The 2024-25 Australian Federal Budget, presented by Treasurer Jim Chalmers, introduces several significant tax measures aimed at supporting economic growth, easing financial pressures on households and businesses, and ensuring greater tax compliance.

We explore the key taxation changes from the budget and their implications.

Personal Income Tax Measures

One of the main components of the 2024-25 Budget is the implementation of stage three tax cuts, which have already been enacted into law. These changes, effective from 1 July 2024, are designed to reduce the tax burden on individuals, particularly middle-income earners.

Revised Tax Rates and Thresholds: The 2024-25 Budget confirms the revised tax rates for resident individuals, with the 32.5% tax rate lowered to 30% and the income threshold for this rate increased from $120,000 to $135,000. Similarly, the tax-free threshold remains at $18,200, while the 19% tax rate applies to income between $18,201 and $45,000, reduced from 19% to 16%. The highest tax rate of 45% now applies to income over $190,000, up from the current amount of $180,000.

Medicare Levy Adjustments: The Government has increased the Medicare levy low-income thresholds for singles, families, seniors, and pensioners. The threshold for individuals is now $26,000, while families not eligible for the Senior and Pensioner Tax Offset (SAPTO) have a threshold of $43,846, with an additional $4,027 for each dependent child or student.

Small Business Tax Measures

Small businesses are a focal point in this budget, receiving targeted support to foster growth and innovation.

Instant Asset Write-Off: The threshold for the instant asset write-off has been temporarily increased to $20,000 for the 2025 financial year up from the $1,000 limit originally in place. Small businesses with an aggregated annual turnover of less than $10 million can immediately deduct the cost of eligible assets costing less than $20,000.

Retention of BAS Refunds: To combat fraud, the Australian Taxation Office (ATO) will have an extended period (from 14 days to 30 days) to notify taxpayers if it intends to retain a Business Activity Statement (BAS) refund for further investigation. This change aims to enhance the ATO's ability to detect and prevent fraudulent claims while ensuring that legitimate refunds are processed efficiently.

Foreign Resident Taxation

The budget introduces measures to ensure that foreign residents contribute fairly to the Australian tax system.

Capital Gains Tax (CGT) Regime: From 1 July 2025, the CGT regime for foreign residents will be strengthened. This includes clarifying the types of assets subject to CGT and implementing a 365-day testing period for the principal asset test. Additionally, foreign residents disposing of shares or other interests exceeding $20 million must notify the ATO before the transaction.

Superannuation Reforms

The budget also addresses superannuation, focusing on enhancing retirement savings and compliance.

Superannuation on Paid Parental Leave: From 1 July 2025, superannuation will be paid on Commonwealth government-funded Paid Parental Leave. Eligible parents will receive an additional payment based on the Superannuation Guarantee rate of 12% of their Paid Parental Leave payments, boosting retirement savings for new parents.

Unpaid Superannuation Entitlements: The Government will pursue unpaid superannuation entitlements from employers in liquidation or bankruptcy through the recalibrated Fair Entitlements Guarantee Recovery Program, effective from 1 July 2024.

Compliance and Anti-Avoidance Measures

To strengthen tax compliance and tackle avoidance, the budget includes several key initiatives:

Extension of ATO Compliance Programs: The Personal Income Tax Compliance Program, Shadow Economy Compliance Program, and Tax Avoidance Taskforce will be extended. These programs are essential for addressing non-compliance, reducing shadow economy activities, and targeting tax avoidance by multinationals, large businesses, and high-wealth individuals.

Expansion of Part IVA: The scope of Part IVA, the general anti-avoidance rule, will be expanded to include schemes that reduce tax by accessing lower withholding tax rates and those that achieve an Australian tax benefit by reducing foreign income tax.

If you would like to discuss any of these budget measures further, please do not hesitate to contact us.