Federal Budget 25-26

2025-26 Labor Federal Budget Highlights

On Tuesday evening 25 March 2025 Treasurer Jim Chalmers handed down the Federal Budget for 2025-26.

A Budget deficit of $27.6bn is forecast in 2024-25, followed by deficits of $42.1bn in 2025-26, $35.7bn deficit for 2026-27 and $37.2bn in 2027-28. The Budget papers noted the Budget is expected to be in deficit for the next decade.

We have prepared a summary of the key 2025-26 Federal Budget announcements.

Sources – CPA Australia, NTAA & Australian Taxation Office

Personal Income Tax Measures

• New Tax Cuts: Starting from 1 July 2026, the 16% tax rate will be reduced to 15%, and further to 14% from 1 July 2027.

The Government will deliver new tax cuts to individual taxpayers commencing from 1 July 2026. Under the new tax cuts, it’s proposed that:

• the (current) 16% tax rate will be reduced to 15% from 1 July 2026
• the 15% tax rate will be further reduced to 14% from 1 July 2027

The personal income tax rates (excluding the Medicare levy) for the 2025 and 2026 income years are set out in the following table, along with the proposed changes to the tax rates for the 2027 and 2028 income years.

By way of example, a taxpayer earning between $18,201 and $45,000 will get a tax cut of up to $268 in the 2027 income year and up to $536 from the 2028 income year. This is still a few years away.

Note re Foreign residents – the Government’s proposal to reduce the resident income tax rate from 1 July 2026 (and from the 1 July 2027) for the income threshold ($18,200 – $45,000) this is not expected to flow through and impact the income tax rates for foreign residents. This is because foreign residents are not entitled to the tax-free threshold or the first income tax threshold.

• Low-income tax offset (unchanged)

No changes were made to the low-income tax offset (LITO) in the 2025-26 Budget.

For completeness, and as a reminder, while the LMITO ceased from 1 July 2022, low-and-middle-income taxpayers remain entitled to the low-income tax offset (LITO).

• Medicare Levy Thresholds: Increased thresholds for low-income individuals and families to provide cost-of-living relief.

The Government will increase the Medicare levy low-income threshold amounts and phase-in ranges for single individuals and families.

Objective – to provide cost-of-living relief.

The increase to the thresholds ensures that low-income individuals continue to be exempt from paying the Medicare levy or pay a reduced levy rate. The Medicare levy low-income thresholds for single individuals and families for the 2025 income year, together with the comparative thresholds for the 2024 income year, will be as follows:

Note – For each dependent child or student, the family income threshold will increase by a further $4,216 (up from $4,027).

Tax Practitioner Regulation and Compliance

• Strengthening Sanctions: Enhanced sanctions for the Tax Practitioners Board (TPB) and modernised registration framework for tax practitioners.
• Funding for Compliance: Additional funding for the TPB to target high-risk tax practitioners.

The Government will strengthen the sanctions available to the 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 will protect taxpayers from tax agent misconduct, including poor and unlawful tax advice, and maintain community confidence in the integrity of the tax system. It will also support the sustainability of the tax profession by increasing the ease of re-entry for tax and business activity statement agents who take career breaks.

Other Tax-Related Budget Measures

• Tax Integrity: $999 million over four years to extend and expand tax compliance activities, including the Shadow Economy Compliance Program and the Tax Avoidance Taskforce.

The Government also announced in the Budget that it would provide the ATO with $999 million over four year to extend and expand tax compliance activities. As part of the additional funding, $717.8 million will be provided over four years from 1 July 2025 for a two-year expansion and a one-year extension of the Tax Avoidance Taskforce. The Budget papers said this will support the ATO’s continued tax compliance scrutiny on multinationals and other large taxpayers.

$155.5 million of the funding will be dedicated to extending and expanding the Shadow Economy Compliance Program to reduce shadow economy behaviour such as worker exploitation, under‑reporting of taxable income, illicit tobacco and other shadow economy activity that enables non‑compliant businesses to undercut competition.

The funding also includes $75.7 million for extending and expanding the Personal Income Tax Compliance Program. This will enable the ATO to continue to deliver a combination of proactive, preventative and corrective activities in key areas of non-compliance.

$50 million of the funding will be provided over three years from 1 Jul 2026 for extending the Tax Integrity Program.

Note – This will enable the ATO to continue its engagement program to ensure timely payment of tax and superannuation liabilities by medium and large businesses and wealthy groups. The additional funding is estimated to increase receipts by $3.2 billion over five years from 2024–25, and $31.0 million in unpaid superannuation to be disbursed to employees.

• Managed Investment Trusts: Amendments to tax laws to clarify arrangements and prevent misuse.
• Foreign Resident Capital Gains Tax: Deferred start dates for measures to strengthen the regime.

