Federal Budget 2024–25 Tax announcements

International Tax 

Thin capitalisation  

The 2022-23 October Budget measure Multinational Tax Integrity Package, introduced to amend Australia's thin capitalisation rules, has been amended to exclude Australian plantation forestry entities from the new earnings-based rules (which broadly limit an entity's debt deductions to 30 per cent of its 'tax EBITDA'). These entities can continue to apply the former asset-based thin capitalisation rules, where debt deductions of more than 60 per cent of the average value of the entity's Australian assets are denied.   

Foreign resident capital gains tax regime 

The Government has introduced changes to the foreign resident capital gains tax (‘CGT’) regime to ensure foreign residents pay their fair share of tax in Australia. Currently, foreign residents are only subject to CGT when they dispose of assets which are Taxable Australian Property (broadly, real property situated in Australia).  

The following amendments apply to CGT events commencing on or after 1 July 2025:  

• The proposed changes will clarify and broaden the types of assets that foreign residents are subject to CGT. This ensures the tax treatment of CGT assets with close economic connection to Australian land align more closely with the existing tax treatment applicable to Australian residents. 
• Specifically for indirect interests in Australian real property, the point-in-time principal asset test is proposed to change to a 365-day testing period. 
• Requiring foreign residents disposing of shares and other membership interests exceeding $20m in value to notify the ATO prior to execution of the transaction. The new ATO notification process will improve oversight and compliance with the foreign resident CGT withholding rules, where a vendor self-assesses their sale is not taxable real property. 

Payments relating to intangibles held in low- or no-tax jurisdictions

Anti-avoidance measures were proposed to apply from 1 July 2023 to deny tax deductions to Australian Significant Global Entities (SGEs) in respect of payments for intangible assets to related party offshore group entities in low tax jurisdictions. SGEs are broadly taxpayers who are part of a group with more than $1b in global turnover annually. This anti-avoidance measure will now be discontinued, as the integrity issues will now be addressed through the Global Minimum Tax and Domestic Minimum Tax measures currently being implemented by the Government as part of Pillar Two of the OECD/G20 Two-Pillar Solution.  

The Government will also introduce a new provision from 1 July 2026 that applies a penalty to SGEs that are found to have mischaracterised or undervalued royalty payments, to which royalty withholding tax would otherwise apply. 

It’s important all multinationals keep this in mind when it comes to considering the nature of their intangible-related payments, as its clear the Government is paying close attention to this area. 

Funding Support for the Australian Tax Office  

ATO Counter Fraud Strategy 

From 1 July 2024, the Government has announced $187m in funding over the next four years for the ATO to bolster its ability to detect, prevent and mitigate fraud against tax and superannuation systems. This funding will upgrade information and communication technologies, establish a new compliance taskforce and improve the ATO’s management and governance systems.  

This will include extending the ATO’s timeframe for notifying taxpayers of its intention to retain a business activity statement refund for additional investigation from 14 days to 30 days, aligning with time limits for non-BAS refunds. 

The ATO is taking clear steps to address and mitigate the risk of the recent years’ fraud incidents, such as the GST-based Operation Protego, from occurring again and re-establish consumer confidence.  

Extending Shadow Economy Compliance Program 

Extended for another two years from 1 July 2026, will enable the ATO to continue targeting shadow economy activity, to protect revenue and prevent non-compliant businesses from undercutting competition. Estimate increase in receipts by $1.9b and increase payments by $610.2m over 5 years from 2023-24 and increase in GST payments to the states/territories by $429.6m.  

Extending Tax Avoidance Taskforce 

Extended for another two years from 1 July 2026, will ensure the ATO continues to be well-resourced to pursue key tax avoidance risks, focusing on multinationals, large public and private businesses, and high-wealth individuals. There is an estimated increase in receipts by $2.4b and increase payments by $1.2b over 5 years from 2023-24. Clients in these areas can expect continued ATO attention in the next two years. 

Personal Tax 

The Government’s Stage 3 Tax Changes are estimated to reduce tax receipts to the Government by $1.3b over 5 years from 2023-24. Below are the new personal tax rates and thresholds which will apply for 2024-25 onwards:  

Extending the personal income-tax compliance program 

• The ATO Personal Income Tax Compliance Program was previously extended for two years from 1 July 2025 in the previous Budget. It will now be extended for one year from 1 July 2027. 
• ATO will use the extension to continue delivering a combination of proactive, preventative and corrective activities in key areas of non-compliance. 
• This measure is estimated to increase receipts by $180.3m and increase payments by $44.3m over the 5 years from 2023–24. 

Medicare 

The threshold for singles has been increased from $24,276 to $26,000. The family threshold has been increased from $40,939 to $43,846. For single seniors and pensioners, the threshold has been increased from $38,365 to $41,089. The family threshold for seniors and pensioners has been increased from $53,406 to $57,198. The family income thresholds will now increase by $4,027 for each dependent child, up from $3,760. 

