The Treasurer is promising that inflation will decline by 0.75% as a direct result of the 2024-25 Federal Budget initiatives including energy relief for all households, a boost to Commonwealth Rent Assistance, and the freezing of the maximum co-payment on the Pharmaceutical Benefits Scheme.
This is a pre-election budget for the people with everyone getting a little something to ease cost of living pressures. Like the Price is Right gameshow, it will all come down to the price paid at the checkout. If the consumer price index (CPI) returns to target by the end of 2024 off the back of the Budget initiatives as the Government anticipates, the Reserve Bank of Australia (RBA) may be inclined to reduce interest rates. However, at this stage, the RBA is not expecting inflation to return to the target range of 2-3% until the second half of 2025, and to the midpoint in 2026.
The 2023-24 surplus has increased to $9.3bn but is expected to decline to a deficit of $28.3bn in 2024-25, driven primarily by the Stage 3 tax cuts.
For business, the Government is picking winners through targeted public investment with its Future Made in Australia Framework that they are betting will pave the way for private investment in net zero transformation and the strengthening of Australia’s domestic economic resilience. For small and medium business, there is a little but not a lot - an extension of the $20k instant asset write-off until 30 June 2025 and a $325 rebate to eligible businesses towards 2024-25 energy bills.
For foreign residents, the capital gains tax (CGT) regime will be amended to broaden the type of assets subject to CGT and introduce a modified 365-day principal asset testing period.
Key measures:
• Previously announced Stage 3 tax cuts
• $300 energy bill relief for all Australian households and $325 for eligible small businesses - applied as an automatic quarterly credit.
• Student HELP debts will be cut by changing the way indexation is calculated. From 1 June 2023, it will be the lower of the CPI or the Wage Price Index (WPI), reducing the debt accumulated by more than 3 million Australians when the CPI spiked to 7.1%.
• Increase to the Commonwealth rent assistance maximum rates by 10% from 20 September 2024.
• One year freeze on the maximum Pharmaceutical Benefits Scheme (PBS) patient co-payment for Medicare card holders and a five-year freeze for pensioners and other concession cardholders.
Those with large superannuation balances will be disappointed that the 30% tax on super earnings on balances above $3 million remains in place, this is set to commence from 1 July 2025.
| From | 1 July 2024 |
As previously announced, the Government has legislated permanent tax cuts for all Australian taxpayers from 1 July 2024.
Relative to the previous Stage 3 plan, the redesigned cuts broaden the benefits of the tax cut by focussing on individuals with taxable income below $150,000.
| From | 1 July 2023 |
The Medicare levy low-income thresholds will be increased for singles, families, and seniors and pensioners from 1 July 2023.
| Medicare low-income threshold | Threshold as at 30 June 2023 | Threshold from 1 July 2023 |
| Singles | $24,276 | $26,000 |
| Families | $40,939 | $43,846 |
| Single - seniors and pensioners | $38,365 | $41,089 |
| Family - seniors and pensioners | $53,406 | $57,198 |
| Family - for each dependent child or studen | $3,760 | $4,027 |
The increases to the thresholds take account of recent movements in the CPI so that low-income taxpayers generally continue to be exempt from paying the Medicare levy.
| From | 1 July 2024 |
Households will receive a credit of $300 on their energy bills credited as automatic quarterly instalments across 2024-25.
Energy relief will also be provided to eligible small businesses in the form of a $325 rebate.
Costing $3.5bn over three years from 2023-24, the measure extends and expands the Energy Bill Relief Fund.
| From | Loan accounts that existed on 1 June 2023 |
As previously announced, the Government will cap the HELP indexation rate to be the lower of either the CPI or the Wage Price Index (WPI) with effect from 1 June 2023. The change will apply to all HELP, VET Student Loans, Australian Apprenticeship Support Loans and other student support loan accounts that existed on 1 June 2023.
By changing the calculation of HELP indexation from 1 June 2023, the indexation rate is reduced from:
The change resolves an issue for more than 3 million Australians with a HELP debt when the CPI indexation rate spiked to 7.1% last year.
An individual with an average HELP debt of $26,500 will see around $1,200 wiped from their outstanding HELP loans this year, pending the passage of legislation.
Estimated indexation for HELP debts
| HELP debt at 30 June 2023 | Total estimated credit for 2023 and 2024* |
| $15,000 | $670 |
| $25,000 | $1,120 |
| $30,000 | $1,345 |
| $35,000 | $1,570 |
| $40,000 | $1,795 |
| $45,000 | $2,020 |
| $50,000 | $2,245 |
| $60,000 | $2,690 |
| $100,000 | $4,485 |
| $130,000 | $5,835 |
*Actual credit amount will vary depending on individual circumstances including repayments made during the year. All HELP debts that were indexed in 2023 and are subject to indexation on 1 June 2024 will receive an indexation credit.
| From | 1 July 2025 |
As previously announced, from 1 July 2025 superannuation will be paid on Paid Parental Leave payments from 1 July 2025.
Eligible parents will receive an additional payment based on the superannuation guarantee (i.e. 12% of their PPL payments), as a contribution to their superannuation fund.
This payment is in addition to the changes that saw families provided with an extra two weeks of leave (22 weeks total), which will increase to 24 weeks from July 2025 and 26 weeks from July 2026 (see Paid Parental Leave Amendment (More Support for Working Families) Bill 2023, Royal Assent 20 March 2024).
| From | 20 September 2024 |
The Commonwealth rent assistance maximum rates will increase by 10% from 20 September 2024.
Recipients of Centrelink/Department of Veterans Affairs payments and those receiving family tax benefit may also receive rent assistance if they are paying rent or other rent like payments over a minimum fortnightly threshold.
The current maximum fortnightly rates are $188.20 for a single person and $177.20 combined for a couple.
The measure will cost $1.9 billion over five years from 2023–24 (and $0.5 billion per year ongoing from 2028–29), and builds on the 15% increase in September 2023, taking the maximum rates over 40% higher than in May 2022.
The Government will provide funding of $2.2 billion over the next five years to deliver key aged care reforms and to continue to implement recommendations from the Royal Commission into Aged Care Quality and Safety.
This funding includes the release of an additional 24,100 home care packages in 2024-25.
The Government has also agreed to defer the commencement date of the new Aged Care Act to 1 July 2025.
The Government is currently in the middle of considering and implementing changes to the way aged care is funded on the back of the Royal Commission into Aged Care Quality and Safety report released in 2021.
This will likely impact home care and residential care fees in the future. Generally, with past reform we have seen existing residents and home care recipients ‘grandfathered’ under the rules at the time they entered.
| Date | 20 March 2025 |
Currently, to receive the Centrelink Carer Payment, the care giver is required to not be involved in work, study or training for more than 25 hours per week. This is to reflect the requirement that to receive this payment the care giver should be providing the care recipient with ‘constant care’.
From 20 March 2025, the existing 25 hours per week will be amended to 100 hours over four weeks.
This limit will no longer capture study, volunteering and travel time so will only apply to employment.
In addition:
| Date | 20 September 2024 |
The Government will extend eligibility for the existing higher rate of JobSeeker payment to single recipients with a partial capacity to work (zero to 14 hours per week) from 20 September 2024.
Currently, those on JobSeeker payments aged 55 or over and who have been on the payment for nine continuous months receive a higher rate of payment. These are:
| Relationship status | Maximum payment per fortnight |
| Single with no children | $762.70 |
| Single with dependent children | $816.90 |
| Single 55 or older after 9 continuous months of payments | $816.90 |
| Partnered (Each) | $698.30 |
| Date | 12 months until 30 June 2025 |
When calculating Centrelink and Department of Veterans affairs payments, rather than assessing the actual income from financial investments, a deemed rate of return based on the total value of these investments is assumed. Some common examples of financial investments include bank accounts, term deposits, shares and managed funds.
