It was widely predicted that the Albanese Labor Government would call an early election and avoid having to deliver the March 2025 Federal Budget. The unfortunately timed arrival, and slow movement, of ex-Tropical Cyclone Alfred scuttled these plans. The Budget delivered appears short on vision beyond the election cycle and seems to reinforce that this is the Budget nobody wanted to give. It seems to be more about keeping a low profile as we roll into the Federal Election, rather than leading any meaningful change. Strewth Alf! You flamin’ galah! Look what you made us do!

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

Quicklinks

• Personal Tax cuts
• Cost of living relief
• The business of Australia is… not business?
• Strengthening compliance activity again
• No more non-competes?
• Sad story for Foreign residents
• Status quo for superannuation

Personal Tax cuts

Personal Income Tax Cuts

In an effort to counteract the well-publicised issue of “bracket-creep”, the Government has announced further changes to personal income tax rates, which are to apply from 1 July 2026.

The changes are:

• From 1 July 2026 – the tax rate applicable to taxable income received between $18,200 to $45,000 will be decreased from 16% to 15%. This will result in a maximum saving (for a taxpayer earning $45,000 or more) of $268 annually.
• From 1 July 2027 – the above rate will decrease again from 15% to 14%, resulting in a further maximum annual saving of $268.

While the changes could be described as “modest” to say the least, they will deliver a small benefit to most taxpayers and will be felt most by those on lower incomes. By way of illustration, these tax cuts would result in the following savings for individuals:

*Amounts exclude the Medicare Levy and low-income tax offset.

It should be noted that these changes are in addition to the “Stage 3 tax cuts”, which began on 1 July 2024 and are already in effect.

Changes to Medicare Levy Exemption Thresholds

In another boost for lower income earners, the Government has announced that the Medicare Levy exemption thresholds (below which the Medicare Levy does not apply to a taxpayer) will be increased effective from 1 July 2025.

For singles who are not pensioners, the threshold has increased to $27,222 (previously $26,000) and for non-pensioner families the threshold has increased to $45,907 (previously $43,846), plus $4,216 for each dependent child (previously $4,027). The Medicare Levy phases in at 10 cents for each dollar of income received above these thresholds, until the full levy of 2% applies.

These changes are subject to the passage of legislation and therefore it may not be certain whether they will proceed until the 2025 financial year has ended.

Cost of living relief

With high cost of living continuing to occupy the minds of many Australians, the Government has again focused in this budget on measures aimed at reducing the burden of everyday expenses. Some of the key measures addressing this are summarised below:

Keeping the Lights on – Extended Energy Rebate

Australian households and eligible small businesses will continue to receive a further $75 rebate per quarter for an additional two quarters, from 1 July 2025 until 31 December 2025. This measure follows on from the existing electricity rebates of the same quarterly amount offered by the Government from 1 July 2024 until 30 June 2025.

Help for “HELP” Debts

Recently announced changes from the Government aim to reduce the burden of repayments for those with HELP debts. While not yet legislated, these measures have been re-committed to in this Budget.

The proposed changes are that:

1. 1. As a one-off measure, all outstanding HELP debt balances will be reduced by 20% on 1 June 2025.
   2. From 1 July 2025, a new HELP debt repayment system will be introduced (replacing the current income tier rate structure), based on a new marginal rate structure as shown below:

Proposed repayment thresholds with effect from 1 July 2025

Individuals with annual incomes below $180,000 annually are guaranteed to have lower repayments under the new system, resulting in an increase to their take home pay. The 20% reduction in HELP debt balances is estimated to remove approximately $16 billion from the student loan accounts of around 3 million Australians.

Pharmaceutical Benefits Scheme (PBS) Listing

The Government will provide $784.6 million to lower the PBS general co-payment amount (being the out-of-pocket cost of subsidised PBS medicines) from $31.60 to $25.00, starting from 1 January 2026. Several new medicines will also be listed on the PBS, particularly those used in cancer treatments.

No more “Champagne Problems”

Arguably, there has been no industry hit harder by the cost-of-living crisis than the hospitality sector. As a response to this, the Government has proposed to increased support for hospitality venues, brewers, distillers and wine producers through changes to alcohol excise and taxes.

Most notably, the indexation on beer excise will be paused from August 2025 for two years (until August 2027). The existing cap on excise and wine equalisation tax rebates for eligible brewers, distillers and wine producers will also be increased from $350,000 to $400,000 annually from 1 July 2026.

The business of Australia is… not business?

If Small and Medium Enterprises (SMEs) were hoping for support from the Government in this Budget, then they will be sorely disappointed.  It’s really a case of “nothing to see here” for businesses.

