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Federal Budget 2025/26

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The federal budget was released on 25 March 2025. Here are the highlights.

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Reduction in individual tax rates

 

The Government will reduce the individual tax rate applied to the income bracket between $18,201 and $45,000 from 16% to 15% from 1 July 2026, and further to 14% from 1 July 2027. The tax rates for other income brackets remain the same.

 

The government will also increase the Medicare levy low‑income thresholds for singles, families, and seniors and pensioners from 1 July 2024. The threshold for singles will be increased from $26,000 to $27,222. The family threshold will be increased from $43,846 to $45,907. For single seniors and pensioners, the threshold will be increased from $41,089 to $43,020. The family threshold for seniors and pensioners will be increased from $57,198 to $59,886. The family income thresholds will increase by $4,216 for each dependent child or student, up from $4,027.

 

No changes were made to the low income tax offset (LITO) in the budget. The LITO will continue to apply for the income year 2024/25 and onwards.

 

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Reduction of HELP debts

 

The Government will reduce all outstanding Higher Education Loan Program (HELP) and other student debts by 20%. The 20% reduction is in addition to the indexation adjustments. The Government is also increasing the amount that people can earn before they are required to start paying back their loans, from $54,435 in the 2025 income year to $67,000 in the 2026 income year.

 

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Energy bill relief

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The government has also extended the energy bill rebates of $75 per quarter for eligible Australian households and small businesses until 31 December 2025. The rebates are applied automatically to electricity bills.

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Small business instant asset write-off

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After being re-elected, the Labor Government has announced that small businesses will continue to be able to deduct the $20,000 instant asset write-off until 30 June 2026.

https://alp.org.au/news/more-tax-relief-for-small-businesses-under-labor/

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ATO enforcement of taxpayer compliance

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The Government will provide increased funding to the ATO to extend and expand tax compliance activities over the next 4 years. This includes increased funding for the Tax Avoidance Taskforce, Shadow Economy Compliance Program, Personal Income Tax Compliance Program, and Tax Integrity Program.

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Support and Protection for Small Businesses and Franchisees

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The Government will strengthen regulatory oversight of the Franchising Code of Conduct, with additional resources allocated to the ACCC to support a more transparent and effective framework for the franchising sector.

 

In addition, the Treasury will work with States and Territories to explore options for extending protections against unfair trading practices, particularly for small businesses and those covered by the Franchising Code. This includes protections from unfair contract terms and conduct.​

 

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Restricting Foreign Ownership of Housing

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The Government has allocated funding to strengthen enforcement of the ban on foreign persons, including temporary residents, from purchasing established properties, which took effect on 1 April 2025 and will remain in place for two years.

 

Compliance efforts will also target foreign investors who purchase land and hold it undeveloped over an extended period. Authorities will focus on ensuring such land is put to residential or commercial use within a reasonable timeframe.

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Deferring foreign resident capital gains tax (CGT) rules

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The Government will defer the start date of the strengthened foreign resident capital gains tax (CGT) regime from 1 July 2025 to 1 October 2025, or a later quarterly date following Royal Assent.  The Government will change the following foreign resident CGT rules:

 

• Clarify and broaden the types of assets that foreign residents are subject to CGT on.

• Amend the point-in-time principal asset test to a 365-day testing period to determine whether foreign residents hold indirect interests in taxable Australian properties (via a company or trust).

• Require foreign residents disposing of shares and other membership interests exceeding $20 million in value to notify the ATO, prior to the transaction being executed.

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Vincent Wan

CPA, Registered Tax Agent

May 2025