Each year, the Australian Taxation Office uses its major policy forums to signal where its compliance focus is heading. The message coming through most clearly this year is that the period of leniency following COVID has ended, and scrutiny of complex wealth structures is intensifying.

For clients who use trusts, companies or partnerships as part of their financial arrangements, this shift is important to understand. While many strategies remain legitimate, the ATO is increasingly focused on how they are implemented in practice, rather than how they are described on paper.

A broader compliance reset

During the pandemic, the tax system operated with a degree of flexibility as authorities prioritised economic stability. In recent years, however, the ATO has moved decisively back into enforcement mode. This mirrors past cycles where post-crisis support has been followed by tighter compliance once economic conditions normalise.

The current approach reflects a view that certain behaviours expanded during the lenient period and are now being reassessed. The ATO has indicated that it does not expect a softer stance to return in the near term.

Trusts under the microscope

Discretionary trusts remain a central focus. The ATO has signalled concern about errors, misunderstandings and aggressive interpretations in trust structures, particularly where income or assets move across generations.

One key area is family trust elections. Many elections were made decades ago and can interact poorly with changes in family circumstances, succession plans or trust control. Errors can trigger punitive tax outcomes, even where there was no intention to avoid tax.

To encourage correction, the ATO has offered reduced interest for groups that voluntarily disclose historic issues within a defined timeframe. This reinforces the importance of reviewing older trust documentation rather than assuming it remains fit for purpose.

Holiday homes and deductions

Another emerging area of focus is the use of holiday homes. New guidance indicates that deductions may be denied where properties are predominantly used for private purposes and are not genuinely available for rent throughout the year, including peak holiday periods.

This reflects a broader attempt to close the gap between private enjoyment and investment treatment. Owners of second properties should be particularly cautious about claiming ongoing expenses where rental activity is limited or selective.

Income splitting arrangements

Income splitting through trusts, companies and partnerships has also returned to the spotlight. The ATO is paying close attention to arrangements where income generated from personal effort is diverted to lower-tax family members or related entities.

While business income can often be distributed flexibly, income that arises from personal services is subject to stricter rules. The ATO has clarified that it will challenge arrangements where the economic reality does not align with how income is reported.

This applies across a wide range of professions and small businesses, not just high-profile corporate partners.

Increased attention on professional firm structures

The ATO continues to examine arrangements used by partners of professional firms where only a portion of total earnings is declared personally. Where effective tax rates across family groups appear unusually low, or where personal remuneration is viewed as insufficient, the likelihood of review increases.

Importantly, grace periods that allowed time to adjust these structures have now expired, and updated views are expected to be reflected in current and future tax returns.

Philanthropy and charitable vehicles

Charitable structures are also under review. While philanthropy remains encouraged, the ATO has made it clear that tax deductions can be denied where arrangements provide material benefits to related parties, whether directly or indirectly.

This includes situations where funds circulate back to family members, related businesses or associated entities in ways that erode the substance of a genuine gift.

Trust entitlements and unpaid distributions

A major legal decision is expected in 2026 that could reshape how unpaid trust entitlements are treated for tax purposes. The outcome may affect small business owners as well as larger private groups.

Regardless of the result, the ATO has indicated that it may seek legislative change if it believes the law does not adequately address perceived risks.

Franking credits and holding periods

The ATO is also examining whether trusts and newly incorporated companies meet the requirements to claim franking credits, particularly the 45-day holding period rule. This area is complex and technical, and disputes often arise from differing interpretations of the legislation rather than deliberate non-compliance.

More change ahead

Taken together, these developments point to a tax environment where interpretation risk is rising. The ATO is using data from large private groups to identify common errors and applying those insights more broadly across the taxpayer base.

This means issues once associated only with very high net worth families are increasingly relevant to smaller business owners and professionals using standard trust and company structures.

At the same time, proposed changes to superannuation taxation for high balances and a renewed policy debate around capital gains tax suggest that the overall direction of travel is toward tighter rules for accumulated wealth.

What this means in practice

The key takeaway is not that common structures are no longer viable, but that they must be actively reviewed and carefully maintained. Strategies that rely on outdated assumptions, informal arrangements or aggressive interpretations carry increasing risk.

Regular reviews of trust deeds, distribution practices, income characterisation and documentation are becoming essential, not optional. Proactive planning is far preferable to reacting once the ATO has raised concerns.

If you have any questions about anything discussed in this article, please contact Cadre Capital Partners.