Federal Budget 2024/25 Summary

How will the latest Federal Budget affect middle-market businesses and people?

In the 2024-25 Budget led by Jim Chalmers, there's a focus on balancing support and caution. Measures like rebates on power bills for homes and small businesses, cheaper medications, and announced tax reductions aim to address the ongoing high cost of living.

These initiatives are designed to manage inflation without adding too much strain. Small businesses will continue to benefit from instant asset write-off schemes for purchases under $20,000. Another key part of the Budget is the Future Made in Australia package, which will support various businesses.

However, both businesses and individuals should be aware that the ATO's review and audit programs are staying put. There's increased funding over longer periods to ensure taxes are collected properly, from individuals claiming too many deductions to large multinational companies with complex financial arrangements.

Personal Income Tax Measures

Stage three personal tax cuts

The latest personal tax cuts announced by the Government are now official, as per the Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024. These changes affect income tax rates and thresholds for both residents and foreign residents starting from July 1, 2024 (for the 2025 income year). Below are simplified tables showing the new rates compared to those of the previous year.

Increased Medicare levy low-income thresholds

The government has raised the income levels at which people qualify for reduced Medicare levy payments. This change applies to singles, families, seniors, and pensioners starting from July 1, 2023.

These adjustments to the Medicare levy thresholds were announced before the Federal Budget and are now law. You can find more information in the Treasury Laws Amendment (Cost of Living – Medicare Levy) Act 2024.

For the 2024 income year, the new Medicare levy thresholds for individuals and families are as follows: For each dependent child or student, the family income thresholds will increase by a further $4,027. 

Small Business Measures

Temporary increase to the instant asset write-off

According to the current law, small businesses can instantly write off assets valued at less than $1,000 for the 2025 income year. However, the Government plans to temporarily increase this threshold to less than $20,000 for the same period. This means that small businesses with an annual turnover of less than $10 million can deduct the entire cost of eligible assets valued at less than $20,000 if they're used or installed by June 30, 2025. This applies to each individual asset, allowing small businesses to write off multiple assets instantly.

Assets valued at $20,000 or more cannot be instantly deducted. Instead, they can be added to a simplified depreciation pool for small businesses, where they're depreciated at a rate of 15% in the first year and 30% each subsequent year.

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

Starting July 1, 2025, the instant asset write-off threshold will return to less than $1,000.

Retaining Business Activity Statement (‘BAS’) refunds

The government plans to empower the ATO to tackle fraud better by giving them more time to inform taxpayers if they plan to hold onto a BAS refund for further checking. The time the ATO has to notify taxpayers will be extended from 14 to 30 days, matching the time limits for other types of refunds.

This adjustment won't impact most legitimate refunds. However, if a legitimate refund is held for more than 14 days, the ATO will have to pay interest to the taxpayer. The ATO will also make BAS processing times available online.

These changes will come into effect at the beginning of the first income year after the enabling legislation receives Royal Assent.

Relieving energy bill pressures

The government is offering help with energy bills for small businesses. Through the Energy Bill Relief Fund, about one million small businesses on lower-cost electricity plans will get rebates to help pay their bills. In this budget, eligible small businesses will receive an extra $325 in energy bill relief.

Expanding the Digital ID System

The Government is making the Digital ID System bigger. This will make things easier for small businesses by reducing the amount of ID information they have to keep secure for customers and employees.

Building cyber resilience for small businesses

The government is aiding small businesses in securing their online presence and embracing digital opportunities. This includes:

• Offering the Cyber Wardens program, which provides free online training to small business owners and their teams, promoting a cyber-safe mindset.

• Providing the Small Business Cyber Resilience Service to assist businesses in bolstering their cyber defenses and offering support in case of a cyber attack.

• Introducing the Cyber Health Check, an online tool for small and medium-sized businesses to assess their cyber security readiness.
  
• Additionally, the government is working on a ransomware playbook to offer advice on preparing for, responding to, and recovering from ransomware or cyber extortion incidents.

Foreign Residents

Strengthening the foreign resident CGT regime

The government plans to make changes to the tax rules for foreign residents selling assets in Australia. These changes aim to make sure that foreign residents pay the right amount of tax and to make the rules clearer.

Starting from July 1, 2025, the changes will:

• Make it clearer which assets foreign residents need to pay tax on when they sell them.

• Change the way we check if an asset is a main asset from a one-time check to checking over 365 days.

• Require foreign residents selling shares or other similar things worth more than $20 million to tell the tax office before they do it.

These changes mean that foreign residents will be taxed more like Australian residents when they sell assets closely connected to Australian land.  The new process for telling the tax office about big sales will help make sure that people follow the rules when they sell assets.

Superannuation

Superannuation on Paid Parental Leave

The government will now provide superannuation benefits for Commonwealth-funded Paid Parental Leave starting from July 1, 2025. Qualified parents will get an extra contribution to their superannuation fund, calculated at 12% of their Paid Parental Leave payments.

Unpaid superannuation entitlements

Starting July 1, 2024, the Government plans to adjust the Fair Entitlements Guarantee Recovery Program to recover unpaid superannuation funds from employers who are in liquidation or bankruptcy.