The Government proposes to freeze the deeming rates (shown below) until 1 July 2025:
| Deeming rate | Single | Pensioner Couple |
| 0.25% | Up to $60,400 | Up to $100,200 |
| 2.25% | Amounts over $60,400 | Amounts over $100,200 |
| From | 1 January 2024 |
The Government will ensure that the cost of medicines remains low by freezing indexation:
The $1 optional discount available on patient co-payments for subsidised prescriptions will be reduced each year by the relevant notional indexation amount until the $1 discount has been reduced from $1 to zero.
From 1 January 2024, you may pay up to $31.60 for most PBS medicines, or $7.70 if you have a concession card. The Australian Government pays the remaining cost (with the exception of brand premiums and certain other allowable charges).
Housing initiatives address three key areas:
As previously announced, much of the Budget funding however flows to the States and Territories to increase housing stock, increase social housing, and provide crisis accommodation. New measures include:
| Date | From mid-2025 |
As previously announced, the Government has committed almost $1bn over 5 years to permanently establish the Leaving Violence Program – so those escaping violence can receive financial support, safety assessments and referrals to support pathways. Those eligible will be able to access up to $5,000 in financial support along with referral services, risk assessments and safety planning.
| Date | CGT events commencing on or after 1 July 2025 |
The foreign resident capital gains tax (CGT) regime will be expanded by:
Under current law, foreign residents are subject to CGT when they sell an asset that is classified as ‘taxable Australian property’ (TAP). The rules seek to ensure that non-residents are subject to Australian CGT on the disposal of assets that have a sufficient with Australian land and assets that have been used in business activities in Australia..
Shares in a company and units in a trust can be classified as TAP if the taxpayer and certain related parties hold at least a 10% interest in the entity and where more than 50% of the gross market value of the assets held by the entity is attributable to real property located in Australia and similar assets.
The measure is intended to ensure that Australia can tax foreign residents on direct and indirect sales of assets with a close economic connection to Australian land, bringing the treatment more in line with the tax treatment that already applies to Australian residents.
The new ATO notification process will improve oversight and compliance with the foreign resident CGT withholding rules, where a vendor self-assesses the sale doesn’t involve TAP.
The proposed reforms will also align Australia’s tax law for foreign resident capital gains more closely with OECD standards and international best practice.
The Government will consult on the implementation details of the measure, which is estimated to increase receipts by $600 million and increase payments by $8 million over the five years from 2023–24.
| Date | 1 July 2024 |
Around one million small businesses will receive $325 off their energy bills over 2024–25. The support will apply as an automatic quarterly credit to energy bills.
Energy relief will also be provided to households in the form of a $300 rebate.
Costing $3.5bn over three years from 2023-24, the measure extends and expands the Energy Bill Relief Fund.
| Date | 1 July 2023 to 30 June 2025 |
Small businesses, with an aggregated turnover of less than $10 million, will be able to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2025. This measure extends the 2023-24 Budget announcement to the 2024-25 financial year.
“Immediately deductible” means a tax deduction for the asset can be claimed in the same income year that the asset was purchased and used (or installed ready for use).
If the business is registered for GST, the cost of the asset needs to be less than $20,000 after subtracting the GST credits that can be claimed for the asset. If the business is not registered for GST, it is less than $20,000 including GST.
The write-off applies per asset, so a small business can deduct the cost of multiple assets.
The rules only apply to assets that fall within the scope of the depreciation provisions. Expenditure on capital improvements to buildings that falls within the scope of the capital works rules is not expected to qualify.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to
be placed into the small business simplified depreciation pool and depreciated at
15% in the first income year and 30% each income year thereafter if the asset has been acquired by a small business entity that chooses to apply the simplified depreciation rules.
The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt-out will continue to be suspended until 30 June 2025.
The increased small business instant asset write-off announced in the 2023-24 Federal Budget is not yet law, see Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023). Senate amendments proposed increasing the threshold from $20,000 to $30,000 and expanding the measure to apply to medium entities.
The Government has announced a bold initiative to make Australia a “renewable energy superpower.”
The $22.7 billon series of initiatives is designed to foster and encourage significant private sector investment into priority industries necessary to harnessing the economic and industrial benefits of the move to net zero and securing Australia’s place in a changing global economic and strategic landscape.
The Future Made in Australia Act will establish the policy framework - the focus will be on industries in which Australia has a genuine economic advantage, where it contributes to an orderly path to net zero, where it builds on the capabilities of the people and regions and improves Australia’s national security and economic resilience.
| Date | From 2027–28 to 2040–41 |
As part of the Future Made in Australia initiative, the Government will provide an estimated $19.7 billion over ten years from 2024–25 to accelerate investment in Future Made in Australia priority industries including renewable hydrogen, green metals, low carbon liquid fuels, refining and processing of critical minerals and manufacturing of clean energy technologies including in solar and battery supply chains.
This includes two time‑limited tax incentives to invest in new industries:
The tax incentives are proposed to be in effect from the 2027–28 to the 2040–41 income years.
Funding measures
The Government is getting into business with industry to encourage investment in select areas:
| Date | 2025-26 income year |
The Producer Tax Offset is a refundable tax offset for Australian expenditure in making Australian films when certain conditions are met. The amount of the offset is:
The minimum duration requirement differs depending on the format of the production.
As part of the Government’s announced National Cultural Policy, it will make the changes to the Producer Tax Offset from 2025–26 to remove:
| Date | Over four years from 2024–25 |
The Government has announced $41.7 million in funding over four years from 2024–25 for a series of initiatives to support small businesses:
| Date | From 2024–25 |
$7.5 million over four years from 2024–25 (and $1.5 million per year ongoing) has been provided to modernise regulatory frameworks for financial services to improve competition and consumer protections for services enabled by new technology.
The Government will:
The current charity transitional reporting arrangement will be extended for five years.
The Government will remake the Australian Charities and Not-for-profits Commission (Consequential and Transitional) Regulation 2016 with an extension of the current charity transitional reporting arrangement for five years.
The purpose of the regulation is to reduce the regulatory reporting burden on certain not-for-profit entities (registered entities) under the Australian Charities and Not-for-profits Commission Act 2012 (the ACNC Act) by providing that the ACNC Commissioner may treat a statement, report or other document given under an Australian law to an Australian Government agency by a registered entity as satisfying certain reporting obligations under the ACNC Act.
| Date | First income year after Royal Assent of enabling legislation |
The Government announced that it will provide $187 million over four years from 1 July 2024 to the ATO to strengthen its ability to detect, prevent and mitigate fraud against the tax and superannuation systems.
Funding includes:
The Government will also strengthen the ATO’s ability to combat fraud by extending the time the ATO has to notify a taxpayer if it intends to retain a business activity statement (BAS) refund for further investigation. The ATO’s mandatory notification period for BAS refund retention will be increased from 14 days to 30 days to align with time limits for non-BAS refunds.
The extended period will strengthen the ATO’s ability to combat fraud during peak fraud events like the one that triggered Operation Protego. Legitimate refunds will be largely unaffected. Any legitimate refunds retained for over 14 days would result in the ATO paying interest to the taxpayer - as is currently the case. The ATO will publish BAS processing times online.
This measure is estimated to increase receipts by $302.2 million and increase payments by $187.4 million over the five years from 2023–24.
Specific funding has been provided to the ATO for key targets. These include:
Personal income tax - The ATO’s Personal Income Tax Compliance Program will be extended for one year from 1 July 2027. This measure is estimated to increase receipts by $180.3 million and increase payments by $44.3 million over the 5 years from 2023–24.
The shadow economy - the ATO’s Shadow Economy Compliance Program will be extended for two years from 1 July 2026. This measure is estimated to increase receipts by $1.9 billion and increase payments by $610.2 million over the 5 years from 2023–24. This includes an increase in GST payments to the states and territories of $429.6 million.
