Federal Budget 2025-2026: Tax snapshot

Between $18,201 and $45,000, income is currently taxed at a rate of 16 per cent. For the 2026-2027 income year, this rate will be reduced to 15 per cent with a further 1 per cent decrease set for the 2027-2028 income year reducing this bracket rate to 14 per cent.

To reflect the increase in inflation, the Medicare levy thresholds have been increased by 4.7 per cent  from 1 July 2024

Consistent with previous years, this Budget will see continued investment by the government in measures to promote tax compliance and combat tax avoidance activities. In total, almost $1 billion dollars ($999 million) will be provided to the ATO over the next four years to extend and expand their tax compliance activities. In particular the funding includes:

• $718 million on the Tax Avoidance Taskforce, with a purported focus on multinational compliance and other large taxpayers.
• $155.5 million to expand the Shadow Economy Compliance Program aimed at reducing things such as worker exploitation, under-reporting of taxable income, and illicit tobacco among other things.
• $75.7 million on the Personal Income Tax Compliance Program focuses on individual tax compliance.
• $50 million on the Tax Integrity Program, which focuses on ensuring timely payment of tax and superannuation liabilities by medium and large businesses and wealthy groups. 

The government estimates that this spend will increase receipts by $3.2 billion.

The allocation of funds in this way gives taxpayers an indication of what the ATO’s focus may be over the next four years and where we are likely to see the majority of compliance activity. Accordingly, the ATO’s focus continues to include Top 500 and Next 5000 reviews. Based on what we are seeing in practice, be prepared for scrutiny on a range of issues including Division 7A, residency, section 100A, Family Trust Elections and NALI to name a few. Cross-border arrangements involving related parties will also be high on the list of ATO priorities. 

There were no new tax changes announced in this year’s Budget for business, whether start-ups, SMEs or large corporate taxpayers.

In last year's Budget, changes to the foreign resident capital gains regime were announced which will:

clarify and broaden the types of assets on which 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.

These changes were initially intended to come into effect 1 July 2025; however, the start date has now been postponed to the later of 1 October 2025 or the first 1 January, 1 April, 1 July or 1 October after the amending Act receives Royal Assent.

This is not part of some broader shift in strategy but rather due to the fact that, with an election looming, there is insufficient time for Parliament to sit and pass the legislation before the original implementation date.

Consistent with the Assistant Treasurer’s announcement on 13 March 2025, the Budget confirmed the government’s intention to amend tax laws to clarify arrangements for managed investment trusts to ensure that legitimate investors can continue to access concessional withholding rates in Australia.

These measures are consistent with and complement statements made in the ATO’s recent taxpayer alert TA 2025/1, which outlined the ATO’s focus on arrangements that seek to take advantage of the managed investment trust (MIT) withholding regime through the restructure of inward investment structures.

The Budget has outlined further measures to support the recently announced ban on foreign investors (which includes temporary residents, foreign-owned companies) from acquiring established residential dwellings in Australia unless an exemption applies. The ban takes effect from 1 April 2025 and will remain in place until at least 31 March 2027.

The cost of a pint is (somewhat) safe for the next two years, following an announcement that the beer excise has been frozen for the next two years.  However, such a change will have minimal impact on consumers as the impact of this change is measured in a fraction of a cent. 

The thresholds for the excise remission scheme for manufactures of alcoholic beverages and the WET producer rebate have been increased from $350,000 to $400,000 from 1 July 2026, enabling more brewers, distillers and wine producers to access the measure and derive a greater benefit from it.