What does Federal Budget 2024-2025 mean for you? Insight from our experts

Summary

The Government has announced it will extend the $20,000 instant asset write-off by a further 12 months until 30 June 2025.

Businesses with an annual turnover under $10 million will continue to be able to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used and installed ready for use by 30 June 2025.

The threshold will continue to apply on a per asset basis, so small businesses can instantly write off multiple assets.

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be depreciated in the small business depreciation pool at 15 per cent in the first income year and 30 per cent each subsequent income year. 

The lock-out rule preventing small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended until 30 June 2025. 

Observations

The $20,000 instant asset write-off measures for small businesses were included in last year’s Federal Budget to help small businesses improve their cash flow and reduce compliance costs.

Although intended to be temporary, the measures have proven to be a positive and popular incentive for small-to-medium businesses to make capital investments that can improve their operations and productivity, with ancillary benefits across the entire economic supply chain: one wonders whether they will (or should) become a permanent feature of the tax depreciation provisions.

We note that the Government has not yet legislated the 12-month extension that was included in last year’s Federal Budget!

In practice, we have encountered issues where the instant asset write-off is used by trusts carrying on a trading business – resulting in differentials between tax and accounting income that can prove tricky to reconcile when considering trust distributions. Keep this in mind if relevant to your business.

Summary

Counter Fraud strategy

The Government has announced $187 million will be allocated to the ATO over four years from 1 July 2024 to 30 June 2028 to enhance its ability to detect, prevent and mitigate risks against the tax and superannuation systems. This includes:

• $78.7 million for tech upgrades enabling the real time identification and blocking of suspicious activity.
• $83.5 million for a new taskforce tasked with intervening and recouping lost revenue from fraudulent refund attempts.
• $24.8 million to the ATO’s management of its counter fraud activities.
• $400,000 to the Department of Finance to undertake a Gateway Review process to ensure independent assurance, oversight and delivery of these announced measures.

The Government also intends to improve the ATO’s ability to tackle fraud by increasing the time the ATO has to notify a taxpayer of its intention to retain a business activity statement (BAS) refund for closer inspection, from 14 to 30 days. Legitimate refunds held by the ATO past 14 days will attract ATO payment of interest to the corresponding taxpayer.

Tax Ombudsman funding

A further $79.7 million over four years will be provided to Treasury to support the performance of its functions, including the functions of the Inspector-General of Taxation and Taxation Ombudsman.

Shadow Economy Compliance Program

This program has been extended by a further two years until 30 June 2028. By extending this program, it is intended the ATO will be able to reduce shadow economy activity and protect revenue by preventing non-compliant businesses from undercutting competition, while increasing receipts by a projected $1.9 billion and increase payments by $610.2 million over five years (including increasing GST payments to states and territories of $429.6 million).

Avoidance Taskforce

The Avoidance Taskforce’s funding has similarly been extended an additional two years until 30 June 2028. This taskforce aims to pursue key tax avoidance risks with particular focus on multinationals, large public and private businesses and high-wealth individuals. The Government anticipates this measure will increase receipts by $2.4 billion and increase payments by $1.2 billion over five years.

Observations

Increased funding to the regulator was almost a given. In recent years, there has been a notable expansion in budget allocations towards compliance initiatives, including extensions to existing programs, strongly suggesting that they are generating positive outcomes for the Government. 

The fraud strategy’s focus on BAS refunds is unsurprising – in recent years the ATO has been plagued by persistent issues in this space with a large number of fraudulent GST refund claims.  This has been driven by a number of factors, including misinformation on social media, and some instances of more large-scale organised fraud. 

We expect that increased funding to bolster the ATO’s compliance activities will be reflected in further compliance focused programs, such as a continuation of the Top 500 and Next 5,000 programs, as well as potentially filtering down to the next layer of taxpayer groups. We expect it will also lead to increased litigation.

Summary

The Government has announced a range of measures intended to strengthen the foreign resident capital gains tax (CGT) regime, and to align the regime more closely with OECD standards and international best practice.

Specifically, the Government has announced that the foreign resident CGT regime will be amended to:

• 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.

The amendments will apply to CGT events commencing on or after 1 July 2025, and the Government will consult on the implementation details of the measures.

