Although few tax related measures were expected, the 2025/26 Federal Budget (and last of the current parliament) does contain one or two surprises.
For individual taxpayers – tax cuts and cost of living relief
- The headline tax measure is a reduction in the rate of the first taxation bracket above the tax-free threshold from the current rate of 16% to 15% in 2025/26 and 14% in 2026/27. These reductions will effectively partially hand back some of the additional income tax revenue raised by wage inflation, or bracket creep.
- Other cost of living measures include an increase in the Medicare levy low-income thresholds, and an extension of the energy bill rebate to a further $150.
For business taxpayers – tougher taskforces and a compliance crackdown
The ATO’s enforcement budget will now increase, with $717.8 million allocated over four years for the Tax Avoidance Taskforce – usually described as targeting multinationals, but also the taxation of trusts and private wealth groups, where practically a lot of the true focus lies. As with previous years, the estimated increase in tax receipts appears heroic. After several years of similar increased expenditure, one would expect the returns to eventually diminish.
The Tax Practitioner Board will receive stronger sanctioning powers – if removing tax agents’ ability to practice is not enough. This will support other tougher requirements on tax agents, which have caused a great deal of concern in the industry. ASIC has also received further funding ($3.0m) to target illegal phoenixing, particularly in the construction sector.
For foreign residents – property ban enforced, and CGT changes delayed.
The ATO is also charged with enforcing the recently announced ban on foreign residents purchasing existing homes, as well as land banking. The funds granted the ATO to do so are a relatively modest $14.6 million over four years.
The proposed changes to the foreign resident CGT regime in division 855 are delayed until at least 1 October 2025. Given the legislation has not yet progressed beyond the consultation stage, this is not surprising. Never-the-less, foreign residents who have invested into Australian assets that were not previously caught as taxable Australian property should be alert to changes that may occur in the next parliament. We will be following this closely and will continue to consult with Treasury and keep our clients informed.
Other points to note
Superannuation: the proposed additional 15% tax on unrealised superannuation gains for balances over $3m (under division 296) remains merely a proposed bill, without enough support in the Senate to be legislated. Otherwise, there are no new superannuation measures. The fate of this misguided proposal will no doubt depend on the constitution of the next parliament.
Cheers to the excise indexation freeze: the alcohol industry has received something of a break, with the excise indexation for beer frozen for 2 years, and an increase in the cap under the excise remission scheme for manufactures to $400,000 (also the Wine Equalisation Tax producer rebate).
Some strings attached: an interesting non-fiscal measure is a proposed abolition on non-compete clause for workers earning less than the high-income threshold, however we will leave reporting on this in the capable hands of our Employment Relations and Safety team.
A budget boost for homes, families and franchisees: there are a range of other meritorious spending measures including the help to buy home scheme, childcare subsidies, reduction of help debt and support for small business franchisees.
No doubt this budget will be quickly overtaken by all parties’ pre-election spending measures. Hopefully these will include sensible, systemic tax reform that addresses the multitude of complex issues facing taxpayers and their advisers from an aging tax system that is rapidly ceasing to be fit for purpose. For questions about the Federal Budget or to connect with one of our tax specialists, please visit our Tax page.