Federal budget

Labor delivers budget with eye on election

The 2024 Federal Budget has been handed down by Treasurer, Dr Jim Chalmers. The Budget seeks to balance the competing priorities of reducing inflation, while providing cost of living relief, better outcomes for aged care and childcare staff, and delivering housing and future investment opportunities.

The Government is framing its election pitch in the context of delivering two out of three budget surpluses in their three-year term, with the 2024-25 budget surplus estimated at $9.3 billion.

This budget aims to ease cost of living measures through personal tax cuts, deliver a $300 energy rebate for everyone, provide targeted measures of rent assistance, and clarify medicine limits for those on a pension.

The announcements of the Future Made in Australia initiatives need further clarification. The Government will allocate $27 billion over the next ten years to accelerate investment in net zero initiatives, including hydrogen, green metals, critical minerals, and manufacturing of clean energy technologies.

There is assistance for building 1.2 million homes over five years, and 20,000 fee-free TAFE places to add to the workforce.

The budget has minimal tax changes (other than the stage 3 tax cuts), although the instant asset write-off of $20,000 is extended for another year for businesses with a turnover of less than $10 million. There are small changes to capital gains tax for non-residents selling Australian shares in excess of $20 million. Such sales will require notification to the ATO, although the form of notification is not yet available.

This budget does not address the budget imbalance moving forward with deficits forecast for the forward estimates. The budget is also heavily reliant on personal income tax with 53 per cent of tax revenues in 2024-25 coming from individuals. This burden is after the personal tax cuts and will only grow over time.

At some point there is a need for a longer-term plan for the future.

To explore what this budget means for your or your business, please contact us.

Tax cuts for all

The Government’s changes to the Stage 3 tax cuts are a key element of the Budget. They have broadened the benefit of the original tax cuts announced by the previous government, halving the tax break for wealthier taxpayers and increasing the benefit for those on lower incomes.

Every taxpayer will receive a tax break, and the average tax household is expected to be almost $1,900 better off from July 2024. These changes were announced before the budget and have been slightly adjusted to take into account the cost-of-living crisis. They were not a new announcement, and the Government did not announce any further changes to the personal tax rates in the budget.

All taxpayers will benefit...to a degree. There is a planning opportunity to look at bringing forward deductions, where possible, to before 1 July 2024 and deferring income to after 30 June 2024. Simple strategies could include making the maximum superannuation contributions, and/or looking at catch up contributions prior to 30 June 2024, on the deductions side. On the income side, bonuses could be structured so they are received after 1 July 2024, when the lower rates start.

Instant asset write-off extended

Small businesses will see a one-year extension of the instant asset write-off for eligible items under $20,000, which are first used or installed ready for use by 30 June 2025. This remains available to Australian businesses with aggregated turnover of less than $10 million.

Aggregated turnover threshold

Initiative

Date range for when asset first used or installed ready for use

Cost threshold

Less than $10 million

Instant asset write-off

1 July 2023 to 30 June 2024

NOW EXTENDED TO 30 JUNE 2025

$20,000

The extension will continue to provide tax relief and remains an important tax strategy, providing cashflow benefits to eligible small businesses. The immediate deduction extension would allow small businesses further opportunities to invest in eligible capital assets whilst benefiting from a lower tax bill.

Super on paid parental leave, payday super, and recovery of unpaid superannuation guarantee

Super on paid parental leave

As previously announced, the Government plans to commence paying super guarantee amounts on the government-funded paid parental leave for babies born or adopted on or after 1 July 2025. This measure will increase a median earning mother’s superannuation balance at retirement by around $4,250 or 1.15 per cent, helping address the gender superannuation gap which currently sees women retire with around 25 per cent less super compared to men.

Payday super

The Government has reaffirmed their commitment to implementing payday super from 1 July 2026. This measure will require employers to pay their employees’ compulsory Super Guarantee entitlement the same day that they pay wages.

While this will challenge the cash flow for some businesses, it, along with the previously implemented single touch payroll and super stream, will provide greater insight and assistance to the ATO to recover the estimated $5 billion a year in unpaid superannuation. This will also provide individuals with greater certainty on the timing of superannuation contributions and help reduce accidental contribution cap breaches.

Recovery of unpaid superannuation guarantee

From 1 July 2024, the Government will pursue unpaid superannuation from employers in liquidation or bankruptcy under the Fair Entitlements Guarantee Recovery Program. Employers potentially heading into liquidation or bankruptcy from 1 July 2024 (FY 2025) may remain financially liable for superannuation entitlements owing to their employees.

This provides a level of protection for employees to recoup their superannuation entitlements and is a welcomed measure. The proposed measure could impact liquidators and employers and any unpaid superannuation will need to be contemplated as part of the wider liquidation or bankruptcy processes.

Download our superannuation analysis

Government invests $22.7 billion over 10 years to encourage private sector investment in moving to net zero emissions

The plan, although further detail needs to be provided, involves attracting and enabling investment in making Australia a renewable energy superpower, value adding to our resources and strengthening economic security, investing in people and places, and backing Australian ideas in innovation, digital, and science.

