A Summary of the Key Items Released in Last Night’s Federal BudgetTreasurer Jim Chalmers has handed down the Labour Government’s Third Budget on 14 May 2024, with the first back-to-back surplus budget in nearly two decades. The forecast budget surplus for the current year is $9.3 billion but then with forecast deficits over the following four years – $28.3 billion in 2024-25; $42.8 billion in 2025-26; $26.7 billion in 2026-27 and $24.3 billion in 2027-28.

This Budget aims to ease cost of living and fight inflation. The Budget is expected to put downward pressure on inflation, reducing inflation by an estimated 0.5% in 2024-25. This could see the headline inflation rate return to the target band by the end of 2024. The economy’s real GDP (inflation adjusted) is now forecast to be 1.75% in the current year; 2% in 2024-25; 2.25% in 2025-26; 2.5% in 2026-27 and 2.75% in 2027-28.

The unemployment rate is projected to remain low by historical standards, rising modestly to 4.5% in 2024-25, 2025-26 and 2026-27, and 4.25% in 2027-28. Wages growth is forecast to go down to 3.25% in 2024-25 and 2025-26; 3.5% in 2026-27 and 2027-28.

Gross federal government debt is forecast for the 2024-25 year at $934 billion (33.9% of GDP) and will increase over the following three years – $1,007 billion (35.1% of GDP) in 2025-26; $1,064 billion (35.2% of GDP) in 2026-27; $1,112 billion (34.9% of GDP) in 2027-28.

The Budget contains a range of tax and superannuation related measures. The key revenue measures comprise:

  • Temporarily increase the instant asset write off threshold to $20,000 for small businesses;
  • Individual tax cuts to all 13.6 million taxpayers;
  • Energy bill relief for all households and small businesses; and
  • Strengthening the foreign resident CGT regime.
It is important to remember that what follows is a series of proposals that must be passed by Federal Parliament before they become law.
Personal Income Tax Rates
The Government has confirmed that the Stage 3 tax cuts will come into effect from 1 July 2024. This will deliver bigger tax cuts for low and middle-income Australians. The income tax rate changes for resident individuals for 2024-25 will be as follows:

 

   2025 Taxable Incomes (T.I.)  New Rate  2024 Taxable Incomes (T.I.) Current Rate
   Up to $18,200  0%   Up to $18,200    0%
   $18,201 to $45,00016%   $18,201 to $45,000  19%
   $45,001 to $135,00030%   $45,001 to $120,00032.5%
   $135,001 to $190,00037%   $120,001 to $180,000  37%
   $190,001 and above45%   $180,001 and above  45%

Increasing 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 2023.

 

Low income thresholdNew Threshold from 1 July 2023Threshold as at 30 June 2023
Singles$26,000$24,276
Families$43,846$40,939
Single seniors and pensioners$41,089$38,365
Family – Seniors and pensioners$57,198$53,406
Threshold increment for each additional dependent child/student  $4,027$3,760

The Medicare Levy itself will remain at 2%.

Changes To Student Loans

The Government will limit the indexation of the Higher Education Loan Program (and other student loans) to the lower of either the Consumer Price Index or the Wage Price Index. Previously, HELP loans were indexed solely based on CPI. This measure will be backdated with effect from 1 June 2023 and will reduce the indexation:
  • From 7.1% to 3.2% in 2023; and
  • From 4.7% to around 4% in 2024.

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 to deliver a combination of proactive, preventative and corrective activities in key areas of non-compliance, including overclaiming of deductions, incorrect reporting of income and inappropriate tax agent influence. This will enable the ATO to continue its focus on emerging risks to the tax system, such as deductions relating to short-term rental properties.

Superannuation Tax MeasuresThe Government will provide $1.1 billion over four years to pay superannuation on Commonwealth government-funded paid parental leave for births and adoptions on or after 1 July 2025. Eligible parents will receive a contribution to their superannuation fund based on the superannuation guarantee rate (12% from 1 July 2025) of their paid parental leave.

Division 296 Tax at 30% for Earnings on Superannuation Balances Above $3 million.

There was nothing announced in the 2024-25 Budget about the above which is due to commence from 1 July 2025 but at this stage has not yet been legislated.

Instant Asset Write Off Extended

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

This measure applies to eligible assets valued at less than $20,000, that are first used or installed ready for use by 30 June 2025. Small businesses with aggregated turnover of less than $10 million will be eligible for this instant asset write-off.

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.