Non-Tax Related Budget Measures

• Student Loans: 20% reduction in outstanding HELP and other student debts, and increased income threshold for loan repayments.
  As previously announced by the Prime Minister on 3 November 2024, the Government will reduce all outstanding Higher Education Loan Program (HELP) and other student debts by 20%, subject to the passage of legislation. The 20% reduction is in addition to the recent indexation reforms. The Government is also increasing the amount that people can earn before they are required to start paying back their loans, from $54,435 in the 2025 income year to $67,000 in the 2026 income year.

• Energy Bill Relief: Two $75 bill rebates for eligible households and small businesses until 31 December 2025.
  The Government is extending energy bill relief by providing eligible households and small businesses with two $75 bill rebates directly off their electricity bills until 31 December 2025 to provide cost-of-living relief.

• Help to Buy Scheme: Expanded scheme with increased income and property price caps.
  Under the Help to Buy scheme, the Government will provide an equity contribution of up to 40% to support eligible home buyers to purchase a home with a lower deposit and a smaller mortgage. The Government will boost the scheme by increasing income caps from $90,000 to $100,000 for individuals and from $120,000 to $160,000 for joint applicants and single parents. Property price caps will also be increased and linked with the average house price in each state and territory, rather than dwelling price.

• Foreign Ownership of Housing: Ban on foreign persons purchasing established dwellings for two years from 1 April 2025, with certain exceptions.

• National Anti-Scam Centre: $6.7 million to extend the operation of the centre.
  The Government will provide $6.7 million in the 2026 income year to extend the operation of the National Anti-Scam Centre within the Australian Competition and Consumer Commission (‘ACCC’) to continue protecting consumers and businesses from scam activity.

• Small Business and Franchisee Support: $12 million over four years for various support measures, including regulatory oversight and social enterprise loans.
  The Government will provide $12 million over four years from the 2026 income year to support and protect small businesses. The funding will support the following:
  • The ACCC to strengthen regulatory oversight of the Franchising Code of Conduct
  • The Australian Securities and Investments Commission (ASIC) to improve its data analytics capability to better target enforcement activities to deter illegal phoenixing activities, particularly in the construction sector
  • Partnering with White Box Enterprises to establish a Social Enterprise Loan Fund to offer small loans to social enterprises, including work integration social enterprises, to support employment for disadvantaged Australians.

• Hospitality Sector and Alcohol Producers: Paused indexation on draught beer excise and increased support under the Excise remission scheme and Wine Equalisation Tax rebate.
  The Government will increase support for hospitality venues, brewers, distillers and wine producers through changes to the alcohol tax settings in Australia. 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 due to occur in August 2025, February 2026, August 2026 and February 2027 will not occur. Biannual indexation will then recommence from August 2027. Currently, all eligible brewers and distillers can receive an excise remission under the Remission Scheme up to a cap of $350,000. All eligible wine producers can currently 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.

• Non-Compete Clauses: Ban on non-compete clauses for low and middle-income workers and closing loopholes in competition law.
  The Government will ban non-compete clauses that apply to workers earning less than the high- income threshold in the Fair Work Act (currently $175,000). The Government will also close loopholes in competition law that currently allow businesses to:
  • fix wages by making anti-competitive arrangements that cap workers’ pay and conditions, without the knowledge and agreement of affected workers
  • use ‘no-poach’ agreements to block staff from being hired by competitors.

Objective The measure is aimed at boosting competition and removing barriers preventing employees from starting their own businesses. The Budget papers said the move would free many Australian workers to move to more productive, higher‑paying jobs and start their own business.

• Additional Treasury Resourcing: Funding for various Treasury priorities, including ASIC’s business registers and financial reporting governance reforms.
  The Government will provide funding to support the delivery of Government priorities in the Treasury portfolio, including the following:
  • $207 million over two years from the 2026 income year to deliver the second tranche of stabilisation and uplift of the ASIC’s business registers, including linking Director Identification Numbers to the Company Register
  • $0.8 million in the 2026 income year for the Treasury to reform Australia’s financial reporting governance arrangements.

Superannuation

The Government did not announce any new major superannuation measures in the Budget. The only super item of note was some additional funding to extend an ATO Tax Integrity Program which is expected to raise an extra $31m in unpaid superannuation from medium and large businesses and wealthy groups over 5 years from 2024-25.

Business

The Federal Budget did not include an extension of the $20,000 instant asset write off measure for the 2025-26.

The Council of Small Business Organisations Australia said by failing to account for the measure in the budget, the government had left millions of small businesses in limbo about the future of the measure.

Small businesses relying on the continuation of the instant asset write off will be disappointed as there is no budget announcement extending it beyond 30 June 2025.