The Government will create a Future Made in Australia Act and establish a National Interest Framework to guide the identification of priority industries and prudent investments in the national interest.

The five industries aligned with the National Interest Framework include:

renewable hydrogen
critical minerals processing
green metals
low carbon liquid fuels
clean energy manufacturing, including battery and solar panel supply chains.

The proposed initiative represents an opportunity for businesses, which are in, or seek to operate in industries that support our ability to attract investment and support commercialisation of clean technologies. Definitely a 'watch this space' as the plan seeks to coordinate Commonwealth support for such entities in the renewable energy sector.

Boosting Australia’s economy with production tax credits for critical minerals

A Critical Minerals Production Tax Incentive will provide a 10 per cent tax credit to companies undertaking downstream processing that value-adds to raw minerals. These tax credits are designed to incentivise investment in the domestic processing and refining of critical minerals, which are vital for various high-tech industries, renewable energy technologies, and national defence.

By committing an estimated $7.1 billion over 11 years starting from 2023-24, with significant tax incentives from 2027-28 to 2040-41, the Australian Government is aiming to encourage the development of downstream processing facilities for Australia’s 31 critical minerals, thereby strengthening supply chains and reducing reliance on foreign imports.

For businesses, this presents substantial opportunities to invest in critical mineral processing, secure a stable supply of essential materials, and align with global sustainability trends.

There is a large focus on what Dr Chalmers is referring to as ‘transformational opportunities’. These incentives will provide support to explorers and early producers, helping them secure the necessary finance for projects, remain competitive globally and to ensure that we maximise the return on our highly sought after minerals by encouraging onshore processing and value add activities.

Tax office to target foreign residents selling Australian assets

The Government will consult on the implementation details surrounding foreign resident Capital Gains Tax (CGT) regime to ensure foreign residents pay their fair share of tax in Australia.

The proposed measure seeks to clarify and broaden the types of assets that foreign residents are subject to CGT and is expected to apply to CGT events commencing on or after 1 July 2025 (2026 FY):

The measure will seek to clarify and broaden the types of assets that foreign residents are subject to CGT
The principal asset test will be amended to require a 365-day testing period rather than a point in time test
ATO notification requirement is required where foreign residents dispose shares and/or other membership interests exceeding $20million prior to the transaction being executed.

The expansion of the taxable assets disposal of direct or indirect interest held by foreign residents with a close economic connection to Australian land would likely result in an increased tax impost to foreign investors.

The ATO notification requirement will need to be factored into the exit timelines and proactive actions are required to prevent any inadvertent delays.

The clarification and improved certainty for foreign investors is welcomed however the devil will no doubt be in the detail once draft legislation is forthcoming, the broadened asset base will be a major issue to look out for.

Learn out more about PKF's tax services

Amendments to multinational integrity measures

Proposed amendments to existing measures were announced as part of the budget, the following are targeted to international entities:

Australian plantation forestry entities will be exempted from the new earnings-based rules introduced as part of the multinational tax integrity package (thin capitalisation) rules. The former asset-based thin capitalisation rules will continue to apply to these entities
The denying deductions for payments relating to intangibles held in low or no tax jurisdictions budget measure announced in the 2022-23 October Budget will be discontinued as the integrity issues will now be addressed through the Global Minimum Tax and Domestic Minimum Tax being implemented by the Government. A new penalty will apply from 1 July 2026 (FY 2027) where royalty payments have been mischaracterised or undervalued by taxpayers who are part of a group with more than $1 billion in global turnover annually.

It will be important for impacted taxpayers to undertake a review of their debt deductions in light of the new thin capitalisation rules enacted on 8 April 2024 as only very specific entities are allowed to continue to apply the old asset-based rules.

Separately, royalty or licensing arrangements will need to be supported by contemporaneous transfer pricing documentation and timely royalty withholding disclosures and remission.

Australia’s draft legislation to implement the OECD’s Global Anti-Base Erosion (GloBE) rules was released on 21 March 2024 and will place a 15% tax in any jurisdiction which may impact the overall tax management of a multinational group.

With any questions about what this budget means for your or your business, please contact your local PKF taxation advisor. We will help you achieve your financial objectives.

Contributors

Federal budget

Labor delivers budget with eye on election

At some point there is a need for a longer-term plan for the future.

To explore what this budget means for your or your business, please contact us.

Tax cuts for all

Instant asset write-off extended

Super on paid parental leave, payday super, and recovery of unpaid superannuation guarantee

Super on paid parental leave

Payday super

Recovery of unpaid superannuation guarantee

Government invests $22.7 billion over 10 years to encourage private sector investment in moving to net zero emissions

Boosting Australia’s economy with production tax credits for critical minerals

Tax office to target foreign residents selling Australian assets

The Government will consult on the implementation details surrounding foreign resident Capital Gains Tax (CGT) regime to ensure foreign residents pay their fair share of tax in Australia.

Amendments to multinational integrity measures

With any questions about what this budget means for your or your business, please contact your local PKF taxation advisor. We will help you achieve your financial objectives.

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