Federal Budget 24-25

On Tuesday 14 May Treasurer Jim Chalmers handed down the Federal Budget for 2024-25. A Budget surplus of $9.3bn is forecast in 2023-24, but an underlying cash deficit of $28.3bn is expected in 2024-25 (and a $42.8bn deficit for 2025-26).

Cost of living has been targeted with $3.5b in energy bill relief (including a $300 energy rebate) and $1.9bn for increased Commonwealth rent assistance. New measures included an extension to the small business instant asset write-off and a proposed CGT change for foreign residents. Previously announced measures including the already legislated stage 3 tax cuts from 1 July 2024 and changes to the indexation of the Higher Education Loan Program were reconfirmed. 

Snapshot of tax-related measures

• $20k instant asset write-off for small business extended to June 2025

• $3.5bn energy bill relief – including $300 energy rebate for all Australian households and $325 for eligible small businesses – to be applied as an automatic quarterly credit

• $1.9bn for increased Commonwealth rent assistance – maximum rates by 10% from 20 September 2024.

• Foreign Resident CGT Rules –  the types of assets foreign residents will be liable for will be clarified and broadened, while the point-in-time principal asset test will be amended to a 365-day testing period.  Foreign residents disposing of shares and other membership interests exceeding $20m will be required to notify the ATO prior to the transaction.

• Medicare levy the low income thresholds –  have been increased for 2023-2024.

• Personal Income Tax compliance program – extended for one year from 1 July 2027 to target the overclaiming of deductions, incorrect reporting of income and inappropriate tax agent influence.

• Changes to existing measures – anti-avoidance start date changed; thin cap to exempt forestry entities from the new earnings-based rules; Commissioner’s discretion to not use a taxpayer’s refund to offset old tax debts.

• BAS notification period – the time the ATO has to notify a taxpayer if it intends to retain a BAS refund for further investigation will be extended from 14 days to 30 days.

• Social security deeming rates – frozen for a further 12 months until 20 June 2025

Snapshot of superannuation measures

• Super on Government Paid Parental Leave to be paid for births and adoptions on or after 1 July 2025.

Personal Taxation

The Government’s revised Stage 3 tax changes commence from 1 July 2024.

Resident rates and thresholds – from 2024-25 onwards

The tax rates and income thresholds from the 2024-25 for residents (as already legislated) are:

*** The table below compares the rates for 2023-24 with the revised rates for 2024-25. Basically, the 19% tax rate has been reduced to 16%; the 32.5% tax rate has been reduced to 30%; the 37% tax rate threshold has been increased from $120,000 to $135,000; and the 45% tax rate threshold has been increased from $180,000 to $190,000***

Summary: Tax rates and income thresholds 

*** Please note that the above tables do not include Medicare Levy or any Medicare levy surcharge where applicable***

Foreign residents

For 2024-25 and later income years, the tax rates for foreign residents are:

• $0 to $135,000 – 30%.
• $135,001 to $190,000 – 37%.
• $190,001 plus – 45%.

Low-income tax offset (unchanged)

No changes were made to the low-income tax offset (LITO) in the 2024-25 Budget. While the LMITO ceased from 1 July 2022, low and middle income taxpayers remain entitled to the LITO.

*** The maximum amount of the LITO is $700. The LITO is withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667***

Medicare levy low-income thresholds for 2023-24

As announced earlier in the year from the 2023-24 income year, the Medicare levy low-income threshold:

• for singles has been increased to $26,000 for 2023- 24, up from $24,276 for 2022-23
• for couples with no children, the family income threshold is $43,846, up from $40,939 for 2022-23.
• the additional amount of threshold for each dependent child or student is $4,027, up from $3,760.

For single seniors and pensioners eligible for the SAPTO, the Medicare levy low-income threshold is $41,089, up from $38,365. The family threshold for seniors and pensioners is $57,198, up from $53,406, plus $4,027 for each dependent child or student, up from $3,760.

