2024-25 Federal Budget Analysis

In this episode of the Be Better Off Show, hear from Brett Kelly and the Kelly+Partners Tax Consulting team as they unpack the key takeaways from the Federal Budget.

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Unpacking the 2024 Federal Budget

The Federal Treasurer, Dr Jim Chalmers handed down his third Federal Budget at 7:30PM (AEST) on 14 May 2024.

In this episode of the Be Better Off Show, hear from Brett Kelly and the Kelly+Partners Tax team as they unpack the key takeaways from the Federal Budget.

The two biggest drivers this year underpinning the Federal Budget are cost-of-living pressures and inflation. As such, it was never going to be a big-spending budget that handed out significant tax incentives that could over-stimulate the economy. 

This Budget has seen the implementation of previously introduced measures, in particular:

  • The stage 3 tax cuts; and
  • The $20,000 instant asset write-off for small business.

The Budget also continued the government's focus on tax compliance by giving the ATO further funds to continue its existing programs. Non-residents have also been targeted, with measures being announced that affect significant global entities and non-residents making Australian capital gains.

Show notes:

  • 0:06 - Introduction
  • 0:47 - Initial impressions
  • 3:15 - Stage 3 tax cuts
  • 5:00 - Medicare levy threshold
  • 5:27 - Business finance
  • 6:28 - Foreign multinationals
  • 9:17 - Instant asset write off
  • 10:30 - Foreign residence CGT regime
  • 12:57 - What's not in the budget

Learn more about the Federal Budget 2024:


Brett Kelly (06s):

Welcome to the be better off show where we try to have information that is helpful to our clients to make them healthier, wealthier and wiser. And today we're going to discuss the Australian federal budget for 2024, released last night by Jim Chalmers, Australia's Treasurer. I'm very pleased to be joined by our Head of Tax Consulting, Tony Nunes, and and his colleague and tax consulting partner Lishi Wang to discuss the Budget. Welcome, Tony. Welcome, Lishi.

Tony Nunes (43s):

Thank you, Brett.

Brett Kelly (47s):

Hey, it's great to have you. Last night, the government had a difficult task of introducing measures that would address Australia's cost of living concerns without over stimulating an economy that the Reserve Bank has tried, has been desperately trying, to moderate through multiple interest rate increases to attack inflation. Tony, how do you think they've gone with that difficult task?

Tony Nunes (1m 12s):

Well, look this has never been a government that's gonna introduce a significant tax reform. A few years ago, you know, Bill Shorten lost the unlosable election and the opportunity to make significant tax reform is normally in the first year when you come in and, you know, become the government and win the election that that opportunity they didn't take. So the year before an election, you're not going to use significant tax reform. You're not going to introduce significant changes and this was never expected to be a budget where we're going to see anything like that. So...

Brett Kelly (1m 54s):

So steady as she goes. Get ready for an election and don't upset too many people.

Tony Nunes (2m 01s):

That's exactly it. That's exactly it. And we've seen, you know, then sort of not not introducing significant changes, everything that was in there was expected and you know they haven't done anything that is going to surprise everyone and surprise business. But the themes. Yep. Yep, the themes are...

Brett Kelly (2m 23s):

So adding 9 1/2 billion, I think I read to the spend. The commentary is that you know, interest rates aren't about to come down as a result, but you know they might stay a little bit elevated for longer getting into the significant things that have happened, changes to individual tax rates, small business instant asset write off, further support for the ATO tax compliance programme, changes to the CGT regime for non-residents and increase scrutiny on royalties paid to non residents.

These are the things that we've really called out in our summary that has been emailed to all of our clients overnight. Do you guys want to take us through those five big measures sort of one at a time and and share share your views?

Tony Nunes (3m 15s):

Yeah. So let's start with the personal finance changes and this is the stage three changes. So this was announced by the previous government and if you recall, coming up at the end of last year, there was a lot of talk as to whether promises were going to be broken, whether the new government was going to continue with a stage 3 tax cuts, because it was going to cost the economy in the order of three $3.1 billion. And in January the Labour government tweaked the stage 3 tax cuts. And I think they they played their hand pretty well. Because they targeted more towards low and middle income tax earners, so they tweaked that and announced that then in January and this is now being confirmed in this budget.

Brett Kelly (4m 08s):

Yeah, a little bit of movement in the thresholds in the in the sort of 32 1/2% bracket forced to 30%, but importantly, the threshold goes from 120 thousand, 135,000 and then at 37% rate up to 190 and then 45 percent, 190, those threshold moves should bring a bunch of relief to people in those in those brackets, protect them from the last few years bracket creep.

