2024-25 Federal Budget key tax measures

The 2024-25 Federal Budget did not announce any significant new tax reforms. Our tax experts have compiled a summary of the few tax measures that were announced below:

• Revised Stage 3 tax cuts – The Government confirmed that it would proceed with the revised and already legislated Stage 3 tax cuts for individuals set to come into effect from 1 July 2024. The Stage 3 tax cuts reduce the 19% tax rate to 16%, the 32.5% tax rate to 30%, lift the threshold for the 37% tax rate from $120,000 to $135,000 and lift the threshold for the 45% tax rate from $180,000 to $190,000.
• Extension of the instant asset write-off (IAWO) for small business entities – The Government will allow businesses with aggregated turnover of less than $10m to fully deduct the cost of depreciating assets first used or installed ready for use by 30 June 2025 where the cost of the asset (on an asset-by-asset basis) is $20,000 or less.
• Expansion of the types of CGT assets taxable for foreign residents – The Government is set to clarify and expand the types of assets that give rise to taxable capital gains by foreign residents for CGT events occurring on or after 1 July 2025. Broadly, foreign residents are taxed on certain direct and indirect interests in Australian real property and Australian mining, quarrying or prospecting rights. The Budget does not state what other categories of assets will now be covered, with the Government set to consult on the details of the measure.
• Broadening the testing period for foreign residents disposing of indirect interests – The Government will also broaden the principal asset test from a point-in-time test to a 365-day test for CGT events occurring on or after 1 July 2025. Broadly, the principal asset test requires the foreign resident disposing of shares or units to determine whether the market values of the underlying company or unit trust’s assets are predominantly taxable Australian real property at the time of the CGT event. The measure will now require this analysis to be done at other points in time in the 365 days prior to the event. Details of the measure are set to undergo consultation.
• Notification requirements by foreign residents – Also set to apply for CGT events on or after 1 July 2025, foreign residents will be required to notify the ATO of disposals of shares and other membership interests (e.g. units in unit trusts) with a value of over $20m prior to the execution of the transaction.
• Royalties measure to not proceed – The Government will not proceed with a measure that would have denied deductions of Significant Global Entities for payments to foreign associates for royalties and the use of intangible assets where the foreign associate was taxed on the payment at 15% or less. Instead, this will now be addressed by the Pillar Two reforms which introduce a 15% Global Minimum Tax and 15% Domestic Minimum Tax for years commencing on or after 1 January 2024.
• New penalty for mischaracterisation of royalties – The Government will also introduce a new penalty from 1 July 2026 for Significant Global Entities that have mischaracterised or undervalued royalty payments that are found to be subject to royalty withholding tax. Such entities are already subject to penalties that are double that which apply to other entities. The new penalty will seek to deter taxpayers mischaracterising royalty payments by increasing the applicable penalties even further.
• Deferred start date for changes to Part IVA – The changes to the general anti-avoidance rule (Part IVA) that were announced in last year’s Budget were set to commence from 1 July 2024.  The measures will now apply for income years commencing on or after the date the amending legislation receives Royal Assent, regardless of when the scheme was entered into. Broadly, the previous announcement sought to broaden Part IVA to cover cross-border schemes involving taxpayers obtaining withholding tax benefits as well as schemes for which the dominant purpose was the obtaining of foreign tax benefits where Australian tax benefits were also obtained.
• Funding for the ATO’s Tax Avoidance Taskforce – The Government will extend its funding for ATO compliance activities with respect to multinationals, large groups and high wealth individuals by committing an additional $1.2b for the Tax Avoidance Taskforce over the 2026-27 and 2027-28 financial years.