Anti-avoidance taskforce - extend the ATO’s Tax Avoidance Taskforce for two years from 1 July 2026. This measure is estimated to increase receipts by $2.4 billion and increase payments by $1.2 billion over the 5 years from 2023–24.
The Tax Avoidance Taskforce has a strong focus on the top 1,100 public and multinational businesses and the top 500 privately owned groups, but also covers all 5,000 high wealth private groups that control net wealth exceeding $50 million and public and multinational businesses outside of the ATO’s justified trust programs.
As of 30 June 2023, the taskforce has assisted the ATO raise $32.7 billion in tax liabilities.
Child care providers - $4.8 million over four years from 2024–25 to ensure satisfactory engagement with the Australian tax system regarding fitness and propriety requirements of existing and new child care providers (relating to the Child Care Subsidy Program).
Identify checking - $155.6 million over two years from 2024–25 to continue operating and improving the Government’s Digital ID, myGovID, and the system which supports authorised access to a range of government business services.
Migrant workers - $1.9 million in 2024–25 for a data-matching pilot between the Department of Home Affairs and the ATO of income and employment data to mitigate exploitation of migrant workers and abuse of Australia’s labour market and migration system.
E-invoicing - $23.3 million over four years from 2024–25 to continue to oversee and operate the secure eInvoicing network as part of the Government’s work to combat scams and online fraud through the introduction of mandatory industry codes to be established under a Scams Code Framework and increased use of the secure eInvoicing network.
Military invalidity payments - The Government will provide $11.9 million over five years from
2023–24 (and $0.9 million per year ongoing) to implement a social security means test treatment for the military invalidity payments affected by the Federal Court’s decision in FCT v Douglas [2020] FCAFC 220. This approach ensures the Douglas decision does not affect income support payment rates for veterans who receive an invalidity payment from the Military Superannuation and Benefits Scheme and the Defence Force Retirement and Death Benefits Scheme, compared to the pre-Douglas arrangements.
In Douglas, the Full Federal Court found that invalidity pensions paid under the Military Superannuation Benefits and Defence Force Retirement and Death Benefits schemes that commenced after 20 September 2007 were ‘superannuation lump sum payments’ rather than ‘superannuation income stream benefits’ within the meaning of the ITAA 1997.
| Date | 1 July 2024 |
From 1 July 2024, the Government will decrease the overall levy rate on sweet potatoes from 1.5% to 0.5%.
| Date | Royal assent of amending legislation |
The 2023-24 Budget measure to extend Part IVA, scheduled to commence on 1 July 2024, has been delayed so that this applies to income years starting on or after the date the amending legislation receives Royal Assent.
Part IVA contains the general anti-avoidance provision that the ATO can use to attack arrangements that are entered into in order to obtain tax benefits.
Under the measure, the scope of Part IVA will be extended so that it can apply to:
The start dates for the following components of the Streamlining excise administration for fuel and alcohol package, will be changed.
Australian plantation forestry entities will be exempt from the new thin capitalisation earnings-based rule.
The 2022–23 October Budget measure Multinational Tax Integrity Package amended the thin capitalisation rules to replace the safe harbour and worldwide gearing tests with earnings-based tests to limit debt deductions in line with an entity’s profits.
Instead, Australian plantation forestry entities will be allowed to continue to apply the former asset-based thin capitalisation rules.
Australian business number - The previous Government’s 2019–20 Budget measure Black Economy — strengthening the Australian Business Number system had proposed start dates of 1 July 2021 and 1 July 2022. This measure will not progress.
Intangibles in low tax jurisdictions - The measure, Denying deductions for payments relating to intangibles held in low- or no-tax jurisdictions – announced in the 2022–23 October Budget will not proceed. The integrity issues will be addressed through the Global Minimum Tax and Domestic Minimum Tax being implemented by the Government. The Government will also introduce a new provision from 1 July 2026 that applies a penalty to taxpayers who are part of a group with more than $1 billion in global turnover annually that are found to have mischaracterised or undervalued royalty payments, to which royalty withholding tax would otherwise apply.
| Date | Debts ‘on hold’ prior to 1 January 2017 |
The Government will amend the tax law to give the Commissioner of Taxation the discretion not to use a taxpayer’s refund to offset old tax debts, but only for debts put ‘on hold’ prior to 1 January 2017. This discretion will apply to individuals, small businesses and not-for-profits, and will maintain the Commissioner’s current administrative approach.
In 2023, the Australian National Audit Office advised the ATO that excluding debt from being offset was inconsistent with the law, regardless of when the debt arose. This amendment resolves an issue for the ATO for older debts but enforces current practice for all debts from 1 January 2017.
| Date | From 1 July 2024 |
The Government has announced that it will recalibrate the Fair Entitlements Guarantee Recovery Program to pursue unpaid superannuation entitlements owed by employers in liquidation or bankruptcy from 1 July 2024.
The Fair Entitlements Guarantee Recovery Program aims to improve the recovery of employment entitlements advanced under the Fair Entitlements Guarantee (FEG). The FEG is a legislative safety net scheme of last resort with assistance available for eligible employees.
| Date | Four years from 2024–25 |
$60 million has been provided over four years from 2024–25 to increase the Productivity, Education and Training Fund to support practical activities by employer and worker representatives to boost workplace productivity and engage in tripartite cooperation. This will also support workplaces to implement policy changes such as the introduction of payday superannuation.
| Date | Four years from 2024–25 |
The Government will provide $168 million over four years from 2024–25 to implement reforms to strengthen Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
The Attorney-General’s Department held a first round of consultation on proposed reforms to modernise Australia’s anti-money laundering and counter-terrorism financing regime between April and June 2023, following the release of its first consultation paper. The Department received 142 submissions in response, which were broadly in support of reform, including:
Funding includes:
Greenwashing - ASIC has been provided with $10m over 4 years and $1.9 million ongoing to investigate and take enforcement action against market participants engaging in greenwashing and other sustainability-related financial misconduct.
Green bonds - $5.3 million over 4 years from 2024-25 and $1.2 million ongoing has been provided to Treasury and APRA to deliver the sustainable finance framework, including issuing green bonds, improving data and engaging in the development of international regulatory regimes related to sustainable finance.
Labelling regime - $1.2 million has been provided to ASIC and Treasury to consult on the design of a labelling regime to regulate the use of sustainability labels on retail investment products.
This year, the Government launched Australia’s first national strategy with an explicit focus on achieving gender equality. Working for Women: A Strategy for Gender Equality (Working for Women) is the Government’s ten-year commitment to ‘shift the dial’ on gender equality.
The Women’s Budget Statement is now a reporting mechanism for Working for Women. From this Budget onward, the Women’s Budget Statement will report on the Government’s investments to implement Working for Women.
The 2024–25 Women’s Budget Statement focuses on five priorities, which mirror the priority areas of Working for Women:
The Government has announced measures as part of the Federal Budget to:
$39.9 million over five years from 2023–24 will be provided for the development of policies and capability to support the adoption and use of artificial intelligence (AI) technology in a safe and responsible manner, including:
The Digital Transformation Agency will also develop and implement policies to
position government as an exemplar in the use of AI, with costs to be met from within
existing resources.
