FY2025 Federal Budget Summary
On Tuesday 14 May 2024 Treasurer Jim Chalmers handed down the 2024-25 Federal Budget. As a pre-election budget, there was a strong focus on easing the cost of living pressures and very little in the way of tax reform.
In this edition of FMA insights, we have summarised the key budget takeaways for individuals & families, businesses and foreign investors.
Highlights:
Re-stating Stage 3 Tax Cuts
$3.5 billion in energy bill relief for Australian households and small businesses
Waiving $3 billion in student debt
$1.1 billion to pay superannuation on Government-funded Paid Parental Leave
Increase of instant asset write off for small businesses
Read on for the full update.
For Individuals & Families
Personal Income Tax Cuts Confirmed
Stage 3 Tax Cuts are a key element of the budget, which had previously been legislated in February 2024. This means an increased take home pay, commencing 1 July 2024.
Relative to the previous Stage 3 plan, the redesigned cuts broaden the benefits of the tax cut by focussing on individuals with taxable income below $150,000.
Energy Relief for Households
Cost of living was a key focus, with the budget introducing a new energy bill relief payment. From 1 July 2024, households will receive a credit of $300 on their energy bills, credited as automatic quarterly instalments across the 2025 Financial Year.
Capping Indexation of HELP Debts
As previously announced, the Government will cap the HELP indexation rate to be the lower of either the Consumer Price Index (CPI) or the Wage Price Index (WPI) with effect from 1 June 2023. The change will apply to all HELP, VET Student Loans, Australian Apprenticeship Support Loans and other student support loan accounts that existed on 1 June 2023.
By changing the calculation of HELP indexation from 1 June 2023, the indexation rate is reduced from:
7.1% to 3.2% in 2023, and
4.7% to around 4% in 2024
You do not need to do anything to receive the indexation credit. The ATO will automatically calculate your indexation credit and apply this to your 'HELP debt account’.
If you have paid off your outstanding HELP debt since 1 June 2023, you will still receive an indexation credit. This will become a tax credit if you have no other outstanding students loans. If your HELP debt account balance is less than zero as a result of the reduction, and you do not have any other tax or Commonwealth debts, the credit will be refunded to your nominated account as recorded by the ATO.
Note that you do not need to lodge your tax return to receive the indexation credit. This process is expected to begin shortly after the legislation commences.
Superannuation on Paid Parental Leave
From 1 July 2025 superannuation will be paid on Paid Parental Leave payments.
Eligible parents will receive an additional payment based on the superannuation guarantee (i.e. 12% of their PPL payments), as a contribution to their superannuation fund.
This payment is in addition to the changes that saw families provided with an extra two weeks of leave (22 weeks total), which will increase to 24 weeks from July 2025 and 26 weeks from July 2026.
For Business & Employers
Energy Relief for Small Business
Energy relief will also be provided to small businesses in the form of a $325 rebate over 2025 Financial Year.
Small businesses must meet their state and territory definition of electricity ‘small customer', as determined by their annual electricity consumption threshold, to be eligible for a $325 annual rebate. The annual consumption threshold is 100MWh in NSW and varies between states.
The support will apply as an automatic quarterly credit to energy bills.
Small Business Instant Asset Write-Off Extended
Small businesses, with an aggregated turnover of less than $10 million, will be able to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2025. This measure extends the 2023-24 Budget announcement to the 2024-25 financial year.
“Immediately deductible” means a tax deduction for the asset can be claimed in the same income year that the asset was purchased and used (or installed ready for use).
If the business is registered for GST, the cost of the asset needs to be less than $20,000 after subtracting the GST credits that can be claimed for the asset. If the business is not registered for GST, it is less than $20,000 including GST.
The write-off applies per asset, so a small business can deduct the cost of multiple assets.
The rules only apply to assets that fall within the scope of the depreciation provisions. Expenditure on capital improvements to buildings that fall within the scope of the capital works rules is not expected to qualify.
For Foreign Investors
Expanding CGT Regime for Foreign Residents
The foreign resident capital gains tax (CGT) regime will be expanded by:
Clarifying and broadening the types of assets on which foreign residents are subject to CGT
Amending the point-in-time principal asset test to a 365-day testing period
Requiring foreign residents disposing of shares and other membership interests exceeding $20 million in value to notify the ATO, prior to the transaction being executed.
Under current law, foreign residents are subject to CGT when they sell an asset that is classified as ‘taxable Australian property’ (TAP). The rules seek to ensure that non-residents are subject to Australian CGT on the disposal of assets that have a sufficient connection with Australian land and assets that have been used in business activities in Australia.
Shares in a company and units in a trust can be classified as TAP if the taxpayer and certain related parties hold at least a 10% interest in the entity and where more than 50% of the gross market value of the assets held by the entity is attributable to real property located in Australia and similar assets.
The measure is intended to ensure that Australia can tax foreign residents on direct and indirect sales of assets with a close economic connection to Australian land, bringing the treatment more in line with the tax treatment that already applies to Australian residents.
The new ATO notification process will improve oversight and compliance with the foreign resident CGT withholding rules, where a vendor self-assesses the sale doesn’t involve TAP.
The proposed reforms will also align Australia’s tax law for foreign resident capital gains more closely with OECD standards and international best practice.
The Government will consult on the implementation details of the measure, which is estimated to increase receipts by $600 million and increase payments by $8 million over the five years from 2023–24.
For the ATO
Funding ATO Priority Targets
Specific funding has been provided to the ATO for key targets, including Personal Income Tax. The ATO’s Personal Income Tax Compliance Program will be extended for one year from 1 July 2027. This measure is estimated to increase receipts by $180.3 million and increase payments by $44.3 million over the 5 years from 2023–24.
ATO Counter Fraud Strategy
The Government announced that it 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.
This includes strengthening the ATO’s ability to combat fraud by extending the time the ATO has to notify a taxpayer if it intends to retain a Business Activity Statement (BAS) refund for further investigation. The ATO’s mandatory notification period for BAS refund retention will be increased from 14 days to 30 days to align with time limits for non-BAS refunds.
Legitimate refunds will be largely unaffected. Any legitimate refunds retained for over 14 days would result in the ATO paying interest to the taxpayer - as is currently the case. The ATO will publish BAS processing times online.
This measure is estimated to increase receipts by $302.2 million and increase payments by $187.4 million over the five years from 2023–24.
If you would like to explore the 2024-25 Federal Budget in further detail, please click here to access our guide.
As always the FMA team are here to help. If you have queries regarding any of the content in this newsletter, please do no hesitate to contact our office directly on 02 9540 6888 or via email at info@fmapartners.com.au.
Disclaimer: The material and contents provided are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained. Please do not hesitate to contact the team at FMA Partners to discuss further.