The Government has handed down its 2024/25 Federal Budget with a small surplus, for the second year in a row, and a range of cost of living measures. Limited tax measures were announced, aimed mainly at international tax issues.

Cost of Living Measures

In addressing the issue of cost of living, the Government has focused on the previously legislated Stage 3 tax cuts (refer Tax Bulletin – January 2024). These tax cuts apply from 1 July 2024 and will be reflected in reduced PAYG withholding for employees from this date.

In addition, the Government is providing a $300 energy rebate to all Australian households from 1 July 2024. This is in addition to the rebate for small businesses.

The Government is also limiting the indexation of the Higher Education Loan Program (‘HELP’), and other student loans, to the lower of the Consumer Price Index or the Wage Price Index. This is to have retrospective effect to 1 June 2023, where it will decrease indexation from 7.1% to 3.2%, and is estimated to reduce outstanding loans by around $3 billion.

Small Business Measures

Small Business Instant Asset Write-off (IAWO)

The Government will extend the $20,000 threshold for the small business IAWO for another 12 months until 30 June 2025.

Small businesses, with aggregated annual turnover of less than $10 million, will continue to be able to immediately deduct the full cost of eligible assets costing less than $20,000 first used or installed ready for use by 30 June 2025. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter. The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended until 30 June 2025.

The announcement refers to a $20,000 threshold and $10 million turnover, which is based on the legislation that the Government introduced to increase the IAWO threshold for the 2024 income year. However, the Senate passed amendments to this legislation to increase the threshold to $30,000, and extend the IAWO to medium businesses with an aggregated turnover threshold of $50 million. If these changes are accepted by the lower house, it is unclear whether it is these increased thresholds that will be extended to the 2025 income year.

Energy bill relief fund

The Government will provide $3.5 billion over three years to extend and expand the Energy Bill Relief Fund to provide a $325 rebate to eligible small businesses on 2024/25 bills.

Eligible business are those which meet their state and territory definition of electricity ‘small customer', based on their annual electricity consumption threshold. The annual threshold for Victoria is 40 MWh.

 Supporting small businesses

The Government will provide additional funding for a number of measures to support small businesses, including issues related to ensuring business are paid on time; financial counselling and mental health support; the Franchising Code of Conduct; and supporting unrepresented small businesses to navigate business-to-business disputes.

International Tax Measures

Foreign Resident CGT regime  

The Government has announced changes to the foreign resident capital gains tax (‘CGT’) regime. Foreign residents are subject to CGT on Taxable Australia Property (‘TAP’). TAP broadly includes Australian real property and ‘non-portfolio’ membership interests in entities that hold Australian real property (based on a principal assets test at the time of the sale of the membership interests).

The announced changes will:

• Clarify and broaden the types of assets on which foreign residents are subject to CGT. No further detail has been released on this point.
• Amend the ‘point-in-time’ principal asset test to a 365-day testing period. This appears to mean that an interest in an entity could be subject to CGT if it disposed of real property prior to the sale of the membership interests.
• Require foreign residents disposing of membership interests exceeding $20 million in value to notify the ATO, prior to the transaction being executed. This is aimed at improving oversight of the foreign CGT withholding rules, where a vendor self-assesses their sale is not TAP.

The amendments will apply to CGT events commencing on or after 1 July 2025 and are expected to improve the Budget by $592 million over the 5 years.

Other International Measures

The Government is discontinuing the measure announced in the 2022/23 October Budget, aimed at denying deductions for payments relating to intangibles held in low- or no-tax jurisdictions. This will instead be addressed through the Global Minimum Tax and Domestic Minimum Tax measures.

In addition, a new penalty is being introduced for multinationals that attempt to avoid Australian royalty withholding tax by mischaracterising or undervaluing royalty payments. This penalty will apply from 1 July 2025 to taxpayers who are part of a group with more than $1 billion in global turnover.

Tax Integrity Measures

Expansion of Part IVA

The start date for the 2023/24 Budget measure to expand the scope of the general anti-avoidance rule for income tax (‘Part IVA’) has been extended to 1 July 2025. This measure will ensure that Part IVA can apply to schemes that: 

• reduce Australian tax by accessing a lower withholding tax rate on income paid to foreign residents; or 
• achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax.  

Superannuation measures

The Budget provides for limited superannuation measures. New measures include:

• Payment of superannuation on Commonwealth funded paid parental leave for births and adoptions after 1 July 2025; and 
• Recalibration of the Fair Entitlements Guarantee Recovery Program from 1 July 2024. This program provides funding for liquidators and trustees in bankruptcy to pursue unpaid superannuation entitlements.

ATO Compliance Funding & Other Measures

On-hold tax debts

The Government will provide the Commissioner of Taxation a discretion to not use a taxpayer’s refund to offset old tax debts, where the Commissioner had put that old tax debt on hold prior to 1 January 2017.

The changing treatment of on-hold tax debts has been the subject of recent concern. The Commissioner has previously applied an administrative approach to the non-recovery of on-hold tax debts. However, the Australian Government Solicitor has recently advised that the ATO have no discretion and therefore must not continue this practice. Accordingly, this announcement will address these recent developments and allow the Commissioner the relevant discretion. This discretion will apply to individuals, small businesses and not-for-profits, and will maintain the Commissioner’s current administrative approach.

Personal Income Tax Compliance

The Government will provide funding to the ATO to extend the Personal Income Tax Compliance Program to 1 July 2027. The key focus areas for non-compliance include overclaiming of deductions; incorrect reporting of income and inappropriate tax agent influence, as well as emerging risks to the tax system such as deductions relating to short-term rental properties.

This measure is estimated to result in a net increase in receipts of $180 million over the 5 years.

Counter fraud strategy

The Government will provide funding over four years from 1 July 2024 to the ATO to strengthen its ability to detect, prevent and mitigate fraud against the tax and superannuation systems. The Government will also extend the time the ATO has to notify a taxpayer if it intends to retain a BAS refund for further investigation from 14 days to 30 days. This will strengthen the ATO’s ability to combat fraud during peak fraud events. The ATO will continue to pay interest on any legitimate refunds retained for over 14 days.

This will have effect from the start of the first financial year after legislation is passed, and is estimated to increase receipts by $302m over the 5 years.

Shadow economy compliance program

The Government will extend the ATO Shadow Economy Compliance Program for two years from 1 July 2026. This measure is estimated to increase receipts by $1.9 billion over the 5 years.

Tax avoidance taskforce

Government will extend the Tax Avoidance Taskforce for two years from 1 July 2026 to fund the ATO to pursue key tax avoidance risks, with a focus on multinationals, large public and private businesses, and high-wealth individuals. This measure is estimated to increase receipts by $2.4 billion over the 5 years.

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The information contained in this bulletin is intended to provide general information only and is not intended to serve as tax advice. Specific advice should always be sought regarding a taxpayers’ particular circumstances. Please contact MC Tax Advisors if you would like assistance with the issues identified in this bulletin.