5 Takeaways from the 2025-26 Federal Budget

Five Takeaways from the 2025-26 Federal Budget

On Tuesday 25 March, the Albanese Government delivered its final budget before the next Federal Election. Whilst the budget included some relatively minor and unexpected income tax cuts for individuals, and a major boost to ATO tax anti-avoidance resourcing, it offered very little in the way of tax changes and no meaningful reform.

With a forecast deficit of $27.6bn for 2024-25 (and further deficits of $42.1bn, $35.7bn and $37.2bn in subsequent years), cost of living and inflation pressures (forecast at 2.5% for the June 2025 quarter) continue to be political talking points. Real GDP growth is still expected in future years.

Summarised below are five key areas of particular interest.

1. Individual Tax Rates

A cut in the personal income tax rate that applies from $18,201 to $45,000 taxable income (for Australian tax residents). From 1 July 2026 the marginal rate in this bracket reduces from 16% to 15%, then from 1 July 2027 the rate reduces further from 15% to 14%. The legislation to implement the cut has already been introduced and passed by parliament, though was unsupported by the Coalition.

This modest saving of approximately $250 per year in 2026 (rising to approximately $500 in 2027) will apply to all taxpayers. This contrasts to previous measures such as the Low to Middle Income Tax Offset targeting lower income tax brackets that did not result in any tax saving for higher income earners. The Low-Income Tax Offset remains in place for taxpayers with assessable income below $66,667.

This tax cut is in addition to the Stage 3 Tax Cuts that have been in effect since 1 July 2024. However, these latest cuts arguably do little to address bracket creep for individuals moving into higher tax brackets due to salary and wage increases.

2. Other Measures for Individuals

HELP (formerly HECS) Debts will be reduced by 20% (costing $16 billion) and the minimum repayment threshold will increase to $67,000.  

The ‘Help to Buy’ shared equity scheme will be expanded (increased income and price caps increased). This program is available for home buyers with income below $100,000 or $160,000 for couples, however does result in up to 40% of purchase price of the property’s equity being owned by the Government.

The Energy bill rebates of $75 per quarter for eligible Australian households and small businesses will be extended until the end of 2025 (previously due to expire on 30 June 2025).

3. Foreign Owned Property

Commencing from 1 April 2025 there will be a 2-year ban on foreign persons (including temporary residents and foreign-owned companies) purchasing established homes unless one of the limited exceptions applies (new homes are still permitted subject to the usual processes).

As a reminder, non-residents are subject to CGT on Taxable Australian Property including real property such as land and buildings. Neither the CGT discount nor the CGT main residence exemption are available to non-resident taxpayers. This, combined with additional land taxes, duties and levies, creates a restrictive environment for foreign investors holding Australian real estate.

4. Small Business

There were minimal measures for small business in this budget. Some additional funding will be directed towards ACCC’s enforcement of the Franchising Code.

Of particular note, there was no mention regarding the Instant Asset Write Off (IAWO) for depreciating assets.  The current legislated threshold is $1,000 for businesses with less than $10m aggregated turnover, though it has previously been announced that this threshold will increase to $20,000 for the 2025 income year however this is not currently law.

It was announced that non-compete clauses contained in employment contracts will be banned for employees earning under $175,000. This measure will affect an estimated 3 million Australians who are currently employed under a non-compete clause.

For producers of alcoholic beverages and wine, the remission cap and WET rebate cap will increase to $400,000 per year from 1 July 2026 (up from $350,000). Beer excise is also frozen for 2 years.

5. ATO Resourcing

An additional $999 million in funding has been allocated to the ATO Tax Avoidance Taskforce ($717.8m), the Shadow Economy Compliance Program ($155.5m), the Personal Income Tax Compliance Program ($75.7m), and the Tax Integrity Program ($50m).

Additional funding will be available for the Tax Practitioners Board to enforce sanctions on Tax Practitioners. Funding will also be provided to the Australian Business Register to link Director ID numbers with businesses (this is directed primarily at illegal phoenix activities). Alongside additional reform to the Tax Agent Services Act 2009 commencing 1 July 2025, expect to see a more rigorous tax framework and enforcement by the ATO and Tax Practitioners Board.

Final Comments

There is still no word on previously tabled items such as broad Division 7A or FBT reform, negative gearing and reducing the CGT discount.

The Budget did not contain any major announcements affecting superannuation. The planned ‘Super Tax’ in Division 296 (tax of 30% on balances above $3 million) that did not previously pass the Senate was not re-announced, though we understand remains official policy of the Albanese Government despite a lack of political support.

There is currently significant compliance activity around Division 7A (regarding loans from private companies) and Section 100A (regarding trust distributions), with a landmark case currently under appeal to the High Court.  We expect further announcements in these areas following the election.

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