Superannuation Guarantee set to continue to increase to 12%

The Superannuation Guarantee rate is scheduled to increase as previously legislated from the current 11% to 11.5% from 1 July 2024. Employers should review their existing systems and processes to ensure the increase is correctly reported and paid in the new financial year.

There will be a final 0.5% increase to the Superannuation Guarantee rate to 12% from 1 July 2025.

Contributions caps to increase from 1 July 2024

From 1 July 2024, the general concessional contributions cap will increase due to indexation from the current $27,500 to $30,000 for all individuals, regardless of age.

The non-concessional contributions cap will also increase from the current $110,000 to $120,000 from 1 July 2024. For eligible individuals, the bring-forward cap may be available to a limit of up to $360,000.

Individuals should ensure they meet the required minimum standards, age requirements and tests before making superannuation contributions to avoid unnecessary taxes or penalties.

Reduction of superannuation concessions to proceed

From 1 July 2025, the Government will proceed with reducing the tax concessions available to individuals with a total superannuation balance exceeding $3 million.

The measures propose to apply an additional tax rate of 15% on the amount of earnings relating to the proportion of an individual’s total superannuation balance that exceeds $3 million. The formula calculates a deemed earnings amount which also includes notional (unrealised) gains and losses.

This was first announced by the Treasurer on 28 February 2023 and draft legislation was introduced into Parliament on 30 November 2023. Following referral of the proposed measures to the Senate Economics Legislation Committee, a Report was handed down on 10 May 2024, recommending the bills be passed with no changes.

The earnings on balances below $3 million will continue to be taxed at 15% or less under the existing rules.

Other Budget Measures

Discretion to not offset a refund against old tax debts

The proposed change in tax law allows the Commissioner to choose not to use a taxpayer's refund to pay off past tax debts, if those debts were put on hold before January 1, 2017. 

This applies to individuals, small businesses, and nonprofits, keeping the Commissioner's current way of handling these matters intact.

Extending ATO compliance programs

The Government has decided to continue the following ATO programs:

Personal Income Tax Compliance Program: The ATO's Personal Income Tax Compliance Program will be extended for one year starting July 1, 2027. This extension will support the ATO in its efforts to address various areas of non-compliance, such as incorrect income reporting and excessive deductions. It will also help the ATO focus on new risks like questionable deductions for short-term rental properties.

Shadow Economy Compliance Program: The ATO's Shadow Economy Compliance Program will be extended for two years from July 1, 2026. This extension aims to further reduce shadow economy activities, protecting revenue and ensuring fair competition.

Tax Avoidance Taskforce: The ATO's Tax Avoidance Taskforce will be extended for two years from July 1, 2026. This extension will provide continued resources to target tax avoidance risks, particularly among large businesses and high-wealth individuals.

ATO counter fraud measures: The Government will allocate $187.0 million over four years from July 1, 2024, to enhance the ATO's ability to detect, prevent, and address fraud in the tax and superannuation systems. This includes investing in technology upgrades for real-time detection of suspicious activities, establishing a new task force to recover lost revenue and prevent fraudulent refunds, and improving the ATO's management of counter-fraud efforts, including supporting victims of fraud.

Expanding the scope of Part IVA

In the recent Budget announcements, the Government stated plans to broaden the reach of tax rules to address strategies that lower taxes paid in Australia for foreign income or aim to gain tax advantages domestically, regardless of whether they primarily target foreign tax reduction. Originally slated for implementation starting July 1, 2024, the start date of this measure has been revised. It will now take effect from the day the new legislation receives Royal Assent, regardless of when the scheme was initiated.

Denying deductions for payments on intangibles in low or no tax jurisdictions

In the October 2022/23 Budget, the Government said it would create a rule to stop certain entities from claiming tax deductions for payments to related parties in low-tax areas regarding intangible assets.

However, in the 2024/25 Budget, the Government changed its plans. It won't proceed with this rule because global and domestic minimum taxes will now handle these integrity concerns.

Additionally, starting July 1, 2026, the Government will enforce a penalty for taxpayers in large global turnover groups ($1 billion annually) who misrepresent or undervalue royalty payments, subject to royalty withholding tax.

Freezing social security deeming rates

The Government plans to keep social security deeming rates unchanged until June 30, 2025, to help older adults and others on fixed incomes cope with living expenses.

Tertiary education system reforms

The government plans to support the first phase of changes in
Australia's higher education system by providing funding for two key initiatives:

• Adjusting the way student loans are indexed, starting from June 1, 2023. The adjustment will be based on either the Consumer Price Index or the Wage Price Index, whichever is lower, pending the approval of legislation.

• Introducing a new payment called the 'Commonwealth Prac Payment,' set at $319.50 per week, starting from July 1, 2025. This payment, aligned with the single Austudy rate, aims to assist tertiary students engaged in supervised mandatory placements as part of their nursing, teaching, or social work studies. It's designed to ease the financial burden of mandatory placements and encourage more students to stay in these fields, which are facing shortages.

Energy bill relief for households

The Government is offering support to Australian households by reducing energy bills. Starting July 1, 2024, each household will get a $300 rebate, spread out in quarterly payments, automatically deducted from their electricity bills.

If you would like to discuss how these measure effect you, please make an appointment to speak with us today.