Australian Federal Budget 2024-25 Highlights

Key Changes in Taxation and Investment Incentives

The Australian Government's 2024-25 Budget introduces several significant changes that will impact taxation and investment incentives. Here’s a summary of the key updates:

New Production Tax Incentives

The Government is committing approximately $19.7 billion over the next decade to accelerate investment in critical industries. This initiative aims to boost sectors such as renewable hydrogen, green metals, low carbon liquid fuels, critical mineral processing, and clean energy technology manufacturing. As part of this effort, two new Production Tax Incentives have been introduced:

• Critical Minerals Production Tax Incentive: This incentive is designed to support the production and processing of essential minerals.
• Hydrogen Production Tax Incentive: This incentive focuses on advancing hydrogen production technologies.

Revamping the Foreign Investment Framework

To enhance Australia’s appeal to foreign investors while protecting national interests, the Government will overhaul the foreign investment framework. Announced on May 1, 2024, these reforms include:

• Enhanced Risk-Based Assessment: Investment proposals will be evaluated with a balance of economic benefits and security risks.
• Increased Tax Compliance Focus: Greater scrutiny will be applied to foreign investments with high-risk tax characteristics, including internal reorganisations and investments in low-tax jurisdictions.
• Notification Requirement: Foreign residents must notify the Australian Taxation Office (ATO) before disposing of shares or membership interests valued over $20 million.

Superannuation Guarantee Changes

From July 1, 2024, the minimum superannuation guarantee (SG) rate will increase from 11% to 11.5%, ensuring higher superannuation contributions for employees.

Payday Superannuation

The Government proposes the introduction of ‘payday super’, requiring employers to pay superannuation contributions on the same day as salary and wages. This change, expected to take effect from July 1, 2026, will be supported by additional funding to help workplaces adapt.

Foreign Resident Capital Gains Tax (CGT) Adjustments

The foreign resident CGT regime will undergo significant updates, including:

• Broadened Asset Types: The regime will now include assets with a close economic connection to Australian land.
• 365-Day Principal Asset Test: This will replace the point-in-time test with a 365-day testing period.
• Notification Requirement: Foreign residents disposing of high-value shares or membership interests must notify the ATO before the transaction.

These changes will apply to CGT events from July 1, 2025, and aim to clarify asset types and valuation issues.

Royalties and Intangible Assets Taxation

The Government has decided to abandon the previously proposed intangibles integrity measure. Instead, focus will shift to the Pillar Two Global Minimum Tax, which is expected to address issues related to deductions for payments connected to low-tax jurisdictions.

Pillar Two

On May 9, 2023, the Government announced its intention to implement key aspects of Pillar Two from the OECD/G20 Two-Pillar Solution, addressing tax challenges from digitalisation. Proposed changes include:

• 15% Global Minimum Tax: The Income Inclusion Rule will apply from January 1, 2024, and the Undertaxed Profits Rule from January 1, 2025.
• 15% Domestic Minimum Tax: This will apply from January 1, 2024

The Subject to Tax Rule, another component of Pillar Two, was not included in this announcement.

Thin Capitalisation Amendments

On March 27, 2024, the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share - Integrity and Transparency) Bill 2023 passed through Federal Parliament. This Bill introduces a new thin capitalisation regime, effective for income years commencing on or after July 1, 2023.

Individual Tax Cuts

From July 1, 2024, revised Stage 3 tax cuts will reduce marginal tax rates:

• $0 - $18,200: 0%
• $18,201 - $45,000: 16%
• $45,001 - $135,000: 30%
• $135,001 - $190,000: 37%
• Above $190,000: 45%

These changes are designed to provide tax relief and will adjust Pay-As-You-Go (PAYG) withholding rates.

Changes to Student Loans

Effective June 1, 2023, HELP loans will be indexed using the lower of the Consumer Price Index (CPI) or the Wage Price Index, making repayments more manageable for students.

Superannuation Payments for Paid Parental Leave

Starting July 1, 2025, superannuation will be included in the Paid Parental Leave (PPL) scheme. The Government has allocated $1.1 billion over four years to cover 12% superannuation on government-funded paid parental leave.

Conclusion

These budgetary changes reflect the Government’s commitment to fostering investment in critical industries, enhancing foreign investment frameworks, and ensuring fair taxation practices. For more detailed information and updates, visit our Doing Business in Australia website or contact us for expert advice.