The past 24 months have been marked by lots of uncertainties. While 2025 offers hope for greater stability, there are no guarantees. Let’s take a look at some of the key changes and challenges ahead.

 

An Election Looms

Get ready for political ads popping up in your social media feed, mail box and TV. Expect opposition messages asking if you’re better off, and incumbents telling you all the reasons why you are. 

The 2025-26 Federal Budget has been brought forward to 25 March 2025, signaling that the next election is likely to be held in March or May 2025, with a deadline of 17 May 2025.

 

Legislation in Limbo

On the final sitting day of Parliament in 2024, the Senate passed 32 Bills, including seven directly impacting businesses and the financial interests of Australians. However, two critical issues remain unresolved:

 

$3 Million Tax on Superannuation Earnings

The proposed Division 296 tax, which introduces a 30% tax rate on future earnings in superannuation balances over $3 million, is slated to take effect from 1 July 2025. 

However, the Bill enabling this tax is currently stalled in the Senate and is unlikely to pass before the election. If it doesn’t, the Bill will lapse, and it will be up to the newly elected government to decide whether to pursue or discard it.

 

$20,000 Instant Asset Write-Off for Small Business

In the 2024-25 Federal Budget, the government extended the $20,000 instant asset write-off for small businesses until FY 2024-25. This allows businesses with an aggregated turnover of less than $10 million to immediately deduct the full cost of depreciating assets under $20,000. 

However, the enabling legislation was amended at the last minute in Parliament, removing this measure. The sudden removal leaves SMEs uncertain about tax treatment for investments made in the current financial year.

 

Tax & Superannuation Changes

 

Foreign Resident Capital Gains Withholding on Property Sales

A new Bill passed at the end of 2024 introduces changes to capital gains withholding for foreign residents from 1 January 2025. Under the current system, foreign residents selling taxable Australian property valued at $750,000 or more must provide a clearance certificate to the purchaser to avoid a 12.5% withholding at settlement. This withholding is then credited against any tax liability, with refunds processed after the vendor’s tax return.

From 1 January 2025, the threshold for this withholding will be removed, and the rate will increase to 15%. This change will apply to all Australian land and property transactions by foreign residents, regardless of the property’s value.

 

Superannuation Rate Increase to 12%

The Superannuation Guarantee (SG) rate is set to rise from 11.5% to 12% on 1 July 2025, marking the final legislated increase in the rate.

 

Superannuation on Paid Parental Leave

Starting 1 July 2025, superannuation will be paid on Paid Parental Leave (PPL) payments. Eligible parents will receive a superannuation contribution based on the Superannuation Guarantee (SG) rate, which will be 12% of their PPL payments, and this will be paid into their superannuation fund.

 

Interest Rates

In the most recent Reserve Bank of Australia (RBA) meeting, RBA Governor Michele Bullock noted a decrease in headline inflation from 5.4% to 2.8% in the year to September 2024. However, she stated that the economy still has some distance to go before inflation consistently falls within the RBA’s target range of 2-3%. 

The RBA is cautious about volatility and wants to see a sustained downward trend in inflation before taking any further action. 

 

Cost of Living Pressures

The National Accounts, released in early December, showed living standards grew by only 0.2% in the September quarter, well below expectations. Discretionary spending saw a minimal increase of just 0.1%. While personal income tax cuts, effective from 1 July 2024, and energy subsidies have provided some relief to households, the effects are still being felt. At the same time, rising mortgage costs continue to burden households as previous rate hikes take their toll.

Over the past year, Australia’s economy grew by just 0.8%, the lowest growth rate since the COVID-19 impact in the December 2020 quarter. The Australian economy is currently heavily reliant on government spending, and a slow, steady recovery is expected in 2025.

 

The ‘Trump Effect’

On 20 January 2025, President-elect Donald Trump will take the oath of office, marking the beginning of his second term with control of both the Senate and the House of Representatives. One of the key concerns for Australia is how Trump’s proposed policies, particularly his stance on tariffs, will affect trade relations. 

The potential impact on Australia lies in the secondary effects of a global trade war. China is Australia’s largest trading partner, accounting for 26% of our goods and services trade in 2023. Any slowdown in China’s economy could have significant ripple effects for Australia and the broader region.

Fuel-Efficient Vehicles

New standards for vehicle manufacturers will take effect on 1 January 2025. From this date, manufacturers will have a set average CO2 target for all new vehicles they produce, which must be met or exceeded. This target will gradually decrease over time, and car companies will be required to offer a wider range of fuel-efficient, low-emission, or zero-emission vehicles.

While suppliers can still sell any type of vehicle, they must balance less fuel-efficient models with more fuel-efficient ones to meet the target. Suppliers who meet or exceed their target will earn credits, while those who fail to do so will have two years to either trade credits with another supplier or generate their own credits. If they still fail to meet the target after two years, penalties will apply.

 

Wage Theft Criminalised

Starting 1 January 2025, the deliberate underpayment of workers will be a criminal offence.

Employers will be guilty of wage theft if:

• They are required to pay an amount to an employee (such as wages or superannuation) under the Fair Work Act or an industrial instrument; and
• They intentionally engage in conduct that leads to their failure to pay the required amounts on or before the due date.

Employers found guilty of wage theft could face fines of up to three times the amount of the underpayment, with a maximum penalty of $7.825 million.

Feel free to contact Bates Cosgrave if you would like to discuss this year’s plan around tax, super, investment, business strategies and more.