In handing down his third Federal Budget, the Treasurer, Dr Jim Chalmers, has given in to party temptation and opened Australia’s cheque book to spend. The recipients being relatively widespread, including: green incentives, cost of living support for households, housing, Indigenous causes, defence, and victims of domestic violence.

Given the next Federal election must be held no later than September 2025, this budget feels like an election budget, rather than a mid-term one.

However, with predictions of inflation coming under RBA targets before the end of the year, will Dr Chalmers be lucky enough to catch a wave of consumer sentiment in the government’s favour all the way to the next election?

Pilot’s summary of the key tax and business announcements follows.

Quicklinks:

• Personal tax
• Superannuation
• Small businesses
• Strengthening compliance activity
• (Green) Future Made in Australia
• Unlucky foreign residents

Personal Tax

Cost-of-living relief is a focus in this budget. Some individuals will receive a helping hand with the below measures.

Student Debt Relief

There were no further details contained in the budget on the previously announced changes to limit the growing cost of HELP (previously HECS) debt.

Currently, indexation (applied once a year on 1 June) is based on the increase in the Consumer Price Index (CPI) figure published by the Australian Bureau of Statistics. In 2023, inflation pushed the indexation rate to a 33 year high of 7.1%, increasing overall HELP debts significantly.

Effective from 1 June 2023, the indexation factor will be the lower of the CPI or the Wages Price Index (WPI). WPI measures the change in the price of wages and salaries in the Australian labour market over time. Indexation amounts recorded for the 2023 financial year will be adjusted on a retrospective basis, and the upcoming increases on 1 June 2024 are proposed to be based on this new metric.

The government estimates that this will reduce the total balances of these debts by more than $3 billion. Those with a HELP debt of $26,500 for example will have their balance reduced by approximately $1,200 under these proposed changes.

Stage 3 Income Tax Cuts

While certainly not a new change, the government recently amended the planned Stage 3 tax cuts which will apply from 1 July 2024.

These cuts were originally introduced by the Morrison Coalition Government in 2019. While the original planned changes would have provided more relief to higher income earners, the new revised rates are said to provide a greater benefit to those on lower and middle incomes.

The government says the new rates have been designed to combat the effects of “bracket creep” and deliver meaningful cost-of-living relief without adding to inflationary pressures. Only time will tell if these tax cuts serve their intended use.

Below is a comparison of the current resident tax rates and those applying from the 2025 financial year and onwards:

*The above rates do not include the Medicare levy.

By way of an example, an individual with a taxable income of $90,000 will pay $1,929 less income tax under the new tax rates. The government estimates that the changes will have an impact of $107 billion on the budget bottom-line going forward.

Changes to Medicare Levy Thresholds

In another move that hopes to provide cost-of-living relief, the government is proposing to increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from 1 July 2023.

These changes will mean that more lower income taxpayers will be able to claim an exemption from paying the Medicare levy.

Below outlines the thresholds for the 2023 financial year and those applying from the 2024 financial year:

Superannuation

Although there wasn’t much to be said about Superannuation in the budget, previously announced measures were confirmed as outlined below.

Pay Day Superannuation

The government is sticking to its guns in regards to the proposed introduction of payday superannuation, with $60 million levied to support workplaces in making the necessary policy changes prior to the introduction on 1 July 2026. The proposed scheme was announced last year, outlining a new requirement for employers to pay employees’ superannuation at the same time as salary and wages. This will impose greater cashflow burdens on employers (primarily small businesses) who were previously only required to make said payments on a quarterly basis. However, a welcome change for employees, and hopefully will see a reduction in complacency and non-payments across the board.

High Balance Superannuation Tax

The proposed controversial changes to superannuation ‘earnings’ tax concessions has received support from the Senate this week, despite many submissions highlighting potential unintended consequences. Initially announced in May 2023, the proposed reform will increase the tax rate on super ‘earnings’ to 30% (from 15%) should the super balance exceed $3 million. The main point of contention remains the inclusion of non-discounted unrealised capital gains as ‘earnings’, which was rebuffed by the committee believing this is “the most appropriate way to reduce compliance burden and costs to funds and their members”. The relevant bills now return to the lower house … watch this space.

Superannuation on Paid Parental Leave

To improve women’s retirement outcomes, the government-funded Paid Parental Leave scheme will be enhanced for births or adoptions on or after 1 July 2025 in the form of superannuation contributions. Prior to this initiative, there were no obligations to make super payments on these amounts which has led to inequity in total super balances for parents, primarily women. Once legislated, extra payments will be made for government-funded paid parental leave schemes at the statutory rate for superannuation (2026FY: 12%).

Small Businesses

Unlike prior years, this budget only contained a few incentives for small businesses.  We have expanded on these below.

Instant Asset Write Off

The government has extended the $20,000 instant asset write-off for small businesses for an additional 12 months.  This incentive will continue to apply to small businesses with aggregated turnover of less than $10 million.

The relevant asset must cost less than $20,000 and must be first used or installed ready for use by 30 June 2025 in order for its cost to be immediately deductible.  Under the simplified depreciation measures, assets with costs in excess of this threshold must be placed into the Small Business Depreciation Pool.