 Personal income tax compliance program extended

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. 

Business

Extended – $20K instant asset write-off for small business

The Government will extend the instant asset write-off concession for another 12 months. This will allow small businesses with turnovers capped at $10 million to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use for a taxable purpose between 1 July 2024 and 30 June 2025. 

Changes to foreign resident CGT rules.

The Government will amend the following areas of CGT as it applies to foreign residents:

• clarify and broaden the types of assets that foreign residents will be liable for;
• 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 amendments will apply to CGT events commencing on or after 1 July 2025***

  ATO’s discretion to apply tax refunds against old tax debts

The Government will amend the tax law to give the Commissioner 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.

 ATO funding to counter fraud; BAS notification period extended

The Government will 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. The extended period will strengthen the ATO’s ability to combat fraud.

Any legitimate refunds retained for over 14 days would result in the ATO paying interest to the taxpayer (as is currently the case). 

 Increased funding to counter fraud

The Government will provide $187.0 million over 4 years from 1 July 2024 to the ATO to strengthen its ability to detect, prevent and mitigate fraud against the tax and superannuation systems. Funding includes:

• $78.7 million for upgrades to information and communications technologies to enable the ATO to identify and block suspicious activity in real time
• $83.5 million for a new compliance taskforce to recover lost revenue and intervene when attempts to obtain fraudulent refunds are made
• $24.8 million to improve the ATO’s management and governance of its counter-fraud activities, including improving how the ATO assists individuals harmed by fraud.

 Extended – Shadow Economy Compliance Program and Tax Avoidance Taskforce

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 and increase payments by $610.2 million over the 5 years from 2023-24. This includes an increase in GST payments to the States and Territories of $429.6 million.

It will also extend the ATO Tax Avoidance Taskforce for two years, also from 1 July 2026. The Taskforce focuses on multinationals, large public and private businesses, and high-wealth individuals. This measure is estimated to increase receipts by $2.4 billion and increase payments by $1.2 billion over the 5 years from 2023-24.

Superannuation

Paying super on Government Paid Parental Leave from 1 July 2025

The Budget confirmed the proposal to pay superannuation on Government-funded Paid Parental Leave (PPL) for births and adoptions on or after 1 July 2025. From that time, the super guarantee (SG) rate will be 12% (up from 11.5% for 2024-25). Therefore, eligible parents will receive an additional payment (12% of their PPL payments) as a contribution by the Government to their superannuation fund.

Super account balances above $3m

The Budget papers did not reveal any further details on the Government’s proposal to apply an additional 15% tax on superannuation “earnings” (including unrealised capital gains) corresponding to the percentage of an individual’s super balance that exceeds $3m for an income year commencing from 1 July 2025 (proposed Div 296 of the ITAA 1997).

Payday Super

The Budget papers did not reveal any further details on the Government’s proposal to require all employers to pay their employees’ super guarantee (SG) at the same time as their salary and wages from 1 July 2026.

Other

HECS / HELP debts

The Government will cut $3 billion in student debt for more than 3 million Australians.

This will provide relief for everyone with Higher Education Loan Program (HELP) and other student loan debt. The Government will cap the HELP indexation rate to be the lower of either the Consumer Price Index or the Wage Price Index.

The Government will backdate this relief to all HELP, vocational education and training (VET) Student Loan, Australian Apprenticeship Support Loan and other student support loan accounts that existed on 1 June 2023.

Social security deeming rates frozen

The Government announced that it will extend the freezing of the social security deeming rates at their current levels for a further 12 months until 30 June 2025 to help with cost-of-living pressures.

 Energy relief

The Government will provide $3.5 billion over 3 years from 2023-24 to extend and expand the Energy Bill Relief Fund to provide a $300 rebate to all Australian households and a $325 rebate to businesses on small customer electricity plans on 2024-25 bills.

Those are the Key takeaways from the 2024 Australian Federal Budget. If you need clarification on any of the content above? Feel free to contact us for further information.