$466.4 million has been provided for a financing package of equity and loans provided by Export Finance Australia on the National Interest Account to PsiQuantum Pty Ltd to support the
construction and operation of quantum computing capabilities and associated
investment in industry and research development in Brisbane, as part of a joint
investment with the Queensland Government. Additional funding of $27.7 million over
11 years from 2023–24 will also be provided for the Department of Finance, the
Department of Foreign Affairs and Trade, the Department of Industry, Science and
Resources and the Department of the Treasury to manage and provide oversight of this
investment. The financial implications of the financing package are not for publication
(nfp) due to commercial sensitivities
Previously announced tax and superannuation policy decisions that are still before Parliament include:
| Policy | Detail |
| Instant asset write-off | Proposal to increase the instant asset write-off threshold from $1,000 to $20,000 for the 2024 income year. Senate amendments proposed increasing the threshold from $20,000 to $30,000 and expanding the measure to apply to medium entities. |
| Small business energy incentive39 | Proposes to provide small and medium businesses with access to a bonus deduction equal to 20% of the cost of eligible assets or improvements to existing assets that support electrification or more efficient energy use. |
| Petroleum resource rent tax (PRRT) deductions cap | Proposes amendments to effectively cap the availability of deductible expenditure incurred by a person in relation to a petroleum project for a year of tax. |
| Federal Administrative Review Body | Abolish the Administrative Appeals Tribunal (AAT) and establish the Administrative Review Tribunal (the Tribunal). |
| Strengthen the integrity of the tax system40 | Proposed reforms to strengthen the integrity of the tax system, increasing the power of regulators and strengthening regulatory arrangements. |
| Better targeted superannuation concessions | Proposes amendments to reduce the tax concessions available to individuals with Total Super Balances exceeding $3 million. |
| Non-arm’s length expenditure for superannuation entities39 | Proposes amendments to the non-arm’s length expense rules for complying superannuation entities, that will restrict the operation and application of the rules. |
| Objective of superannuation | Proposes to legislate the objective of superannuation. |
Policy decisions that are in the consultation phase include:
The Government announced it would not proceed with the Modernising Business Registers Program.
Key statistics
The first four years of this decade have tested the economy and the resilience of all Australians: floods and bushfires, a once-in-a-century global pandemic, followed by the most significant international energy crisis in 50 years. The combined impact of these events resulted in economic consequences on supply chains, energy prices, inflation and interest rates. These events may seem like distant memories but they continue to impact the economy.
Australia is continuing to face ongoing global uncertainty stemming from persistent inflation in North America; growth slowing in China and other major economies; the United Kingdom and Japan both finishing the year in recession; and tensions rising in the Middle East and Eastern Europe.1
Inflation and cash rate
Inflation is moderating but still high compared to the target range of 2 to 3% required by monetary policy.
Michelle Marquardt, ABS head of prices statistics:
“Annually, the CPI rose 3.6 per cent to the March 2024 quarter. While prices continued to rise for most goods and services, annual CPI inflation was down from 4.1 per cent last quarter and has fallen from the peak of 7.8 per cent in December 2022.”
Inflation has increased the cost of living, as Australian households are paying more to purchase the same goods and services.
The surplus in 2022–23 took some pressure off inflation, allowing the Government to fund their priorities and reduce debt interest. All encouraging signs, but the Government acknowledges it still needs to reduce inflation further and faster. The budget measures seek to ease inflation and not add to it.
The cash rate is currently at 4.35%, the RBA last raised the cash rate on 7 November 2023 by 0.25% to return inflation to the target range in a reasonable timeframe. The price of goods is moderating but services remain inflated. Overall, higher interest rates have led people to cut back on spending. This is slowing economic growth and bringing demand into better balance with supply.
Resident individuals
| Tax rate | 2023-24 | 2024-25 |
| 0% | $0 – $18,200 | $0 – $18,200 |
| 16% | $18,201 – $45,000 | |
| 19% | $18,201 – $45,000 | |
| 30% | $45,001 – $135,000 | |
| 32.5% | $45,001 – $120,000 | |
| 37% | $120,001 – $180,000 | $135,001 – $190,000 |
| 45% | >$180,000 | >$190,000 |
Non-resident individuals
| Tax rate | 2023-24 | 2024-25 |
| 30% | $0 – $135,000 | |
| 32.5% | $0 – $120,000 | |
| 37% | $120,001 – $180,000 | $135,001 – $190,000 |
| 45% | >$180,000 | >$190,000 |
Working holiday markers
| Tax rate | 2023-24 | 2024-25 |
| 15% | 0 – $45,000 | 0 – $45,000 |
| 30% | $45,001 – $135,000 | |
| 32.5% | $45,001 – $120,000 | |
| 37% | $120,001 – $180,000 | $135,001 – $190,000 |
| 45% | >$180,000 | >$190,000 |
| Budget measure | Application date |
| Individuals | |
| Tax cuts have been legislated for all 13.6 million Australian taxpayers | 2024–25 and later income years |
| Increasing the Medicare levy low income thresholds | From 1 July 2023 |
| Indexation on HELP debt to be capped to the lower of either the CPI or the WPI. | 1 June 2023 |
| Business | |
| Instant asset write-off threshold temporarily increased to $20,000. | From 1 July 2024 until 30 June 2025 |
| Two time‑limited tax incentives to invest in new industries: Critical Minerals Production Tax Incentive to support downstream refining and processing of Australia’s 31 critical minerals to improve supply chain resilienceHydrogen Production Tax Incentive to producers of renewable hydrogen to support the growth of a competitive hydrogen industry. | 2027–28 to the 2040–41 income years |
| Extension and expansion of the Energy Bill Relief Fund | Funding for three years from 1 July 2024 |
| All households will have $300 credit automatically applied to their electricity bills and around one million small businesses will receive $325 off their bills over 2024–25. | From 1 July 2024 |
| Funding to support small business by: Improving payment times to small businessesSupporting mental health and financial wellbeing of small business ownersEnsuring confidence in the franchising sectorProviding small business with better access to justice | Funding for four years from 2024–25 |
| Proposed changes to the Producer Tax Offset to remove: The minimum length requirements for contentThe above-the-line cap of 20% of total qualifying production expenditure. | 2025–26 income year |
| Tax exempt entities | |
| Extension of transitional reporting for charities and updates to specifically listed DGRs | Various |
| International | |
| Strengthen the foreign resident CGT regime by: Clarifying and broadening the types of assets on which foreign residents are subject to CGTAmending the point-in-time principal asset test to a 365-day testing periodRequiring foreign residents disposing of shares and other membership interests exceeding $20 million in value to notify the ATO, prior to the transaction being executed. | CGT events commencing on or after 1 July 2025 |
| Superannuation | |
| The Government will pay superannuation on Commonwealth government-funded PPL | Births and adoptions on or after 1 July 2025 |
| Funding to support the progression of the Government’s workplace relations agenda, including: Pursuing unpaid superannuation entitlements owed by employers in liquidation or bankruptcy from 1 July 2024Supporting workplaces to implement policy changes such as the introduction of payday superannuation. | Funding for four years from 2024–25 |
| Funding to support the delivery of Government priorities in the Finance and Treasury portfolio including: Implement the 2023–24 Budget measure Better Targeted Superannuation Concessions for members of the Commonwealth defined benefit superannuation schemesSuperStream Gateway Network Governance Body | Funding over four years from 2024-25 |
| Compliance | |
| Extend the Tax Avoidance Taskforce | Funding over two years from 1 July 2026 |
| Extend the Personal Income Tax Compliance Program | Funding for one year from 1 July 2027 |
| Extend the Shadow Economy Compliance Program | Funding over two years from 1 July 2026 |
| ATO funding to strengthen its ability to detect, prevent and mitigate fraud against the tax and superannuation systems | Funding over four years from 1 July 2024 |
| Funding for the ATO for various matters including: Requirements of existing and new child care providers (relating to the Child Care Subsidy Program)Improving the Government’s Digital ID, myGovID and other systemsData-matching pilot between the Department of Home Affairs and the ATOOverseeing / operating the secure eInvoicing network | Various |
| Other measures | |
| Funding to strengthen Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act 2006, to enhance Australia’s ability to detect and disrupt illicit financing. | Funding over four years from 2024–25 |
| Women’s Budget Statement — various measures that focus on four priorities | Various |
| Funding to modernise regulatory frameworks for financial services to improve competition and consumer protections for services enabled by new technology. | Funding over four years from 2024–25 |
| Funding to implement a social security means test treatment for the military invalidity payments affected by the Federal Court’s decision in FCT v Douglas [2020] FCAFC 220. | Funding over five years from 2023–24 |
| Funding to deliver key aged care reforms and to continue to implement recommendations from the Royal Commission into Aged Care Quality and Safety. | Funding over five years 2023–24 |
| New Aged Care Act — deferred commencement date | 1 July 2025 |
| Social security deeming rates will freeze at their current levels | Until 30 June 2025 |
| Increased flexibility for recipients of Carer Payment —the existing 25 hour per week participation limit will be amended to 100 hours over four weeks. | From 20 March 2025 |
| Commonwealth Rent Assistance maximum rates to be increased by 10% | 20 September 2024 |
| Eligibility for the existing higher rate of JobSeeker payments has been extended | 20 September 2024 |
| General | |
| Amendments to previously announced measures: Australian plantation forestry entities are exempt from the new earnings-based test, thin capitalisation rulesGiving the Commissioner a discretion not to use a taxpayer’s refund to offset old tax debts - where the old tax debt was put on hold before 1 January 2017 Extending income tax exemption to World Rugby and/or related entities in relation to income from Rugby World Cup events for the 2023–24 to 2030–31 income years (incl.) | |
| Deferring the start date for Tax Integrity — expanding the general anti-avoidance rule in the income tax law | Income years starting on or after the day the amending legislation receives Royal Assent |
| Changing the start dates for certain components of the Streamlining excise administration for fuel and alcohol package | The day after Royal Assent |
| Measures not proceeding: Denying deductions for payments relating to intangibles held in low- or no-tax jurisdictions measure — announced in the 2022–23 October. Previous Government’s 2019 –20 Budget measure Black Economy – strengthening the Australian Business Number system. |
Now is the time to start planning and reviewing your records to maximise your tax deductions for the 2023/2024 financial year.
