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On Tuesday, May 14, 2024, Treasurer Jim Chalmers delivered the 2024-25 Federal Budget, which aims to balance relief with restraint. It includes power bill rebates for households and small businesses, cheaper medicines, and tax cuts to address the cost-of-living crisis without worsening inflation. Small businesses benefit from continued instant asset write-offs for purchases under $20,000. The Future Made in Australia package supports various businesses. Additionally, the ATO’s review, audit, and taskforce programs will receive increased funding to enhance tax collection, targeting individuals overclaiming deductions and multinationals with complex affairs.
Key takeaways for INDIVIDUALS
13.6 million Australian taxpayers will benefit from permanent tax cuts, including lower tax rates and higher thresholds for the top two brackets.
Starting July 1, 2023, the Medicare levy low-income thresholds will rise for singles, families, seniors, and pensioners. The new thresholds are as follows:
| 2022-2023 | 2023-2024 |
Singles | $24,276 | $26,000 |
Families | $40,939 | $43,846 |
Single seniors and pensioners | $38,365 | $41,089 |
Family seniors and pensioners | $53,406 | $57,198 |
For each dependent child or student, the family income thresholds will increase by an additional $4,027, up from the previous amount of $3,760.
For the 2024-25 financial year, new personal tax rates and thresholds will be implemented.
From July 1, 2024, 13.6 million Australian taxpayers will receive permanent tax cuts.
Tax Rate |
|
19% | Reduced to 16% |
32.5% | Reduced to 30% |
37% | Increased from $120,000 to $135,000 |
45% | Increased from $180,000 to $190,000 |
The tax cuts for the 2024/25 financial year represent a shift from the previously legislated Stage 3 of the Personal Income Tax Plan (PITP). The original Stage 3 tax cuts, now superseded, had eliminated the 37% tax rate entirely and addressed bracket creep by raising the threshold for the top marginal tax rate to $200,000.
Changes to Student Loans
The Higher Education Loan Program (HELP) was a measure announced ahead of the Budget that aims to assist those with student debts. Effective June 1, 2023, the method for indexing HELP loans will change. Indexation will now use the lower of the Consumer Price Index (CPI) or the Wage Price Index, rather than solely the CPI.
Compulsory repayments on HELP loans are made through the tax system once repayment income exceeds the minimum threshold. The Australian Taxation Office (ATO) will automatically adjust any outstanding HELP loan balances indexed on June 1, 2023, and/or June 1, 2024, applying any resulting credit to the individual’s HELP account.
Key takeaways for SMALL TO MEDIUM BUSINESSES
$325 Energy Rebate for Eligible Small Businesses
$20,000 Instant Asset Write-Off Extension
The Government has extended the $20,000 instant asset write-off for small businesses until 30 June 2025. Small businesses with an annual turnover of less than $10 million can immediately deduct the cost of eligible assets under $20,000, provided these assets are first used or ready for use by the deadline. Assets exceeding $20,000 can be added to the small business pool and depreciated at 15% in the first year and 30% thereafter. Additionally, the suspension of the five-year lock-out rule for businesses opting out of simplified depreciation rules is extended to the same date.
While a similar measure was proposed in the 2023-24 Federal Budget for the financial year ending on June 30, 2024, it is still under parliamentary review and not yet legislated. Small and medium-sized businesses should be cautious regarding asset acquisitions due to potential changes in the write-off limits.
Small Business Energy Rebate
To alleviate cash flow challenges and cost of living pressures, the Government will expand the Energy Bill Relief Fund, providing $3.5 billion in energy bill relief for Australian households and eligible small businesses. Starting 1 July 2024, 1 million eligible small businesses will receive a $325 electricity bill rebate, and 10 million households will receive a $300 rebate.
ABN System Changes
In the 2019-20 Federal Budget, the Government proposed measures to enhance the ABN system to combat black economy activities. These measures required ABN holders to lodge income tax returns and annually confirm their Australian Business Register details. The Government has now decided to abandon these measures, as enhanced administrative processes by the ATO are addressing integrity issues.
