurance payout relates to a property used to produce income, it may have tax implications. For instance, if part of your home was used for a business, the insurance payout might affect your capital gains tax (CGT) calculations.
High-value assets & collectables: Special rules apply to personal assets over $10,000 and collectables over $500. If the payout exceeds the original cost, it might be taxable.
Business assets: Insurance payouts for business-related damages (like equipment and inventory) are typically taxable and must be reported as income.

For those rebuilding or selling after a disaster:

CGT exemption: If you rebuild after a disaster, you will need to re-establish the property as your home to access the main residence exemption from CGT before selling. This exemption also applies if you sell the land without rebuilding, provided the destroyed property was your main residence before the disaster.
Engaging contractors: Ensure contractors are licensed by verifying their ABN and obtaining written agreements.

Government disaster assistance payments, such as the Disaster Recovery Allowance (DRA), generally remain non-taxable.

How tax works in Australia’s superannuation system

Australia’s superannuation system is structured to provide financial security in retirement, with taxation applied at three key points: contributions, investment earnings, and withdrawals. This framework follows a TTE (taxed, taxed, exempt) model, where contributions and investment earnings are taxed at concessional rates, while withdrawals in retirement are generally tax-free.

Contributions, including those made by employers under the super guarantee (SG) and voluntary concessional contributions, are taxed at a concessional rate of 15%.
Investment earnings within the fund during the accumulation phase are also taxed at 15%,
Withdrawals made during retirement are generally tax-free. This is intended to enhance the appeal of building super savings over your working life, ensuring you have a tax-effective income stream in retirement.

This approach differs from the EET (exempt, exempt, taxed) system used in many other countries, where contributions and earnings are tax-free, but withdrawals are taxed. The Australian model was designed to generate government revenue sooner, with the concessional tax rates on superannuation contributions and earnings intended to encourage people to save consistently throughout their working life.

Please do not hesitate to contact us if you have any queries in relation to your tax and accounting matters.