2024-25 Federal Budget: Income Tax

Small business depreciation — instant asset write-off threshold of $20,000 extended to 2024–25

The instant asset write-off threshold of $20,000 for small businesses applying the simplified depreciation rules will be extended for 12 months until 30 June 2025.

Small businesses (aggregated annual turnover less than $10 million) may choose to calculate capital allowances for depreciating assets under a simplified regime in Subdiv 328-D of ITAA 1997. Under these simplified depreciation rules, an immediate write-off applies for low-cost depreciating assets. The measure will apply a $20,000 threshold for the immediate write-off, applicable to eligible assets costing less than $20,000 that are first used or installed ready for use by 30 June 2025.

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter. The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt-out will also continue to be suspended until 30 June 2025.

The measure extends a 2023–24 Budget measure to increase the instant asset write-off threshold to $20,000 for the 2023–24 income year. A Bill containing amendments to increase the instant asset write-off threshold for 2023–24 is currently before parliament. The Bill was amended by the Senate to increase the instant asset write-off threshold for 2023–24 to $30,000 and extend access to the instant asset write-off to entities that are not small business entities but would be if the aggregated turnover threshold were $50 million.

Source: Budget Paper No 2, pp 14–15; Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023.

Foreign resident CGT regime to be strengthened

The foreign resident CGT regime will be strengthened for CGT events that occur on or after 1 July 2025. In respect of such CGT events, the amendments will:

• clarify and broaden the types of assets that foreign residents are subject to CGT on
• change the point-in-time principal asset test to a 365-day testing period, and
• 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. This new ATO notification process will improve oversight and compliance with the foreign resident CGT withholding rules, where a vendor self-assesses their sale as not being taxable real property.

This measure will ensure that Australia can tax foreign residents on direct and indirect sales of assets with a close economic connection to Australian land, more in line with the existing tax treatment applying to Australian residents. It will also align Australia’s taxation of foreign resident capital gains more closely with OECD standards and international best practice. 

The government will consult on the implementation details of the measure. 

Source: Budget Paper No 2, pp 17–18.

New critical minerals production tax incentive

A critical minerals production tax incentive will be available from 2027–28 to 2040–41 to support downstream refining and processing of Australia’s 31 critical minerals to improve supply chain resilience.

In total, an estimated $7.1 billion will be spent over 11 years from 2023–24 to support refining and processing of critical minerals, as part of the government’s Future Made in Australia initiative to make Australia a renewable energy superpower. This includes:

• the above critical minerals productive tax incentive, at an estimated cost of $7.0 billion over 11 years from 2023–24, and
• $10.2 million in 2024–25 for pre-feasibility studies for critical mineral common-user processing facilities, in partnership with state and territory governments.

Source: Budget Paper No 2, p 68.

New hydrogen production tax incentive

A hydrogen production tax incentive will be available from 2027–28 to 2040–41 to producers of renewable hydrogen to support the growth of a competitive hydrogen industry and Australia’s decarbonisation.

In total, an estimated $8.0 billion will be spent over 10 years from 2024–25 to support the production of renewable hydrogen, as part of the government’s Future Made in Australia initiative to make Australia a renewable energy superpower. This includes:

• the above hydrogen production tax incentive, at an estimated cost of $6.7 billion over 10 years from 2024–25
• $1.3 billion over 10 years from 2024–25 for an additional round of the Hydrogen Headstart program to bridge the green premium for early-mover renewable hydrogen projects, and
• $17.1 million over 4 years from 2024–25 (and an additional $2.5 million in 2028–29) to deliver the 2024 National Hydrogen Strategy, including hydrogen infrastructure planning, social license and industry safety training and regulation.

Source: Budget Paper No 2, p 68.

Further changes to producer tax offset

The minimum length requirements for content and the above-the-line cap of 20% for total qualifying production expenditure for the producer tax offset will be removed.

To be eligible for the producer tax offset, films are currently required to meet minimum length requirements under s 376-65(3)–(5) of ITAA 1997. Different length requirements apply depending on the format of the content.

“Above-the-line” expenditure which can be qualifying production expenditure for the purposes of the producer tax offset is currently capped at 20% of total film expenditure for all films except documentaries under s 376-170(4)(b) of ITAA 1997. Such expenditure includes development expenditure on a film and remuneration provided to the principal director, producers and principal cast associated with a film.

Source: Budget Paper No 2, pp 151–152.