So inflationary environment, they could have gone further but but you know that's that's at least the start I noticed here in the summary you have that we've prepared you've you've called out an increase in the Medicare levy threshold.

The significance of that, what are they up to there?

Tony Nunes (5m 00s)

Oh, again, that's just tied into the sort of stage 3 tax cuts. So there's about a 17% benefit to sort of lower tax. The sort of lower income earners, but again, it just ties into the stage 3 tax cuts and they're following through on that. So typically when you see a change, the personal income tax rates, there's an adjustment to the Medicare rates as well.

Brett Kelly (5m 27s)

Right now into business finance, by abolishing tariffs to streamline business costs, I hadn't heard much about this before the budget. What can you share about that and and how will that impact clients?

Tony Nunes (5m 42s)

Well, there's, there's the tariffs on import duties. The government's announced that there's a range of products that are attracting these import tariff duties. Again, it ties into the cost of living, so that increases the cost of these products that are imported into Australia.

When you look at the numbers, though, the income that the government is losing from these import tariffs is pretty small. So that's why they've actually referred to them as nuisance tariffs, because all they're really doing is creating a lot of red tape for business and not generating much revenue. So the government's just decided to make the import of the products more efficient and also at the same time help with the cost of living crisis.

Brett Kelly (6m 28s)

Terrific. Now at least she continued focus on multinationals. What can you share with us here? What's happening here?

Lishi Huang (6m 38s)

So probably comes as no surprise to multinationals that the government is continue to focus on revenue and income and making sure that they pay their fair share of tax in Australia.

There were a couple of, I guess big ticket items for clients in that space. The first one is there was previously announced a measure to deny deductions for essentially royalty payments to lower tax jurisdictions.

The government's not going to go ahead with that anymore, but it's going to be wrapped up in the new minimum global tax and minimum domestic tax regime that's come out of the OECD.

That is still in consultation, so we don't know very much about exactly how that's going to be implemented. But the idea there is to ensure that it's a fair playing field across the board for different countries and that there's a minimum tax of 15% for all of these multinational enterprises.

Brett Kelly (7m 43s)

Very interesting. So I think the headline corporate rate in Australia is 30% for our clients who are largely small and medium sized businesses, but.

Lishi Huang (7m 53s)

That's right.

Brett Kelly (7m 54s)

Might only be 15 for the for the big guys. Very interesting.

So this new penalty for undervalued royalties. Largely applying to just big groups over a billion in in revenues. So if you're a client and you fit into that into that class of well, that category of of turnover billion or more, you need to talk to Tony and Lishi's team.

In terms of strengthening tax compliance. The government's provide initial 187,000,000 to target tax and superannuation fraud. Increase personal income tax compliance programme has been extended. The shadow economy targeting cash payments has been extended ATO tax avoidance task force has been extended with the mandate to go and find another 2.4 billion, so there is a huge amount of compliance activity and a commitment from the government to increase funding in that area they get, I think I've read Tony 3 or 4 to $1.00 return on the investment, but they make in that space, so they're pretty keen on that.

Now for many of our clients, the extension of the instant asset write off to 30th of June 2025. Can you explain that to for us, Tony?

Tony Nunes (9m 17s)

Yeah. So the instant asset right off was introduced last year. Interestingly enough, it hasn't actually been introduced as legislation. It's it is, it's still in in a bill format, but they've now extended it by another year. So hopefully this means that it's year to stay permanently, but what it is, it's really a measure to allow small businesses to claim a write off for any assets that they buy that are less than $20,000.
It's on a per asset basis, so it can add up very quickly to a significant cash flow benefit if you can immediately claim your asset as a as a deduction. So we have we.

Brett Kelly (9m 58s)

And that's if your annual turnover is under 10 million. For a client that has multiple companies that are in a in a consolidated tax paying group, does the consolidated group need to be under 10 million or just an individual entity?

Tony Nunes (10m 15s)

That's right. It's a sort of group by turnover basis. It's not just whether you on a tax consolidated group, which is considered a single taxpayer, but even if you in a non consolidated group, the turnover is is the turnover of all the entities is taken into account.

Brett Kelly (10m 30s)

Great. So that's that's a, you know should it's certainly something every client who meets that criteria should be talking to their partner at Kelly Partners about accessing and finally the strengthening of the foreign residence CGT regime. What's this all about guys?

Lishi Huang (10m 52s)

So that was actually a bit of a surprise in the budget. At the moment, foreign residents are only taxed in Australia on certain types of capital gains, largely related to real property assets.