Future Made in Australia – Making Australia a Renewable Energy Superpower
As part of its Future Made in Australia package, the Government will introduce two tax incentives to invest in new industries:
  • A Critical Minerals Production Tax Incentive from 2027–28 through to 2040–41 to support downstream refining and processing of Australia’s 31 critical minerals to improve supply chain resilience; and
  • A Hydrogen Production Tax Incentive from 2027–28 through to 2040–41 to producers of renewable hydrogen to support the growth of a competitive hydrogen industry and Australia’s decarbonisation.
Workplace Relations

The Budget announces additional funding over four years from 2024-25 to support the Government’s Workplace agenda, including:
  • Pursuing unpaid superannuation entitlements owed by employers in liquidation or bankruptcy from 1 July 2024; and
  • Supporting workplaces to implement payday superannuation contributions which are due to commence from 1 July 2026. 
Strengthening the Foreign Resident Capital Gains Tax regime

The Government will amend the foreign resident capital gains tax (CGT) regime to:
  • clarify and broaden the types of assets that foreign residents are 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.

There is no detail in the Budget as to how the types of assets currently defined as being Taxable Australian Real Property will be broadened.

Under the current law, the foreign resident CGT regime broadly applies to foreign residents selling Taxable Australian Real Property, indirect Australian real property interests and assets used in Australian Permanent Establishments.  The indirect interests are those held through entities resulting in at least a 10% associate inclusive ownership and the sum of the market value of the Taxable Australian Real Property held by the entity exceeds the sum of the market values of all other assets held. This underlying market value is currently assessed as at the date of disposal, hence the “point-in-time” testing.

The measure will 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 prior to a sale being executed, will improve oversight and compliance with the foreign resident CGT withholding rules.

This measure will apply to CGT events happening on or after 1 July 2025.

Energy Bill ReliefThe Government will provide a $300 credit to all Australian households and a $325 credit to eligible small businesses to help cover their electricity bills. This measure will provide relief for households and small businesses over three years commencing from 1 July 2024. The rebate will be applied quarterly by way of direct credit to electricity bills.

Counter Fraud Strategy

The Government will strengthen the ATO’s ability to detect, prevent and mitigate fraud by extending the timeframe the ATO has to notify a taxpayer if it intends to retain a BAS refund for further investigation. Previously, the mandatory notification period for BAS refund retention is 14 days, it will be increased to 30 days to align with time limits for non-BAS refunds. Legitimate refunds will be largely unaffected.

The Government will also provide funding:

  • to upgrade information and communications technologies to enable the ATO to identify and block suspicious activity in real time;
  • for a new compliance taskforce to recover lost revenue and intervene when attempts to obtain fraudulent refunds are made; and
  • to improve the ATO’s management and governance of its counter-fraud activities, including improving how the ATO assists individuals harmed by fraud.

This measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation.

Tax Avoidance Taskforce

The Government will extend the ATO Tax Avoidance Taskforce for two years from 1 July 2026. Extending the Taskforce ensures the ATO continues to be well-resourced to pursue key tax avoidance risks, with a focus on multinationals, large public and private businesses, and high-wealth individuals controlling net wealth exceeding $50 million.

This Taskforce formed in 2016 aims to prevent, detect and address tax avoidance to ensure the largest and wealthiest taxpayers pay the right amount of tax in Australia.  As at 30 June 2023, the taskforce has raised $32.7 billion in tax liabilities.

Expanding the General Anti-Avoidance Rule in the Income Tax Law

In the 2023-24 Budget, the Government announced that it would improve the integrity of the tax system by expanding the scope of the general anti-avoidance rule for income tax so that it applies to schemes that:

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

This measure was proposed to apply to income years commencing on or after 1 July 2024. In this 2024-25 Budget, the Government has announced that it will amend the start date of this measure to income years commencing on or after the day the amending legislation receives Royal Assent, regardless of whether the scheme was entered into before that date.

Money Laundering Crackdown & Tougher Foreign Investment Framework

The government has announced it will provide $168 million over four years from 2024–25 to implement reforms to strengthen Australia’s Anti-Money Laundering and Counter-Terrorism Financing laws, to enhance Australia’s ability to detect and disrupt illicit financing.

This funding includes:

  • $160.8 million over two years from 2024–25 for the Australian Transaction Reports and Analysis Centre to expand its regulatory, intelligence and data capabilities and provide guidance to regulated entities;
  • $7 million over four years from 2024–25 for the Attorney-General’s Department to support the implementation of legislative reforms around anti-money laundering and counter-terrorism financing;
  • New obligations to require real estate agents, lawyers and accountants to report some transactions in a move that will bring Australia in line with the rest of the developed world; and
  • The government is also strengthening Australia foreign investment framework by investing $15.7 million over four years from 2024–25 (and $4.1 million per year ongoing from 2028–29) for Treasury to strengthen and streamline Australia’s foreign investment framework, through more effective monitoring, enforcement of conditions and timely review of foreign investment applications.

Disclaimer

The material contained in this newsletter is in the nature of general comment and information only and neither purports, nor is intended, to be advice on any particular matter. Readers should not act or rely upon any matter or information contained in or implied by this newsletter without taking appropriate professional advice.

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UHY Haines Norton · Level 9/1 York Street · Sydney, NSW 2000 · Australia