These measures are intended to ensure that Australia can tax foreign residents on direct and indirect sales of assets with a close economic connection to Australian land, more in line with the tax treatment that already applies to Australian residents.

The new ATO notification process for the disposal of shares and other membership interests exceeding $20 million is intended to improve oversight and compliance with the foreign resident CGT withholding where a vendor self-assesses that their sale is not taxable Australian property.

Observations

The proposed amendments will add to the complexity and compliance burden of an already complex foreign resident CGT regime, which can currently be found in Division 855 of the Income Tax Assessment Act 1997.

The broadening of assets on which foreign residents are subject to CGT should lead to more transactions being captured by the regime. This measure may be in response to specific arrangements that the ATO is seeing in the market. It will be interesting to see how and to what extent the existing asset classes will be expanded.

Amending the point-in-time principal asset test to a 365-day testing period increases the complexity of the existing rules. This test requires a comparison of the market values of an investee entity’s assets, which may fluctuate substantially throughout the year. Taxpayers will need to collate and assess the entity’s assets position in detail over a 365-day period – rather than simply making an assessment of assets at the time of a transaction. This change will also prevent timely pre-transaction restructures to manage exposures to the regime, although that may be the Government’s intention. 

The new ATO notification process for the disposal of shares and other membership interests exceeding $20 million further increases red tape and compliance costs. The notification system will need to be efficient and modern, and perhaps dovetail in with the existing foreign resident capital gains withholding regime.

The Government's revised Stage 3 tax changes will commence from 1 July 2024. These changes were announced on 25 January 2024 and enacted on 5 March 2024. No further changes to personal income tax rates were announced in this 2024-25 Federal Budget.

From 1 July 2024, the new brackets and rates will be:

The Government has also announced the following increases to the Medicare Levy low-income threshold for singles, families, and seniors and pensioners:

• Singles threshold: $24,276 -> $26,000
• Family threshold: $40,939 -> $43,846
• Single seniors and pensioners threshold: $38,365 -> $41,089
• Family seniors and pensioners threshold: $53,406 -> $57,198
• Family income threshold increase per independent child: $3,760 -> $4,027

Observations

The announcement regarding personal income tax rates can be summarised as ‘nothing to see here’, as these measures were already announced and enacted earlier this year.

The proposed Stage 3 tax cuts as originally enacted would have seen a flattening of our system of progressive income tax rates, as they would have seen the removal of the 37 per cent tax bracket. Those original measures were revised earlier in the calendar year and replaced with changes that produce tax cuts across the board for all resident individual taxpayers from 1 July 2024.

The changes to the Medicare Levy low-income threshold will provide some relief to low-income earners and mitigate financial pressures driven by inflation.

Summary

The Budget announced the abolishment of 457 ‘nuisance tariffs’, the most significant legislative reform of the Customs Tariff Act 1995 in two decades.

The Tariff Act imposes duties of customs on goods imported into Australia. The amount of duty imposed on imported goods is ordinarily worked out by reference to the rate of duty (expressed as a percentage of the value of the imported goods) set out in the tariff classification in Schedule 3 to the Tariff Act.

From 1 July 2024, the Tariff Act will be amended to apply a zero rate of duty to a number of goods in Schedule 3 and Schedules 4A to 15. By way of example, zero customs duty will apply to:

• some household appliances (fridge/freezers, dishwashers, washing machines/dryers, solar water heaters);
• certain furniture and trade tools; and
• some toys and games

Observations

The existence of a tariff is ultimately a measure designed to protect local manufacturing industries from competition abroad. However, such measures are ineffective if there is no domestic industry to protect, and simply act to impose disproportionate regulatory and compliance costs on importing businesses that drive up the price for such goods domestically.

The Budget measures follow Treasury’s consultation process in March 2024 and the Productivity Commission research paper in August 2022 that both recognised the regulatory and compliance costs of these ‘nuisance tariffs’ significantly outweigh any revenue benefits they bring for the Government. 

The abolition of the ‘nuisance tariffs’ is one part of the Government’s broader Simplified Trade System strategy, being one designed to ‘create a simpler, more effective, inclusive and sustainable cross-border trade environment for Australia, increasing productivity, while strengthening border, biosecurity and community protections’. The Government’s Simplified Trade System Implementation Taskforce issued a further consultation paper in April 2024, signalling further reforms to customs and trade practice in Australia.