The budget kind of snuck in that they were going to have a look at this and potentially change the asset pool that's subject to tax and also change some of the rules around indirect interests in real property and how that's going to be going to be subject to tax.

So again, there's not much information in the budget in terms of how that's going to impact clients, but certainly we would be looking at the space quite closely to see what flows from it.

I expect based on the numbers, it doesn't look like the changes are going to be extremely significant. I think the estimates about $600 million over the four years. So we're not expecting wholesale changes to those rules, but it will be interesting to see what changes are ahead.

Brett Kelly (11m 54s)

Yeah, very interesting. So so that is tax on real property, is that correct?

Lishi Huang (12m 00s)

That's right.

Brett Kelly (12m 01s)

Yep, so direct and indirect interest in land and assets deemed when residency ceases.

Lishi Huang  (12m 14s)

So things that's right. So a real property, other things that are deemed to be real property like mining rights, Interests in permanent establishments that are set up in Australia, so it's not just real property in that sense.

But there are currently there are rules that limit the taxation of non residents in relation to Australian capital gains, and those are the rules that the the government's looking at.

Brett Kelly  (12m 41s)

Yeah. So taxable Australian property. TAP. That's one to keep in mind, and one to to speak to your Kelly+Partners director and our senior people in our tax Consulting Group, Tony and Lishi guys.

Tony Nunes (12m 57s)

So Brett, probably a couple of comments about what's not in the budget.

Brett Kelly (13m 03s)

Yep, and what's not in the budget that should be?

Tony Nunes (13m 07s)

Yeah, well, one is it should be, but certainly things that could affect our clients.

So I guess firstly, you know, you notice that there's been no changes announced to super. So Super's been one of those areas where government has introduced significant changes over the last few years and those changes have been mostly aimed at sort of high wealth individuals.

Now this budget had no changes to super. So is it are they telling us that they're going to cease these tweaks to the Super?
Because super of course is is really hard to change, you can, you know, the idea of super is that you put your money in super and it's locked in there. So when government changes the the rules, there's very little you can do without suffering significant penalty. 

Brett Kelly  (13m 52s)

Well, I think on that, Tony, that they've introduced such significant change, they need the system to catch up with the changes, even the accounting just for the changes that may need a couple of years to roll through. And I also think with an election coming up, they probably need a few people that have got, you know, a few dollars in super to vote for them. They're basically alienated anyone with a self managed super fund over, you know, five cents. And so maybe they're trying to get a few people to get a bit of amnesia about what they've done to them and vote for them.

Tony Nunes  (14m 24s)

Yeah, I I think that's probably on the money. The other thing that that's interesting is Division 7A, you know, they've announced many years ago that Division 7A was going to be reformed and we've had a number of reviews about Division 7A and recommendations and nothing's happened.

So it does leave us still in the lurch in, in working out, do we install have division seven as a planning tool because you know, seven years is a long time to be locked into.
A A loan. And if you go for a 25 year loan, you know and the rules change in a year or Two's time, you know you it's very difficult to change that. So again, there's been no announcement and no guidance on what is happening in that very important space for our clients.

Brett Kelly (15m 12s)

Yeah. Again, I do think that the present government preparing for an election and they know that they lost the unlosable election when they alienated people through what were perceived as aggressive and unfair tax changes.

So I do think that trying to shrink the number of people that might react. To those sorts of proposals at this point, Tony, that's how it feels. And obviously you're in into complex, you know, tax law that has long ranging implications as you've indicated. So you know, I don't, I don't see any courage across the political board to do anything interesting with respect to tax reform, and so anything that looks a little bit long dated or a little interesting, I think, has just been put to the side.

There's a lot of pressure from the Greens or you know significant action on sort of on housing and rental affordability, I do think there's plenty in this budget to to try and at least acknowledge the Government's role in social housing and other reforms that might have an impact in that area in particular:
This this calling on universities to provide more housing for overseas students that they seek to bring into to the country. Most of these universities are in city areas that are already experiencing real shortages in terms of home accommodation and so it seems to be a range of of measures across across that issue in particular that that I think the politics of that is to blunt the Green's sort of attacks on on the Labour Party in in in that area.

So, but the politics of the budget are probably more interested in the the are probably more interesting than the economics in this in this instance. And it'll be interesting to see how this goes down with the public generally.

I want to thank Tony and Lishi for their time. I hope this is an episode that people enjoy. There's plenty to to more to discuss, and we might, we might do another episode in the next week to see to to hear some different views on on these matters, but as I'd love to say, have a great day!

End of transcript



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