1. Pay Quarterly Super early
Super Guarantee (SG) contributions must be paid before 30 June to qualify for a tax deduction in the 2023/2024 financial year. Consider bringing forward your June quarter SG payments to increase the benefit.
2. Write-off bad debts
Review your debtor list to identify those who owe you money but are unlikely to pay. Write-off bad debts before 30 June - the debt must not be merely doubtful and must have been previously included as assessable income.
3. Prepaid Expenses
Small business entities may bring forward deductible expenses such as rent, repairs and office supplies, that cover a period of no more than 12 months.
4. Stocktake
Trading stock should be reviewed before 30 June to identify any obsolete, slow moving or damaged stock. Obsolete stock must be physically disposed of for income purposes to receive a deduction.
5. Take advantage of the instant asset write off
In the 2023/2024 budget released on the 9th of May 2023, the government temporarily increased the instant asset write off threshold to $20,000. This means that a small business, turnover less than $10 million, will be able to immediately deduct the full purchase value of assets less than $20,000
6. Review and postpone some of your invoicing for the current tax year, if appropriate.
7. Contribute to your Super
Top up your voluntary superannuation contributions. You can contribute up to $27,500 in deductible super contributions each year.
If you have a super balance of less than $500,000 at the 30th June then consider using the carry forward rules to claim a deduction for any unused super contribution caps from previous years.
8. Undertake strategic tax planning with your accountant
Great accountants look at two types of tax planning: short-term and long-term tax planning. Short-term planning looks at what you can do before 30 June to minimise your tax this financial year. Long-term tax planning looks at how you can utilise your business structure and the type of investments you can make to minimise tax over the long term
From 1 July 2024, the amount you can contribute to super will increase. We show you how to take advantage of the change.
The amount you can contribute to superannuation will increase on 1 July 2024 from $27,500 to $30,000 for concessional super contributions and from $110,000 to $120,000 for non-concessional contributions.
The contribution caps are indexed to wages growth based on the prior year December quarter’s average weekly ordinary times earnings (AWOTE). Growth in wages was large enough to trigger the first increase in the contribution caps in 3 years.
Other areas impacted by indexation include:
For those with the disposable income to contribute, superannuation can be very attractive with a 15% tax rate on concessional super contributions and potentially tax-free withdrawals when you retire. For business owners who might have had an exceptional year or sold their business, it's an opportunity to get more into super. However, the timing of contributions will be important to maximise outcomes.
If you know you will have a capital gains tax liability in a particular year, you may be able to use ‘catch up’ contributions to make a larger than usual contribution and use the tax deduction to help offset your capital gain tax bill. But, this strategy will only work if you meet the eligibility criteria to make catch up contributions and you lodge a Notice of intent to claim or vary a deduction for personal super contributions, with your super fund.
The bring forward rule enables you to bring forward up to 2 years’ worth of future non-concessional contributions into the year you make the contribution – this is assuming your total superannuation balance enables you to make the contribution and you are under age 75.
If you utilise the bring forward rule before 30 June, the maximum that can be contributed is $330,000. However, if you wait to trigger the bring forward until on or after 1 July, then the maximum that can be contributed under this rule is $360,000.
If your super balance is below $500,000 on the prior 30 June, and you want to quickly increase the amount you hold in super, you can utilise any unused concessional super contributions amounts from the last 5 years.
Let’s look at the example of Gary who has only been using $15,000 of his concessional super cap for the last few years. Gary’s super balance at 30 June 2023 was $300,000, so he is well within the limit to make catch up contributions.
| Concessional Cap | Used | Unused | |
| 2018-19 | $25,000 | $15,000 | $10,000 |
| 2019-20 | $25,000 | $15,000 | $10,000 |
| 2020-21 | $25,000 | $15,000 | $10,000 |
| 2021-22 | $27,500 | $15,000 | $12,500 |
| 2022-23 | $27,500 | $15,000 | $12,500 |
| 2023-24 | $27,500 | ? | ? |
Gary could access his $27,500 concessional cap for 2023-24 plus the unused $55,000 from the prior 5 financial years.
If Gary doesn’t access the unused amounts from 2018-19 by 30 June 2024, the $10,000 will no longer be available.
The general rate for the transfer balance cap (TBC), that limits how much money you can transfer into a tax-free retirement account, will remain at $1.9 million for 2024-25. The TBC is indexed by the December consumer price index (CPI) each year.
Australians love property and the lure of a 15% preferential tax rate on income during the accumulation phase, and potentially no tax during retirement, is a strong incentive for many SMSF trustees to dream of large returns from property development. We look at the pros, cons, and problems that often occur.
An SMSF can invest in property development if trustees ensure the investment complies with the rules. And, there are a lot of rules. A key is the sole purpose test. Trustees need to ensure the fund is maintained to provide benefits for retirement, ill health or death. Breaches of this fundamental tenet are serious and include the loss of the fund’s concessional tax treatment and civil and criminal penalties.
By its nature property development is high risk and fund trustees need to ensure that the SMSF is not simply a handy cash-cow for a pipe dream, particularly when the developers are related parties.
There are multiple ways an SMSF can invest in property development if the investment strategy of the fund allows:
An SMSF can purchase land from an unrelated party and develop the property in its own right. Common issues that often arise include:
Acquiring the land from a related party - An SMSF cannot purchase land from a related party (unless it is business real property used wholly and exclusively in a business). This means that the lovely block of land inherited by one of the members, or owned by a family trust, that is perfect for development cannot be purchased by the SMSF.
An SMSF cannot borrow to develop property – An SMSF can borrow money to purchase land using a limited recourse borrowing arrangement but it cannot use a loan to improve the asset. That is, borrowings cannot be used to develop the land. And, where the SMSF has borrowed to purchase land, it cannot change the nature of that asset until the loan has been repaid. That is, no development.