Funding to support Small Businesses

In the mere hope of supporting small business the government has proposed to invest $41.7 million over four years from the 2024-25 financial year in a number of somewhat bland incentives. This funding will be directed to the Payment Times Reporting Regulator, Small Business Debt Helpline, implementing a review of the Franchising Code of Conduct, and additional funding for the Australian Small Business and Family Enterprise Ombudsman for business-to-business disputes.

Strengthening Compliance Activity

Once again, compliance programs receive more funding and have their timeframes extended. There is unlikely to be any luck needed for the government to meet their budgets as these programs have proven to be fruitful experiences in the past, with the government raising over $32 billion in liabilities under the Tax Avoidance Taskforce since 1 July 2016.

Personal income tax compliance

The government has extended its scope on the Personal Income Tax Compliance Program for one more year from 1 July 2027. This extension is estimated to increase receipts by $180 million, enabling the ATO to focus on emerging risks to the tax system such as deductions relating to short-term rental properties.

Anti-avoidance rules and the Shadow Economy

Those who continue to operate in the grey areas will continue to be on guard as the government extends the Tax Avoidance Taskforce for two years from 1 July 2026. The extension of this tax force is proposed to have an increased focus on multinationals, large public and private business, and high-wealth individuals.

To ensure the Shadow Economy Compliance Program is not left out, the government is also proposing to extend this program for two years from 1 July 2026 in a move aimed to protect revenue and prevent non-compliance businesses from undercutting competition. This program is estimated to increase receipts by $1.9 billion and reduces activities occurring outside the tax and regulatory systems. Further, this measure is expected to see an increase in GST payments to the various state and territories of $429 million.

Fraudsters beware

No doubt in light of the Optus and Medibank data breaches, the government has proposed to better protect taxpayer data and Commonwealth revenue against fraudulent attacks on the tax and superannuation systems. This funding is proposed to enable the ATO to identify and block suspicious activity in real time, prevent revenue loss and support victims of fraud and cybercrime.

As a result of fraudsters not playing nicely, the government is also proposing to strengthen fraud prevention in relation to business activity statements (BASs), by extending the time the ATO has to notify a taxpayer if they intend to retain a BAS refund for further investigation to 30 days (from 14 days).

Who owns what?

In a bid for greater transparency and alignment with international practices, the government has pledged funding to the Australian Securities and Investments Commission (ASIC) and the Attorney-General’s Department to regulate and support new beneficial ownership transparency requirements for Australian companies and other entities.

At this stage, it is unclear as to what exactly this means, but expect to see greater reporting requirements for these entities with ASIC.

(Green) Future Made in Australia

The government will spend eye-watering amounts over the next 10+ years as part of their Future Made in Australia program.

Whilst most of these measures do not specifically relate to taxation, they are an important part of the expenditure in this Budget.  For example, the Government will spend $19.7 billion over the next 10 years to hasten investment in Future Made in Australia priority industries such as renewable hydrogen, green metals, critical minerals, low carbon liquid fuels and other clean energy technology.

Green energy initiatives

As part of this program, the government is attempting to position Australia as a “Renewable Energy Superpower”.   To assist with our quest to become a Superpower, the government will introduce the following tax incentives:

1. Critical Minerals Production tax incentive – which will support downstream refining and processing of Australia’s 31 critical minerals at a cost of $7 billion over the 11 years from 2023-2024;
2. Hydrogen Production tax incentive – which will support the growth of the hydrogen energy industry in Australia at a cost of $6.7 billion over 10 years from 2024-2025.

At this stage, the specifics of these incentives are still to be ironed out.

Unlucky Foreign Residents

The government is proposing to “strengthen” the Capital Gains Tax (CGT) rules for foreign residents to ensure they pay their “fair share of tax” in Australia and to make the rules clearer. Whilst not a lot was mentioned, a few breadcrumbs were dropped.

Currently, foreign residents pay tax on assets that are linked to real property in Australia. This includes physical property located in Australia, and indirect interests in such property. Indirect interests includes broadly having 10% or more interest in a structure (e.g. through a company) that has more than 50% of its asset value in real Australian property.

According to the announcement, the rules will expand the “types of assets” on which foreign residents must pay CGT. We can at this stage only guess at what the expanded rules might include – perhaps indirect ownership being caught under lower thresholds, or for all interests in real property in excess of $2 million??

The announcement did specifically mention that the 50% asset test noted above would be amended to being a 365-day testing period, rather than at the time of the CGT event. This seems to be a protection mechanism against attempts to avoid CGT in Australia by manipulating assets and market values at the point of the sale. The ATO has already specifically noted on its website that this attracts its attention, so presumably this is something that concerns them enough to require reform.

The tightening of the rules will also seemingly include a reporting mechanism for those disposing of indirect interests (e.g. shares in companies) of more $20 million. These sales would, under the proposed changes, require upfront notification to the ATO of the impending sale. Again, presumably to tighten attempts to avoid the CGT system in Australia – allowing the ATO time to review and administer income taxes before potentially losing access to funds in Australia to recover.

The announcement was lacking in much more detail, but there will be consultation before the amendments will apply to CGT events commencing on or after 1 July 2025.

Learn more

If you would like to discuss any of this in more detail, please contact Murray Howlett, Josh Meggs, Kylee Smith or your Pilot Advisor on 07 3023 1300.