Business Incentives  

Small business new power bill relief  

Under the new power bill relief, from 1 July 2024, the Government will deliver rebates of $325 to around one million small businesses across the country. 

Small business instant asset write-off 

The Government will be extending the $20,000 instant asset write-off to small businesses to help improve cash flow and reduce compliance costs. Small businesses with an aggregated annual turnover of less than $10m will be able to immediately deduct eligible depreciating assets costing less than $20,000, which are first used or installed ready for use by 30 June 2025. The asset threshold applies on a per asset basis, so small businesses can instantly write off multiple assets. This measure is only available for smaller businesses. 

Improving Payment Times Reporting for small businesses 

The Government will provide $25.3m over four years from 2024–25 to improve payment times for small businesses and ensure the Payment Times Reporting Regulator can deliver its expanded functions, which include naming slow paying big businesses, and fund fit-for-purpose ICT infrastructure for an overhauled Payment Times Reporting Scheme. Supporting confidence and resilience in the small business sector. 

Other incentives for Small Businesses include a $10.8m over two years for mental health support; and $3m over two years to review and enhance the franchising code of conduct.  

Modernising and digitalising Industries  

The Government will invest $39.9m to progress Australia’s regulatory response to ensure safe and responsible development and deployment of AI and release a National Robotics Strategy to promote the responsible production and adoption of robotics and automation technologies in Australia. The Government will invest $288.1m to support the further delivery and expansion of Australia’s Digital ID System so more Australians can realise the economic, security and privacy benefits of Digital ID. 

Innovation Incentives  

This Budget outlined a clear commitment to fostering an innovative, globally competitive, and sustainable nation, including the $22.7b in Future Made in Australia package. Priority industry streams outlined include:  

Research and development tax incentive 

The announcement of increased Government investment in R&D is welcome news to increase the competitiveness and sustainability of industries within Australia. Government payments are expected to increase by $499m in 2024–25 and $2.6b over five years (from 2023–24 to 2027–28). This growth is due to expected increased R&D expenditure in mining, construction, professional, scientific and technical services industries.   

Critical minerals production tax incentive 

A $7b incentive to support downstream refining and processing of Australia’s 31 listed critical minerals to improve supply chain resilience. The production incentive will be for critical minerals processed between financial years 2027-28 to 2040-41 (up to 10 years per project) and valued at 10 per cent of relevant processing and refining costs.  

Hydrogen production tax incentive 

A $6.7b incentive for producers of renewable hydrogen to support the growth of a competitive hydrogen industry and Australia’s decarbonisation. The production incentive will be for renewable hydrogen produced between financial years 2027-28 to 2040-41 and valued at $2 per kilogram.  

Government grants  

$3.2b in Australian Renewable Energy Agency 

• $1.5b over seven years for continued core investment;  
• $1.7b over ten years from 2024-25 for the Future Made in Australia Innovation Fund (supporting innovation, commercialisation, pilot and demonstration projects and early-stage development in priority sectors as above)  
• $835.6m over ten years from 2024-25 to establish the Solar Sunshot program, promoting development of solar manufacturing capabilities through production incentives and other support (program consultation open until end of May)  
• $523.2m over seven years from 2024-25 to establish the Battery Breakthrough Initiative, to develop battery manufacturing capabilities through production incentives.  

Powering Australia Industry Growth Centre and Future Battery Industries Cooperative Research Centre 

$20.3m over five years from 2023-24 to enhance industry and research collaboration, including workforce training for battery research, manufacturing, transport and recycling. 

Continued strategic critical minerals investments  

Up to $655m under the Critical Minerals Facility and up to $400m through the Northern Australia Infrastructure Facility.  

Net Zero Economy Authority 

$209.3m over four years from 2024-25 to expand the Net Zero Authority to coordinate policy and deliver across Government, broker investments to create jobs in the regions, and support workers affected by the net zero transition.  

Defence Industry Development Grant  

$165.7m over five years from 2023-24 to establish new program for Australian defence industry, supporting Australian businesses to increase their scale and competitiveness to respond to Defence capability requirements.  

National Reconstruction Fund and Industry Growth Program 

This was announced in the 2023-24 Budget, to continue investing in projects aligned to the key priority areas.   

In addition, the Federal Government also unveiled a strategic review of Australia’s R&D system, aiming to align it better with priority sectors and enhance onshore innovation and R&D outcomes. With Australia consistently falling behind the OECD average for public and business R&D expenditure, this policy review becomes crucial to supercharging our innovation efforts.  

While a review of the Federal Government’s Export Market and Development Grant program was announced in March 2024, there were no further updates to the review were provided in the Budget.