Who will develop the property? - Problems often occur when the property developers are related to the fund members. Whilst it is possible to engage a related party builder to undertake the work, there are strict rules that mean that the work and materials must be acquired at market value. That is, there is no advantage from “mates rates”. If you are using a related party builder, ensure that the paperwork is pristine, any transactions are at market value, and all interactions are documented.
GST might apply - Goods and services tax might apply to the development and the sale of any developed property. If the ATO considers that an SMSF is in the business of developing property or is undertaking a one-off development in a commercial manner then GST could potentially apply.
If your SMSF is not undertaking a property development project in its own right, there are a few ways for an SMSF to invest in property development projects:
An ungeared company or trust is often used (under SIS Regulation, section 13.22C) when related parties want to invest in a property development together. The SMSF can invest in a company or trust that is undertaking a property development as long as the company or trust:
See section 13.22C for full details.
Profits from the company or trust are then distributed to the SMSF according to its share.
Using the provisions of 13.22C means that the SMSF can invest in property development with a related party without the development being considered an in-house asset. However, if the criteria are not met (at any point), the in-house asset rules apply, and the SMSF might have to sell the units in the trust or shares in the company to return to the maximum 5% in-house asset limit. Generally, this means the sale of the underlying property or a significant restructure.
Problems arise with 13.22C arrangements where the trust or company:
One of the criteria for the exemption in 13.22C to apply is that the trust or company cannot be conducting a business. This requirement may prevent short-term property developments that are built and sold for profit.
Typically, 13.22C arrangements are used for long term investments where the development enables the creation of an asset that is then leased by the trust or company. This could be commercial premises leased to a related or unrelated party (e.g., premises for a child care centre or manufacturing), or residential premises leased to unrelated parties (e.g., townhouses or small developments).
Investing in unrelated entities for a property development is attractive as there is no limit to how much of the fund’s assets can be invested (subject to the investment strategy and trust deed allowing the investment), and unlike ungeared entities, the entity is able to borrow money/place charge over the assets.
Where related parties are investing in the same entity, there are rules governing the percentage of ownership the SMSF and their related parties can hold. To meet the definition of unrelated entity for in-house asset purposes, the SMSF and their related parties must not own more than 50% of the units available. This is because the SMSF cannot control or hold sufficient influence over the entity and remain an unrelated entity. If the ATO considers the entity is related to the SMSF, then it would become a related party and the investment an in-house asset.
An SMSF can potentially invest in a joint venture (JV) property development, but the criteria are necessarily strict and there are a range of issues that need to be considered carefully. One of the issues that needs to be considered up-front is determining the substance of the arrangement between the parties, because the term JV can be used to describe a variety of arrangements. The ATO confirms that care must be taken to ensure that arrangements with related parties are true JVs.
Under a JV, the SMSF invests in and has a share of the property being developed (not the entity undertaking the development). Each party bears the costs (time and/or money) of the JV and receives this same proportionate contribution from the returns. If the arrangement is not structured properly then the SMSF’s stake in the JV could be treated as an investment in or loan to a related party and be treated as an in-house asset. For example, this could be the case if the SMSF only provides a capital outlay for the arrangement and has no rights other than a contractual right to a return on the final investment.
It is also necessary to consider whether the arrangement between the parties could be treated as a partnership for tax, GST and legal purposes. For example, this could be the case if the arrangement involves the sharing of income, sale proceeds or profits, rather than sharing the output from the project.
It's essential to get advice well in advance – tax, legal and financial - before pursuing a JV.
Trustees need to carefully consider any investment decisions and have a sound rationale for the investment.
Any advice on a property development needs to be from a licenced financial adviser. A lawyer should be used for any contracts or agreements between parties. And, compliance assistance from a qualified accountant.
The Australian Taxation Office have released a new draft ruling on self-education expenses. We revisit the deductibility of self-education expenses and what you can and can’t claim.
If you undertake study that is connected to your work you can normally claim your costs of that study as a tax deduction - assuming your employer has not already picked up your expenses. There is also no limit to the value of the deduction you can claim. While this all sounds great and very encouraging there are still issues to consider before claiming your Harvard graduate degree, accommodation, and flights as a self-education expense.
Clients are often surprised by what cannot be claimed. Self-education expenses are not deductible if you are undertaking the education to obtain a new job or something not connected to how you earn your income now. Take the example of a nurse’s aide who attendees university to qualify as a registered nurse. The university degree and the expenses associated with degree are not deductible as the nursing degree is not sufficiently connected to their current role as a nurse’s aide.
The ATO have recently released a new draft ruling on self-education expenses. While the ruling does not introduce new rules, it does reinforce what the ATO will accept…and what they won’t.
While not always the case, one of the key challenges in claiming deductions for self-development or personal development courses is that the knowledge or skills gained are often too general. Take the example of a manager who is having difficulty coping with work because of a stressful family situation. She pays for and attends a 4-week stress management course.
In that case, the stress management course is not deductible because the course was not designed to maintain or increase the skills or specific knowledge required in her current position.
If your employment (or your income earning activity) ends part the way through completing a course, your expenses are only deductible up to the point that you stopped work. Anything from that point forward is not deductible (that is until you obtain a new role and assuming the course remains relevant).
Overseas study tours are deductible in limited circumstances. If you are travelling overseas, you need to prove that the dominant purpose of the trip is related to how you earn your income. Factors that help demonstrate this include the time devoted to the advancement of your work related knowledge, the trip not being merely recreational, and that the trip was requested by or supported by your employer. The ATO are strict on this. Take the example of a senior lecturer in history at a University. He takes a trip to China with his wife while on leave over the Christmas break to update his knowledge on his area of academic interest. While his job does not require him to undertake research, he incorporated some of the 600 photos he took and some of the learnings from the tour into the courses he teaches. Despite having a relationship to work, the trip is not deductible as, while relevant in some ways to his field of activity, it is incidental to the overall private and recreational nature of the trip.
We’ve all had them. Conferences where you spend a few days in sessions and then a day (or more) of touring or golf. When the dominant purpose of the trip is related directly to your work, then the ATO are more accommodating. If the leisure time, for example an afternoon tour organised by the conference, is incidental to the conference itself, then you can claim the full conference expenses.
Where you are extending your stay beyond the conference dates and this isn’t considered incidental, then you apportion the expenses and only claim the portion related to the conference. Let’s say you attend a conference for four days, then spend another four days on holiday. Assuming the conference is directly related to your work, you can claim your expenses related to the conference (assuming they were not picked up by your employer), and half of your airfare (as it’s a 50/50 split on how you spent your time between the conference and recreation).
If a particular course is not entirely deductible, a deduction may still be available for some of the course fees where there are particular subjects or modules in that course that are sufficiently related to your employment or income earning activities. In these cases, the course fees would be apportioned. Take the example of a civil engineer who is completing her MBA. While the MBA itself may not have a sufficient connection to her engineering role to be fully deductible, her expenses related to the project management subject she took as part of the degree could qualify.
If your course is a Commonwealth supported place, you cannot claim the course fees. But, the deductibility of course fees are not impacted merely because you borrow money to pay for those fees, for example a full-fee paying student using a government FEE-HELP loan to pay for course fees.
There is no limit on the amount you can claim as a self-education expense but the ATO is more likely to target large self-education expenses. For anyone who has completed post graduate study you know that these expenses can ratchet up very quickly, particularly when you add in any other expenses such as books or travel. It’s important to ensure that there is a clear connection between your current job or business activity and the self-education expenses before you claim them.
Airfares incurred to participate in self-education, provided you are not living at the location of the self-education activity, are deductible. Airfares are part of the cost of undertaking the self-education activities.
Electricity is the new black. Gas and other fossil fuels are out. A new, limited incentive nudges business towards energy efficiency. We show you how to maximise the deduction!
