Federal Budget 2024-25 — Taxation measures

On 14 May 2024, Treasurer Jim Chalmers handed down the Federal Budget 2024-25 announcing significant tax measures.

A key focus of the Budget is the provision of cost-of-living assistance, with personal income tax cuts commencing on 1 July 2024 being a key measure. While small businesses are offered some relief with the extension of the $20,000 instant asset write-off and energy bill rebates, there is no significant, meaningful tax reform for small and medium-sized enterprises.

The Budget increases funding to the Australian Taxation Office (ATO) to strengthen its tax compliance taskforces, including the detection, prevention and mitigation of fraud against the tax and superannuation systems. As part of this measure, the ATO’s mandatory notification period to retain a business activity statement (BAS) refund for further investigation will be extended from 14 days to 30 days, providing the ATO with additional time to take these steps.

The Budget does not indicate whether the Government will proceed with previously-announced reforms, including reducing the complexity of Division 7A of the Income Tax Assessment Act 1936, and the simplification of the tax residency rules for corporations and individuals.

Detailed below are the key tax announcements in the Federal Budget 2024-25.

Personal income tax

Increasing the Medicare levy low-income thresholds

The Government has increased the Medicare levy low-income thresholds for singles, families, seniors and pensioners with effect from 1 July 2023. This reform ensures that low-income individuals continue to be exempt from paying the Medicare levy or pay a reduced rate.

The thresholds have been increased as follows:

• singles: from $24,276 to $26,000;
• families: from $40,939 to $43,846;
• single seniors and pensioners: from $38,365 to $41,089; and
• family threshold for seniors and pensioners: from $53,406 to $57,198.

The family income thresholds will increase by $4,027 for each dependent child, from $3,760.

Cost of living tax cuts

The Government has legislated permanent tax cuts for Australian taxpayers from 1 July 2024, under which:

• the 19% tax rate will be reduced to 16%;
• the 32.5% tax rate will be reduced to 30%;
• the income threshold above which the 37% rate applies will be increased from $120,000 to $135,000; and
• the income threshold above which the 45% rate applies will be increased from $180,000 to $190,000.

Government-funded paid parental leave — enhancement

The Government will provide funding of $1.1 billion over four years from 2024-25 (and $0.6 billion per year ongoing) to pay superannuation on Commonwealth Government-funded paid parental leave (PPL) for births and adoptions on or after 1 July 2025.

Eligible parents will receive an additional payment based on the superannuation guarantee (12% of their PPL payments), as a contribution to their superannuation fund.

Energy Bill Relief Fund

The Government will provide $3.5 billion over three years from 2023-24 to expand the Energy Bill Relief Fund to provide a $300 rebate to all Australian households, and a $325 rebate to eligible small businesses on 2024-25 bills.

Small business support

$20,000 instant asset write-off

The Government will extend the $20,000 instant asset write-off by 12 months until 30 June 2025.

Small businesses, with an aggregated annual turnover of less than $10 million, can continue to immediately deduct the full cost of eligible assets which cost less than $20,000 that are first used, or installed ready for use, by 30 June 2025. The asset threshold applies on a per asset basis so small businesses can instantly write off multiple assets.

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.

Foreign residents

Foreign resident capital gains tax regime

The Government will amend the foreign resident capital gains tax (CGT) regime to provide greater certainty regarding the operation of these provisions. The amendments will:

• clarify and broaden the types of assets on which foreign residents will be subject to CGT;
• amend the point-in-time principal asset test to a 365-day testing period; and
• require foreign residents disposing of shares and other membership interests exceeding $20 million in value to notify the ATO, prior to the transaction being executed.

The measures will apply to CGT events commencing on or after 1 July 2025.

The new ATO notification process is intended to improve oversight and compliance with the foreign resident CGT regime, where a vendor self-assesses that their sale is not taxable real property.

Currently, a vendor disposing of shares or other membership interests can simply provide the purchaser with a vendor declaration, confirming that withholding is not required. The new measures will significantly change this regime, and place a positive obligation on vendors to make requisite notifications to the ATO. It remains to be seen whether the ATO will then issue a similar type of ‘clearance certificate’ to vendors of share or unit sales, upon being satisfied that the underlying value of the company or trust is not principally derived (i.e. over 50%) from Australian real property.

The principal asset test is used to determine whether the market value of the assets of the relevant company or trust is principally derived Australian real property, such that the shares or units would constitute an ‘indirect Australian real property interest’ and be subject to the regime. As noted above, the Government has announced the move from the point-in-time principal asset test to a 365-day testing period. Given that testing will occur throughout the whole year, it will be more difficult for taxpayers to circumvent CGT withholding regime by, for example, failing the principal asset test at a point in time by inappropriately allocating significant market value to non-Australian real property assets. As the test will now be applied for the full 365-day testing period, this will increase the likelihood that the test will be satisfied at some point during the testing period, bringing the transaction within the regime.

Strengthening tax compliance

Extending the Personal Income Tax Compliance Program

The Government will extend the ATO Personal Income Tax Compliance Program for one year from 1 July 2027. This extension will enable the ATO to continue its compliance activities in key areas of non-compliance, including the overclaiming of deductions, incorrect reporting of income, and inappropriate tax agent influence. This measure is intended to also enable the ATO to continue its focus on emerging risks to the tax system, with deductions relating to short-term rental properties being specified as such a risk.

ATO counter-fraud strategy

The Government will provide $187 million 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. As part of its strategy, the ATO will establish a new compliance taskforce to recover lost revenue, and to intervene when attempts to obtain fraudulent refunds are made.

Further, as discussed in our initial observations, the Government will extend the time in which the ATO must notify taxpayers that it intends to retain BAS refunds for further investigation. The ATO’s mandatory notification period for BAS refund retention will be increased from 14 days to 30 days.

Shadow Economy Compliance Program and the Tax Avoidance Taskforce

The Government will also extend:

• the ATO’s Shadow Economy Compliance Program for two years from 1 July 2026; and
• the ATO’s Tax Avoidance Taskforce for two years from 1 July 2026, with a focus on multinationals, large public and private businesses, and high-wealth individuals.

Other tax announcements

The Government also announced the following:

• The tax law will be amended to provide the Commissioner of Taxation (Commissioner) with 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. This discretion will apply to individuals, small businesses and not-for-profits. This is positive news for impacted taxpayers, and we anticipate the ATO will issue administrative guidance as to how this discretion will be exercised.
• The Government will provide $1 billion over five years from 2023-24 to establish and support the new Administrative Review Tribunal, which replaces the Administrative Appeals Tribunal.

How can Rigby Cooke Lawyers help?

If you would like to discuss the announced tax measures in greater detail, please contact our Tax team.

_Reference:

^{Budget Measures: Budget Paper No.2.}