It’s worth noting that this Budget, unlike most in recent memory, has not included any extension or adjustment to the Instant Asset Write Off for SMEs.  The last Budget included an extension of the Instant Asset Write Off for assets purchased and installed ready for use by 30 June 2025 with a value not exceeding $20,000 – however this extension has not yet been passed by the Parliament.  The lack of any further extension means that the Instant Asset Write Off will default back to an asset cost limit of $1,000 from 1 July 2025.

This may have a bigger impact on small businesses as the 2026 financial year may be the first year they are unable to claim an immediate deduction on certain deprecating assets, given the $20,000 threshold (or higher) has been in place since 1 July 2016.

Small Businesses will be included in the energy bill relief, providing them with an extra $150 in 2025.  Our colleagues in the audit profession would classify this support as “immaterial”.

Strengthening compliance activity again

The theme of strengthening the fairness and sustainability of the Australian tax system rings throughout the Budget. The Government is proposing to spend $999 million over 4 years on compliance programs with an estimated return on investment of:

1. increase receipts by $3.2 billion over five years from the 2025 financial year; and
2. increase payments by $1.4 billion, representing GST payments back to the States and disbursements of unpaid superannuation (discovered in audit activities) to employees.

The vast majority of this expenditure will continue to fund the Australian Taxation Office’s tax avoidance taskforce which has received additional funding every year since its budgetary inception in 2016. This taskforce focuses on large businesses and wealthy groups and individuals and as at September 2024 has helped secure more than $33.2 billion in additional tax revenue.  The return on investment continues to justify increased expenditure here as far as Treasury is concerned.

No more non-competes?

Non-compete clauses may soon be a thing of the past for low and middle-income workers.  The Government intends to ban non-compete clauses for those workers earning less than $175,000.  They say they will consider whether to expand the ban to high-income earners in future years.

The Government suggests that the removal of such clauses will increase both wages and productivity.

The Government also intends to close loopholes in competition law so that anti-competitive arrangements that cap workers’ pay and conditions without their consent will not be permitted.  Additionally, ‘no-poach’ agreements that block staff from being hired by competitors will also be outlawed.

These changes are being touted as a win for employees in the childcare, construction and hairdressing sectors.

Another sad story for Foreign residents

In a move that is being spun as a win for Australian home buyers, the Government is proposing to ban foreign persons (including temporary residents and foreign-owned companies) from purchasing established dwellings for two years from 1 April 2025. Specific exceptions to the ban include investments that significantly increase housing supply or support the availability of housing on a commercial scale, and purchases by foreign-owned companies to provide housing for workers in defined circumstances. Given the exceptions to the rule and the limited two-year period, only time will tell whether this proposed measure will have any meaningful impact on Australia’s housing supply. However, New Zealand citizens, who are generally temporary residents, will feel the impact in the short term.

The Budget also confirms the Government’s previously announced intentions to provide greater clarity on tax arrangements for managed investment trusts (MITs). The intention is for foreign based, widely held investors (such as pension funds) to still be eligible to access concessional withholding tax rates on eligible distributions received through MITs. These amendments are proposed to apply to fund payments from 13 March 2025 and support Taxpayer Alert 2025/1 that was released by the Commissioner earlier this month.

The Government is also proposing to defer the start date for amendments to the foreign resident capital gains tax regime. These changes were previously announced in last year’s budget (further information found here) and were supposed to be in operation from 1 July 2025. This impact of these changes has been deferred to the later of 1 October 2025 or to the start of the next quarter after the Act receives Royal Assent. There have been no further changes to the previously proposed regime that the Government produced its consultation paper on in July 2024.

Status quo for superannuation

The Government did not announce any new superannuation measures this year. This is likely a welcome relief for an industry that is the midst of impending changes with Pay Day Superannuation and continued uncertainty with the High Balance Superannuation Tax.

Pay Day Superannuation

Unsurprisingly, there was no mention of Pay Day Superannuation in the Budget, with the Government releasing draft legislation earlier this month. This system, proposed to be introduced from 1 July 2026, represents a major change to the current superannuation guarantee regime. The draft legislation provided some clarity for employers on how they should plan and implement updates to their payroll systems before the deadline. The practicality of the implementation of this measure is yet to be determined and business will undoubtedly feel the pinch on cash flow. Employees on the other hand, should welcome the change, hopefully seeing an ultimate increase in their returns on investment and reduction in non-payments of super. We’ll be sure to hear more about this during the election cycle.

High Balance Superannuation Tax

The Budget has not provided any further comments to assist navigating the continued uncertainty surrounding the high balance superannuation tax, aka the proposed Division 296 tax. This proposed legislation remains before the Senate with the Government rejecting any concerns about the taxing of unrealised gains and the $3 million threshold not being indexed. While these changes will not be passed prior to the election, Labor says that they remain committed to the changes.

Contact Pilot

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