The small business energy incentive is the latest measure providing a bonus tax deduction to nudge the investment behaviour of small and medium businesses, this time towards more efficient energy use and electrification. Fossil fuels are out, gas is out, electricity is the name of the game.
Legislation before Parliament will see SMEs with an aggregated turnover of less than $50 million able to claim a bonus 20% tax deduction on up to $100,000 of their costs to improve energy efficiency in the business. But, the tax deduction is time limited. Assuming the legislation passes Parliament, you only have until 30 June 2024 to invest in new, or upgrade existing assets.
Your business can invest up to $100,000 in total, with a maximum bonus tax deduction of $20,000 per business entity. The energy incentive is not provided as a cash refund, it either reduces your taxable income or increases the tax loss for the 2024 income year.
The energy incentive applies to both new assets and expenditure on upgrading existing assets. There is no specific list of assets that can qualify. Instead, the rules provide a series of eligibility criteria that need to be satisfied.
First, the expenditure incurred in relation to the asset must qualify for a deduction under another provision of the tax law.
If your business is acquiring a new depreciating asset, it must be first used or installed for any purpose, and a taxable purpose, between 1 July 2023 and 30 June 2024. If you are improving an existing asset, the expenditure must be incurred between 1 July 2023 and 30 June 2024.
If your business is acquiring a new depreciating asset the following additional conditions need to be satisfied:
If you are improving an existing asset the expenditure needs to satisfy at least one of the following conditions:
Certain kinds of assets and improvements are not eligible for the bonus deduction, including where the asset or improvement uses a fossil fuel. So, hybrids are out. Solar panels and motor vehicles are also excluded.
In addition, the following assets are specifically excluded from the rules:
The legislation contains a few examples of what would qualify:
The legislation to implement the energy incentive is before Parliament. We’ll keep you updated on its progress. If you intend to make a major outlay to take advantage of the bonus deduction, talk to us first just to make sure it qualifies.
You’ve got a block of land that’s perfect for a subdivision. The details have all been worked out with Council, the builders, and the bank. But, one important aspect has been left out; the tax implications.
Many small-scale developers often assume that their tax exposure is minimal – but this is not always the case and the tax treatment of a subdivision project can significantly impact on cashflow and the financial viability of the project.
New guidance from the Australian Taxation Office (ATO) walks through the tax impact of small-scale subdivision projects. We look at some of the leading issues:
Tax treatment of the subdivision
Subdividing land
The tax treatment of even a small subdivision can become complex very quickly and tax applies according to the circumstances. You cannot simply assume that just because it’s a small development, any profit from the eventual sale will be taxed as a capital gain and qualify for CGT concessions.
In general, if you own a property personally, it has been held and used for private purposes over an extended period, you subdivide it and sell the newly created block, then capital gains tax is likely to apply to any gain you make. The gain is recognised from the point you first acquired the land, although you will ned to apportion the amount paid for the property between the subdivided lots. If you are subdividing a property that contains your home – the main residence exemption will not generally beavailable if you sell a subdivided block separately from the block containing your home, even if the land has only ever been used for private purposes in connection with your home.
If a property is initially owned jointly but the property is subdivided and the lots split between the owners, then this will normally trigger upfront tax implications even though the land hasn’t been sold to an unrelated party yet. Arrangements like this (referred to as partitioning) can be complex to deal with from a tax perspective.
Developing a property
But what happens if you develop the land? It’s not uncommon for people to decide to subdivide and develop their block by building a house or duplex and then selling the new dwelling.
When someone develops a property with the intention of selling the finished product at a profit in the short term, there is a risk that this will be taxed as income rather than under the capital gains tax rules. This limits the availability of CGT concessions (such as the 50% CGT discount) and will often expose the owners to GST liabilities as well. This can be the case even for one-off property developments.
Let’s look at an example. Claude purchased his home on 1 July 2001 for $300,000. In July 2020, Claude began investigating the idea of subdividing his block and building a new house, then selling it. A registered valuers report on the subdivision says that the original house and land is now worth $360,000, and the subdivided lot is worth $240,000 (the valuation is an important step before commencement to prevent any debates with the ATO). Claude decides to go ahead and build a dwelling on the newly subdivided block and takes out a loan of $400,000 for the development. He intends to pay off the loan as soon as the house sells.
In July 2021, Claude sells the subdivided block and new home for $1,210,000 (GST-inclusive).
Here is how the tax works for Claude’s scenario:
If Claude is not carrying on a business, he cannot claim a deduction for the development expenses as they are incurred. They will be taken into account in determining the net profit on sale.
If Claude finished the development but decided not to sell the property then this would complicate the income tax and GST treatment. We would need to explore what Claude plans to do with the property.
Do I need to register for GST?
If you are an individual who is subdividing land that has been held and used for private purposes then you might not need to GST, although this will depend on the situation. However, if you are engaged in a property development business or a one-off project that is undertaken in a business-like manner, then it is more likely that you would need to register for GST.
In Claude’s scenario, because the projected sale price of the developed land was above the GST threshold of $75,000, he will probably need to register for GST. This will mean that he:
The tax consequences of subdivision and other property projects can be complex. If you are contemplating undertaking a subdivision and any property development activities, please contact us and we can help walk you through the scenarios and tax impact of the project.
What is the end game for your business? Succession is not just a topic for a TV series or billionaire families, it’s about successfully transitioning your business and maximising its capital value for you, the owners.
When it comes to generational succession of a family business, there are a few important aspects:
For generational succession to succeed, even if that succession is the sale of the business and the management of the sale proceeds for the benefit of the family, communication is essential. Where generational succession fails, it is often because succession has not been formalised until a catalyst event or retirement planning requires it.
“One-third of Australian family businesses expect that the next generation will become the majority shareholders within 5 years time. Yet only 25% of Australian family businesses have a robust, documented and communicated succession plan in place.”
PWC Family Business Survey
A concept of ‘legacy’ is not enough. Successful succession occurs when the guiding principles of governance, family rules, aligning values, dispute resolution, succession and estate planning are managed well before discontent tears it apart.
Generational succession usually involves the transfer of an interest in a business to another generation of a family (usually younger). It is often a family in business rather than simply a family business.
The options for how a movement of an interest may occur are many and varied but usually focus on the transfer of some or all of the equity held in the business over a period or at a defined point in time and the payment of some form of consideration for the equity transferred. Alternatively, a part of the equity transfer may ultimately be dealt with through the estate.
Generational succession comes with its own set of issues that need to be dealt with:
Capability and willingness of the next generation
A realistic assessment of whether the business can continue successfully after the transition. In some cases, the older generation will pursue generational succession either as a means of keeping the business in the family, perpetuating their legacy, or to provide a stable business future for the next generation. While reasonable objectives, they only work where there is capability and willingness. Communication of expectations is essential.
Capital transfer
Consider the capital requirements of the exiting generation. To what extent do you need to extract capital from the business at the time of the transition? The higher the level of capital needed, the greater the pressure on the business and the equity stakeholders.
In many cases, the incoming generation will not have sufficient capital to buy-out the exiting generation. This will require the vendors to maintain a continuing investment in the business or for the business to take on an increased level of debt. Either scenario needs to be assessed for its sustainability at a business and shareholder level. In some scenarios the exiting owners will transition their ownership on an agreed timeframe.
Managing remuneration
In many small and medium businesses, the owners arrange their remuneration from the business to meet their needs rather than being reasonable compensation for the roles undertaken. This can result in the business either paying too much or too little. Under generational succession, there should be an increased level of formality around compensation. Compensation should be matched to roles, and where performance incentives exist, these should be clearly structured.
Who has operational management and control?
