Federal Budget 2025-26 — Taxation measures

On 25 March 2025, Treasurer Jim Chalmers handed down the Federal Budget 2025-26 announcing a budget deficit ahead of the upcoming federal election.

A key focus of the Budget is to provide individuals with cost-of-living support, and to enable Australians to purchase housing by imposing restrictions on foreign purchasers. The measures contained in the Budget are more focused at addressing such immediate priorities, and do not introduce more significant tax reform. For example, the Budget does not address much-needed reform in the following areas:

• the previously announced amendments to improve the integrity and operation of Division 7A;
• reform of the small business capital gains tax (CGT) concessions, including amending the definition of ‘CGT small business entity’ by raising the $2 million aggregated turnover test, which has not increased since 2007, some 18 years ago; meanwhile, the broader ‘small business entity’ threshold has increased to $10 million; and
• modernising the taxation of trusts.

Detailed below are the key tax announcements in the 2025-26 Federal Budget.

Personal income tax

Increasing the Medicare levy low-income thresholds

The Government will increase the Medicare levy low‑income thresholds for singles, families, and seniors and pensioners from 1 July 2024 as follows:

• the threshold for singles will increase from $26,000 to $27,222;
• the family threshold will increase from $43,846 to $45,907;
• the threshold for single seniors and pensioners will increase from $41,089 to $43,020;
• the family threshold for seniors and pensioners will increase from $57,198 to $59,886.

Additionally, the family income thresholds will increase by $4,216 for each dependent child or student, up from $4,027.

Tax cuts from 1 July 2026

The Government will deliver the following tax cuts:

• from 1 July 2026, the 16% rate will be reduced to 15%;
• from 1 July 2027, the 15% rate will be reduced further to 14%.

Business taxation

Supporting the hospitality sector and alcohol producers

The Government will implement the following changes which are intended to support hospitality venues, brewers, distillers and wine producers:

• The Government will pause indexation on draught beer excise and excise equivalent customs duty rates for a two‑year period, from August 2025. Under this measure, biannual indexation of draught beer excise and excise equivalent customs duty rates that are otherwise due to occur in August 2025, February 2026, August 2026, and February 2027 will not occur. Biannual indexation will recommence from August 2027.
• The Government will increase support available under the Excise remission scheme for manufacturers of alcoholic beverages (the Remission Scheme) and Wine Equalisation Tax (WET) producer rebate (Producer rebate).

Currently, eligible brewers and distillers can receive an excise remission under the Remission Scheme up to a cap of $350,000, and eligible wine producers can receive a WET rebate up to a cap of $350,000 under the Producer rebate.

This measure will increase the caps for all eligible brewers, distillers and wine producers to $400,000 per financial year, from 1 July 2026.

Foreign residents

Foreign resident capital gains tax (CGT) regime

The Government will defer the 2024–25 Budget measure ‘Strengthening the foreign resident capital gains tax regime’ from 1 July 2025 to the later of 1 October 2025 or the first 1 January, 1 April, 1 July or 1 October after the Act receives Royal Assent.

Under this measure, as announced in the 2024-25 Budget, the Government will amend the foreign resident CGT regime which 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;
• require foreign residents disposing of shares and other membership interests exceeding $20 million in value to notify the Australian Taxation Office (ATO), prior to the transaction being executed.

We have previously observed that these measures will significantly alter the foreign resident CGT regime, and place a positive obligation on vendors to make requisite notifications to the ATO. Additionally, as the principal asset test will be modified from the current point-in-time test to a 365-day testing period, it will be more difficult for taxpayers to alter the composition of a company’s underlying assets just prior to a share sale, in an attempt to ensure the principal asset test would not be met, in order to circumvent the withholding obligation.

Restricting foreign ownership of housing

In order to ensure more Australians will be able to buy homes, the Government will ban foreign persons (including temporary residents and foreign‑owned companies) from purchasing established dwellings for two years from 1 April 2025, unless an exception applies. Exceptions will include the purchase of investments that significantly increase housing supply or support the availability of housing on a commercial scale, and purchases by foreign‑owned companies to provide housing for workers in specified circumstances.

To ensure the effective application of the ban, the Government will:

• provide the ATO with $5.7 million over four years from 2025-26 to enforce the ban; and
• provide the ATO and Treasury $8.9 million over four years from 2025-26 and $1.9 million per year ongoing from 2029–30 to implement an audit program and enhance their compliance approach to target land banking by foreign investors.

The enhanced compliance approach by the ATO and Treasury to target land banking is intended to ensure that foreign investors comply with requirements to put vacant land to use for residential and commercial developments within reasonable timeframes.

Managed investment trusts

Legitimate investors

The Government will amend the tax laws to clarify arrangements for managed investment trusts (MITs), to ensure legitimate investors can continue to access concessional withholding tax rates in Australia which will complement the ATO’s strengthened guidelines to prevent misuse. This measure will apply to fund payments from 13 March 2025.

Clean building MIT withholding tax concession

The Government will also defer the start date of the 2023–24 Budget measure ‘Extending the clean building MIT withholding tax concession’ from 1 July 2025 to the first 1 January, 1 April, 1 July or 1 October after the Act receives Royal Assent.

Under this measure, as announced in the 2023-24 Budget, the Government will extend the clean building MIT withholding tax concession to data centres and warehouses that meet the relevant energy efficiency standard, where construction commences after 7:30 PM (AEST) on 9 May 2023.

This measure will also raise the minimum energy efficiency requirements for existing and new clean buildings to a 6-star rating from the Green Building Council Australia or under the National Australian Built Environment Rating System.

Tax administration

Enhancing tax practitioner regulation and compliance

The Government will strengthen the sanctions available to the Tax Practitioners Board (TPB), modernise the registration framework for tax practitioners and provide funding to the TPB to undertake additional compliance targeting high-risk tax practitioners over four years from 1 July 2025.

This measure is intended to protect taxpayers from tax agent misconduct, including poor and unlawful tax advice, and maintain community confidence in the integrity of the tax system.

Strengthening tax integrity

The Government will provide $999 million over four years to the ATO to extend and expand tax compliance activities. This additional funding will include:

• $717.8 million over four years from 1 July 2025 to extend the Tax Avoidance Taskforce, supporting the ATO’s tax compliance scrutiny on multinationals and other large taxpayers.
• $155.5 million over four years from 1 July 2025 to expand the Shadow Economy Compliance Program, aimed at reducing shadow economy behaviour such as worker exploitation, under‑reporting of taxable income and illicit tobacco production.
• $75.7 million over four years from 1 July 2025 to expand the Personal Income Tax Compliance Program, enabling the ATO to continue delivering proactive, preventative and corrective activities in key areas of non-compliance.
• $50 million over three years from 1 July 2026 to extend the Tax Integrity Program, enabling the ATO to ensure timely payment of tax and superannuation liabilities by medium and large businesses and wealthy groups.

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.}