Debts on Hold
Previously, the ATO placed certain debts ‘on hold’ as ‘uneconomical to pursue,’ not offsetting taxpayer refunds against these debts for low-income taxpayers. However, existing laws do not permit such discretion. The Government will amend the law to allow the Commissioner of Taxation to use discretion regarding taxpayer refunds for debts placed on hold before 1 January 2017. This applies to individuals, small businesses, and not-for-profits. Details on when and how this discretion will be used, and the turnover threshold for eligible small businesses, were not provided.
Small Business Helpline
The Government will allocate $10.8 million over two years from 2024-25 to extend the Small Business Debt Helpline and the NewAccess for Small Business Owners program. These services will continue to offer financial counselling and mental health support for small business owners.
Key takeaways for BUSINESS
Key Budget Measures Announced: Effective July 1, 2025, a wider range of assets sold by foreign residents will now be subject to Capital Gains Tax (CGT).
Foreign residents disposing of shares and other membership interests valued at over $20 million must notify the Australian Taxation Office (ATO) before finalizing the transaction.
Changes to Foreign Resident CGT Rules
Foreign residents or temporary residents for tax purposes can generally disregard any capital gains or losses in their Australian tax calculations unless these arise from a direct or indirect interest in Australian real property. An indirect interest is defined as holding a significant stake (10% or more) in an entity primarily deriving its value from Australian real property.
Amendments effective July 1, 2025, include:
- Expanding the types of assets subject to CGT for foreign residents.
- Modifying the principal asset test to a 365-day testing period.
- Requiring foreign residents selling shares or membership interests worth over $20 million to notify the ATO before the transaction.
These changes aim to align Australian laws with OECD standards and may include anything fixed to the land, consistent with landholder duty positions. The Government will consult on these proposed measures.
Denial of Deductions for Intangible Related Payments
The 2023-24 Federal Budget announced limits on deductibility for payments made offshore for intangibles if they are subject to low or no tax in the recipient's jurisdiction. With the Government’s commitment to the OECD's global minimum tax rules (Pillar Two), ensuring an effective tax rate of at least 15% globally, these initial rules from the 2023-24 Budget will be discontinued.
Expansion of the General Anti-Avoidance Rule
The Government is enhancing tax system integrity by broadening the general anti-avoidance rule (Part IVA of the Income Tax Assessment Act 1936). This rule will now cover schemes reducing tax via lower withholding rates on income paid to foreign residents and those achieving Australian tax benefits despite primarily reducing foreign taxes. Initially set for July 1, 2024, the measure will now be effective upon the amending law's Royal Assent, with no grandfathering provision.
Key takeaways for SUPERANNUATION
Changes to Superannuation from July 2024 and 2025
Additional Tax on Large Superannuation Balances
Starting 1 July 2025, there will be an extra 15% tax on the earnings from superannuation balances over $3 million. This applies to both realized and unrealized gains. This policy, first announced by the Treasurer on 28 February 2023, saw draft legislation introduced on 30 November 2023. Following a review by the Senate Economics Legislation Committee, a report on 10 May 2024 recommended the bill pass without changes. Balances below $3 million will continue to be taxed at the existing rates of 15% or less.
Increment in Superannuation Guarantee
The Superannuation Guarantee rate will increase as planned, from 11% to 11.5%, effective 1 July 2024. Employers should update their systems to reflect this change. On 1 July 2025, the rate will further rise to 12%.
Superannuation on Paid Parental Leave
From 1 July 2025, the Superannuation Guarantee of 12% will apply to Commonwealth government-funded Paid Parental Leave. This initiative aims to normalize parental leave and mitigate its impact on retirement savings.
Payday Superannuation Implementation
The Government plans to implement payday superannuation from 1 July 2026. Announced by the Treasurer on 2 May 2023, this measure will require employers to pay superannuation concurrently with salary and wages. Though not yet law, funding is allocated within the Government's Workplace Relations agenda to assist workplaces in adopting this system.
Increased Contribution Caps
Effective 1 July 2024, the general concessional contributions cap will rise from $27,500 to $30,000, and the non-concessional contributions cap will increase from $110,000 to $120,000. Eligible individuals can also utilize the bring-forward cap up to $360,000. It is essential for individuals to meet the required standards and tests to avoid unnecessary taxes or penalties when making superannuation contributions.
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