Transition of control is often a sensitive area. It is essential to establish and agree in advance how operating and management control will be maintained and transitioned. This is important not only for the generational stakeholders but also for the business. Often the exiting business owners have a firm view on how the business should be run. Uncertainty in the management and decision making of the business can lead to confusion or a vacuum - either will have an adverse impact. Tensions often arise because:
The incoming generation want freedom of decision making and the ability to put their imprint on the business.
Agreeing transition of control in advance, on an agreed timeframe, can significantly reduce tensions.
Transition timeframes and expectations
Generational succession is often a process rather than an event. The extended timeframe for the transition requires active management to ensure that there are mutual expectations and to avoid the process being derailed by frustration.
The established generation may have identified that they want to scale down their business involvement and bring on other family members to succeed them. This does not necessarily mean that they want to withdraw completely. An extended transition period is not uncommon and can often assist the business in managing the change. This can also work well in managing income and capital withdrawal requirements.
The need for greater formality and management structure
A danger for many SMEs is the blurring of the boundaries between the role of the Board, shareholders, and management. With generational succession, this can become even more pronounced. Formality in these structures is important, with clear definitions of the roles and clarification of the expectations. For example, who should be a director and what is their role?
For some, the role of the family is managed by a family constitution – an agreed set of rules. For others there will be an external advisory group that advises the family to ensure that the required independent expertise is brought to bear.
Successfully managing generational change is a process we can help you navigate. Talk to us about how we can help to structure an effective transition path.
The tax refund many Australians expect has dramatically reduced. We show you why:
There is a psychology to tax refunds that successive Governments have been reticent to tamper with. As a nation, Australia relies heavily on personal and corporate income tax, with personal income tax including taxes on capital gains representing 40% of revenue compared to the OECD average of 24%. And, for the amount we pay, we expect a reward.
The reward is in the form of tax deductions that reduce the amount of net income that is assessed for tax purposes and tax offsets that reduce the tax payable, generating a refund for some. And, refunds have a positive impact on tax compliance.
As part of the previous Government’s efforts to flatten out the progressive individual income tax system, a time-limited low and middle income tax offset was introduced. The lifespan of the offset was extended twice, partly as a stimulus measure in response to COVID-19. The offset delivered up to $1,080 from 2018-19 to 2020-21, and up to $1,500 in 2021-22 for those earning up to $126,000. This was a significant boost for many people each tax time and bolstered the tax returns of millions of Australians. For many, the end of this offset has meant that their tax refund has reduced dramatically compared to previous years.
Do we pay more tax than other nations?
It depends on how you look at the statistics. Australia relies heavily on income tax, collecting 40% of tax revenue from personal income. That makes Australia the fourth highest taxing nation for personal tax in the OECD – but we were second highest in 2019 if that makes you feel better. But, if you are looking at take home pay there is a separate measure for that. The Employee tax on labour income looks at our take home pay once tax is taken out and benefits have been added back in. This shows that the take home pay of an average single worker is 77% of their gross wage compared to the OCED average of 75.4%. For the average worker with a family (one married earner with 2 children), once tax and family benefits are taken into account, the Australian take home pay average is 84.1% compared to the OECD average of 85.9%. All of this means that Australia is a high taxing nation but returns much of that in the form of means tested benefits.
Australia also does not have social security contributions like other nations. These contributions represent an average of 27% of the total tax take for OECD nations.
And, because Australia has a progressive tax system, the pain of taxation is felt more by higher income earners. The top 11.6% of Australian income earners contribute 55.3% of the tax revenue from personal income tax.
With the final round of legislated income tax cuts due to commence on 1 July 2024, this should reduce the overall dependence on personal income tax relative to corporate and other taxes.
So, do we personally pay more tax than other nations? If you are a high-income earner the answer is likely to be yes. If not, the answer is no.
As Benjamin Disraeli reportedly said, “…lies, damn lies, and statistics”. It’s all how you read it.
Is a second job worth it?
In an Uber the other day, the driver revealed that he had become a driver to pay for his second mortgage. He invested in property but with interest rates spiking, the only way he could hold onto the property was to earn additional income. His “day job” starts early and ends at 3pm at which time he heads off to start driving.
He is not alone. The latest stats from the Australian Bureau of Statistics reveal that the number of workers holding multiple jobs has increased by 2.1% since December 2022 – in total, Australia has 947,300 people holding multiple jobs or 6.6% of the working population.
The reason why people take on second jobs is varied. For some, it is to manage increasing costs, for others it is to start up a new venture but with the security of a regular income stream from their primary occupation.
Is it worth it?
From a tax perspective, Australia has a progressive income tax system – the more you earn the more tax you pay, and access to social benefits tapers off. It’s important when looking at a second job to understand your overall position – how much you are likely to earn, your costs of generating income, and what this income level will mean.
The trap for many picking up a ‘gig economy’ second job is that they are often independent contractors. That is, you are responsible for managing your tax affairs. All Uber drivers for example, are required to hold an ABN and be registered for GST. There is a compliance cost to this and from a cashflow perspective, 1/11th of the fee collected needs to be remitted to the Tax Office once a quarter. It’s important to quarantine both the GST owing and income tax to ensure you have the cashflow to pay the tax when it is due. The upside is you can claim the expenses related to your second job.
If you are taking on a second job, ensure that your tax-free threshold applies to your highest paying job from a PAYG withholding perspective.
Almost a year after the 2022-23 Federal Budget announcement, the 120% tax deduction for expenditure by small and medium businesses (SME) on technology, or skills and training for their staff, is finally law.
Who can access the boost?
The 120% skills and training boost is available to small business entities (individual sole traders, partnership, company or trading trust) with an aggregated annual turnover of less than $50 million. Aggregated turnover is the turnover of your business and that of your affiliates and connected entities.
This boost give you a tax deduction for external training courses provided to employees. The aim of this boost is to help SMEs grow their workforce, including taking on less-skilled employees and upskilling them using external training to develop their skills and enhance their productivity.
Sole traders, partners in a partnership, independent contractors and other non-employees do not qualify for the boost as they are not employees. Similarly, associates such as spouses or partners, or trustees of a trust, don’t qualify.
As always, there are a few rules:
Training expenditure can include costs incidental to the training, for example, the cost of books or equipment necessary for the training course but only if the training provider charges the business for these costs.
Let’s look at an example. Animals 4U Pty Ltd is a small entity that operates a veterinary centre. The business recently took on a new employee to assist with jobs across the centre. The employee has some prior experience in animal studies and is keen to upskill to become a veterinary nurse. The business pays $3,500 for the employee to undertake external training in veterinary nursing. The training meets the requirements of a GST-free supply of education. The training is delivered by a registered training provider, registered to deliver veterinary nursing education.
The bonus deduction is calculated as 20% of the amount of expenditure the business could typically deduct. In this case, the full $3,500 is deductible as a business operating expense. Assuming the other eligibility criteria for the boost are satisfied, the bonus deduction is calculated as 20% of $3,500. That is, $700.
In this example, the bonus deduction available is $700. That does not mean the business receives $700 back from the ATO in cash, it means that the business is able to reduce its taxable income by $700. If the company has a positive amount of taxable income for the year and is subject to a 25% tax rate, then the net impact is a reduction in the company’s tax liability of $175. This also means that the company will generate fewer franking credits, which could mean more top-up tax needs to be paid when the company pays out its profits as dividends to the shareholders.
Not all courses provided by training companies will qualify for the boost; only those charged by registered training providers within their registration. Typically, this is vocational training to learn a trade or courses that count towards a qualification rather than professional development.
Qualifying training providers will be registered by:
While some training you might want to have engaged might not be delivered by registered training organisations, there is still a lot out there, particularly the short-courses offered by universities, or the flexible courses designed for upskilling rather than as a degree qualification. If you have recently completed performance reviews for staff and training is part of their development pathway, it might be worth exploring.
