The last few years have been a rollercoaster ride of instability. 2025 holds hope, but not a guarantee, of greater stability and certainty. We explore some of the key changes and challenges.
An election
Welcome to political advertising slipping into your social media, voicemail, and television viewing - most likely with messages from the opposition asking if you are better off, and from the incumbents telling you all the reasons why you are.
The 2025-26 Federal Budget has been brought forward to 25 March 2025. This suggests an election will be held in either March or May 2025 but no later than 17 May 2025.
Legislation in limbo
The Senate pushed through 32 Bills on the final sitting day of parliament for 2024 including seven of direct relevance to business and to the financial interests of some Australians. However, two key announcements remain in limbo:
$3m tax on earnings in a superannuation fund
The proposed Division 296 tax, which imposes a 30% tax rate on future earnings for superannuation balances above $3 million, is proposed to commence from 1 July 2025. The Bill enabling the new tax is stalled in the Senate. It’s unlikely that this tax will pass parliament prior to the election; at which point, the Bill lapses. It then becomes a question of whether the elected Government chooses to rectify the concept or let it fade into oblivion as a bad idea.
$20,000 instant asset write-off for small business
In the 2024-25 Federal Budget, the government announced the extension of the $20,000 instant asset write-off threshold for small business for a further year to 2024-25. The concession enables businesses with an aggregated turnover of less than $10 million to immediately deduct the full cost of eligible depreciating assets costing less than $20,000. Without this measure, the threshold returns to $1,000. This concession was removed by amendment from the enabling legislation at the last minute in the final sitting of Parliament of 2024. The removal of this measure is unfortunate, as once again, SMEs now have no confidence about the tax treatment of investments in assets that they might be looking to make, or have made, in the current financial year.
Tax & super changes
Foreign resident capital gains withholding changes on sale of property
One of the Bills pushed through Parliament at the end of 2024 changes how capital gains withholding applies to foreign residents from 1 January 2025.
Currently, residents selling taxable Australian property must provide a clearance certificate to the purchaser at or before settlement to avoid having 12.5% withheld from a property sale where the value of the property is $750,000 or more. If applicable, the withholding is then made available as a credit against any tax liability. The vendor only receives any refund due after their next income tax return is processed at tax time.
From 1 January 2025 however, the threshold will be removed and the withholding rate increased so that:
- The withholding is increased from 12.5% to 15%; and
- The withholding applies to the sale of all Australian land and buildings by foreign residents, regardless of the value of the assets.
The reforms apply to acquisitions made on or after 1 January 2025.
Superannuation rate increases to 12%
The Superannuation Guarantee (SG) rate will rise from 11.5% to 12% on 1 July 2025 - the final legislated increase.
Super on Paid Parental Leave
From 1 July 2025, superannuation will be paid on Paid Parental Leave payments. Eligible parents will receive an additional payment based on the superannuation guarantee (i.e. 12% of their PPL payments), as a contribution to their superannuation fund.
Interest rates
At the last Reserve Bank Board (RBA) meeting, RBA governor Michele Bullock recognised the easing of headline inflation from 5.4% to 2.8% over the year to September 2024 but suggested that the economy still has some way to go before inflation is sustainably
within the 2% to 3% target range. The RBA appears wary of volatility and wants to see inflation sustainably trending down before making any move. Commbank is predicting a February 2025 rate cut, ANZ and Westpac May 2025, and NAB June 2025.
Cost of living pressures
The National Accounts released in early December took economists by surprise with living standards growing by a mere 0.2% in the September quarter – the expectation was much higher. Discretionary spending only increased by 0.1%.
The personal income tax cuts that came into effect from 1 July 2024 helped households, as did energy subsidies, but the impact is still working its way through the system. At the same time, mortgage costs continue to rise as past increases continue to impact.
Through the year, Australia’s economy grew 0.8%, the lowest rate since the COVID-19 affected December quarter 2020. Economic activity in the Australian economy right now is heavily dependent on Government spending.
Slow and steady is the expectation for 2025.
Wage theft criminalised
As of 1 January 2025, the intentional underpayment of workers will be criminalised.
Employers will commit an offence if:
- they’re required to pay an amount to an employee (such as wages), or on behalf of or for the benefit of an employee (such as superannuation) under the Fair Work Act, or an industrial instrument; and
- they intentionally engage in conduct that results in their failure to pay those amounts to or for the employee on or before the day they’re due to be paid.
Employers convicted of wage theft face fines of up to 3 times the amount of the underpayment.
