What the recent Federal Budget will mean for you at tax time

Treasurer Jim Chalmers handed down his Federal Budget for the new financial year on May 14.

The headline measure in this year's Federal Budget is one we already knew about - individual tax cuts.

From July 1, 2024, all 13.6 million taxpayers will get a tax cut, which will flow into their pay packets. These tax cuts replace the original Stage 3 tax cuts which were legislated by the former government.

The tax cuts will put more money into the pockets of taxpayers, especially low and middle income taxpayers, and provide welcome relief from the surging cost of living.

As originally designed by the Liberal/National government, the tax cuts delivered most of the benefit to those on high incomes. So, nothing at all for people earning $40,000 and only $875 for people earning $80,000.  This has now been rectified - people earning $40,000 will get a tax cut of $654 and people earning $80,000 will get a tax cut of $1679.

With the cost of living disproportionately impacting low and middle income taxpayers, this will provide some much needed extra cash in the pockets of hard working families to pay mortgages, food and fuel bills.

Taxpayers don't need to do anything to get the tax cut. Employers will automatically adjust the amount of tax they take out of your pay which means you should see an immediate increase in take home pay from July 1, 2024.

Individuals

Personal tax rates cut

The undoubted headline of this year's Budget was the cut to personal tax rates, which was actually announced back in January 2024. Key features include:

• A cut in the 19% tax rate to 16%, saving $804 for those on taxable incomes of $45,000
• A cut in the 32.5% rate to 30% for incomes between $45,000 and $135,000
• Retaining the 37% rate but increasing the threshold for it to apply to $135,000.
• Retaining the current 45% tax rate but increasing the threshold to $190,000

Resident rates and thresholds for 2024-25

The tax rates and income thresholds from the 2024-25 for residents (as already legislated) are:

Non-resident tax rates and threshold for 2024-25

For 2024-25 and later income years, the tax rates for foreign residents are:

• $0 - $135,000 - 30%;
• $135,001 - $190,000 - 37%;
• $190,001+ - 45%.

Working holidaymakers

For 2024-25 and later income years, the rates of tax for working holiday makers are:

• $0 - $45,000 - 15%;
• $45,001 - $135,000 - 30%;
• $135,001 - $190,000 - 37%;
• $190,001+ - 45%.

Low Income Tax Offset (unchanged)

No changes were made to the low income tax offset (LITO) in the 2024-25 Budget.

The maximum amount of the LITO is $700. The LITO is withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

Medicare low-income thresholds for 2023-24

The Medicare levy low-income thresholds for 2023-24 would normally have been announced in this 2024-25 Budget. However, the Government released the 2023-24 Medicare levy thresholds on January 25, 2024 when it announced the changes to the Stage 3 tax cuts (see above).

The new thresholds to provide cost-of-living relief were enacted by the Treasury Laws Amendment (Cost of Living - Medicare Levy) Act 2024.

From the 2023-24 income year, the Medicare levy low-income threshold for singles has been increased to $26,000 for 2023-24 (up from $24,276 for 2022-23). This represents an increase of 7.1%, in line with inflation.

For couples with no children, the family income threshold is $43,846 (up from $40,939 for 2022-23). The additional amount of threshold for each dependent child or student is $4027 (up from $3760).

For single seniors and pensioners eligible for the SAPTO, the Medicare levy low-income threshold is $41,089 (up from $38,365). The family threshold for seniors and pensioners is $57,198 (up from $53,406), plus $4027 for each dependent child or student (up from $3760).

HECS debt indexation to be reformed

In a welcome move, the government is to reform the indexation of HECS and HELP debts to the lower of the consumer price index (CPI) and the wage price index (WPI).

This move is to be backdated to June 2023, which means that last year's horror increase of 7.1% will be lowered to the WPI of 3.2%. This will wipe out around $3 billion in student debt from more than three million Australians.

The effect of this measure can be seen in the following table:

Small business

Instant asset write-off extended for another year

The instant asset write-off is to be retained for a further year through to June 30, 2025.

Small businesses, i.e. those with aggregated annual turnover of less than $10 million, will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between July 1, 2024, and June 30, 2025. The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets.

Assets valued at $20,000 or more (which cannot be immediately deducted) can be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

This measure was already in force for the year through to June 30, 2024, and its extension represents a welcome break for small businesses.

Tax compliance

ATO tax compliance programs to be beefed up

The government has awarded more money to the ATO to help beef up its compliance programs. Amongst the measures that are relevant (at least if you are not compliant with the tax law!) are:

• $78.7 million for upgrades to information and communications technologies to enable the ATO to identify and block suspicious activity in real time
• $83.5 million for a new compliance taskforce to recover lost revenue and intervene when attempts to obtain fraudulent refunds are made
• $24.8 million to improve the ATO's management and governance of its counter-fraud activities, including improving how the ATO assists individuals harmed by fraud.

The Government will also strengthen the ATO's ability to combat fraud by extending the time the ATO has to notify a taxpayer if it intends to retain a business activity statement (BAS) refund for further investigation. The ATO's mandatory notification period for BAS refund retention will be increased from 14 days to 30 days to align with time limits for non-BAS refunds.

In addition, the ATO will continue to deliver a combination of proactive, preventative and corrective activities in key areas of non-compliance, including overclaiming of deductions, incorrect reporting of income and inappropriate tax agent influence. This will enable the ATO to continue its focus on emerging risks to the tax system, such as deductions relating to short-term rental properties.

ATO to be granted greater discretion over old tax debts

In a move to head-off the budding "robo-tax" scandal, the government will amend the tax law to give the ATO the discretion to not use a taxpayer's refund to offset old tax debts, where the Commissioner had put that old tax debt on hold prior to January 1, 2017.

This discretion will apply to individuals, small businesses and not-for-profits.

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