New penalties for large group entities mischaracterising or undervaluing royalty payments

A new penalty will be introduced from 1 July 2026 for taxpayers who are part of a group with more than $1 billion in annual global turnover that are found to have mischaracterised or undervalued royalty payments, to which royalty withholding tax would otherwise apply.

Source: Budget Paper No 2, p 11.

Measure to deny deduction for payments relating to intangibles discontinued

The Labor government’s 2022–23 Budget measure to deny deductions for payments relating to intangibles held in low- or no-tax jurisdictions is being discontinued.

An anti-avoidance rule was proposed in the 2022–23 Budget to prevent significant global entities (SGEs) from claiming tax deductions for payments made directly or indirectly to related parties in relation to intangibles held in low- or no-tax jurisdictions. The measure would apply to payments made on or after 1 July 2023. Exposure draft legislation was then released on 31 March 2023. In its 2023–24 Mid-Year Economic and Fiscal Outlook (MYEFO) the government announced that further amendments would be made to better target this measure.

This measure is now being discontinued. The integrity issues will instead be addressed through Australia’s implementation of the global and domestic minimum taxes as part of the OECD’s Two Pillar solution to address the tax challenges arising from the digitalisation of the economy under Action 1 of the Base Erosion and Profit Shifting (BEPS) project.

Source: Budget Paper No 2, p 11.

Expansion of Pt IVA general anti-avoidance rule delayed

The start date of a 2023–24 Budget measure to expand the scope of the general anti-avoidance rule in Pt IVA of ITAA 1936 will be deferred to income years commencing on or after assent of enabling legislation.

The government had announced in the 2023–24 Budget that the general anti-avoidance rule would be expanded to capture schemes that result in reduced Australian tax via lower withholding tax rates on income paid to foreign residents. The changes announced also included extending Pt IVA to schemes with a dominant purpose to reduce foreign income tax where the scheme achieved an Australian income tax benefit.

When first announced, the changes were to apply for income years starting on or after 1 July 2024. The changes will now apply for income years commencing on or after assent of enabling legislation, regardless of whether the scheme was entered into before that date.

Source: Budget Paper No 2, p 10.

Income tax exemptions for World Rugby

Further to the measure “Rugby World Cup 2027 (men’s) and Rugby World Cup 2029 (women’s)” announced in the Coalition government’s 2022–23 Budget, income tax exemptions will be provided to World Rugby and/or related entities for income derived in relation to the Rugby World Cup 2027 (men’s) and Rugby World Cup 2029 (women’s) events (RWC events).

The exemptions will apply to income derived in relation to the RWC events for the 2023–24 to 2030–31 income years (inclusive). An exemption will also be provided from interest, dividend and royalty withholding tax liabilities arising from payments relating to RWC events.

Source: Budget Paper No 2, p 11.

Deductible gift recipients list to be updated

The list of specifically listed deductible gift recipients (DGRs) will be updated to list the following organisations as DGRs:

• The Hillview Foundation Australia Limited for gifts received from 1 July 2024 to 30 June 2029
• Skip Foundation Ltd for gifts received from 1 July 2025 to 30 June 2030, and
• Combatting Antisemitism Fund Limited for gifts received from 1 July 2025 to 30 June 2030.

DGR status has also been approved for the Australian Muslim Advocacy Network’s AMAN Foundation Ltd.

The listing of Combatting Antisemitism Fund Limited and Skip Foundation Ltd is subject to charity registration with the Australian Charities and Not-for-profits Commission.

In addition, the listing of Skip Foundation Ltd is subject to the condition that DGR funds can only be used for purposes consistent with existing DGR categories in the tax law, and it will maintain minimum annual distributions consistent with the current requirements for ancillary funds. 

The following organisations will be removed from the list of specifically listed DGRs as they are no longer operating:

• Don Chipp Foundation Ltd 
• Ian Clunies Ross Memorial Foundation 
• Ian Thorpe’s Fountain for Youth 
• Layne Beachley — Aim for The Stars Foundation Limited 
• National Congress of Australia’s First Peoples Limited
• Sir William Tyree Foundation 
• SouthCare Helicopter Fund Pty Limited, and
• The Lingiari Policy Centre Limited.

Further, the Australian Charities and Not-for-profits Commission (Consequential and Transitional) Regulation 2016 will be remade with an extension of the current charity transitional reporting arrangement for 5 years.

Source: Budget Paper No 2, pp 13–14.