Federal Budget 2025-26

Tax implications

Corporate tax

Foreign resident capital gains tax 

Regarding changes to Capital Gains Tax (CGT) for foreign residents, the Government released a consultation paper in July 2024. It contained three key elements to enhance the integrity and certainty of the foreign resident CGT rules in Division 855 of the Income Tax Assessment Act 1997 (ITAA 1997): 

• Clarifying and broadening the types of assets subject to CGT for foreign residents
• Amending the point-in-time principal asset test (PAT) to a 365-day testing period
• Requiring foreign residents disposing of shares and other membership interests exceeding $20m in value to notify the Australian Taxation Office (ATO) in the approved form before executing the transaction 

The Government has announced the revised commencement dates for the 2024-25 Budget measure ‘Strengthening the foreign resident capital gains tax regime’ from 1 July 2025 to the later date of 1 October 2025, or the first 1 January, 1 April, 1 July or 1 October after the Act receives the Royal assent. The deferral of the start date for these amendments to the foreign resident CGT regime is estimated to decrease receipts by $50m over five years. 

Managed Investment Trust (MIT) regime

The Government will amend the tax legislation to clarify arrangements for managed investment trusts (MITs) to ensure legitimate investors can continue to access concessional withholding tax rates in Australia. This is aimed at trusts that are ultimately owned by a single widely-held investor (e.g. a foreign pension fund) so they may access MIT concessions. This budget measure will apply to fund payments from 13 March 2025 and aims to: 

• Extend eligibility for the concession to data centres and warehouses that meet the relevant energy efficiency standard where construction starts after 7.30pm AEST on 9 May 2023 
• Raise the minimum energy efficiency requirements for existing and new clean buildings with a transitional arrangement for existing buildings 

The start date for the 2023-24 budget measure extending the clean building managed investment trust withholding tax concession will be deferred from 1 July 2025 to the first 1 January, 1 April, 1 July or 1 October after the Act receives Royal Assent. 

Investment in ATO reviews and activities

Strengthening sanctions and modernising the Tax Practitioners Board 

The Government will enhance the sanctions available to the Tax Practitioners Board (TPB) and modernise the registration framework for tax practitioners. Funding will be provided to the TPB to conduct further investigations and compliance activities targeting high-risk tax practitioners over four years from 1 July 2025. This supports the TPB in maintaining the sustainability of the tax profession by increasing the ease of re-entry for tax and business activity statement agents who take career breaks, and protects taxpayers from tax agent misconduct and maintain community confidence in the tax system. 

This is part of the Government’s response to tax and consulting integrity and implementation of recommendations from the 2019 Independent Review on the TPB. The Government will seek consultation on the implementation details of this measure. The initiative is expected to increase receipts by $47m and payments by $27.4m over the five years from 2024-25. 

Increased funding for ATO enforcement of taxpayer compliance 

The Government is focusing on extending and expanding tax compliance activities. This initiative is projected to increase receipts by $3.2b and payments by $1.4b over five years starting from 1 July 2025, and will include $999m in additional funding for the ATO, $402.6m in increased GST payments to states and territories, and $31m in unpaid superannuation to be distributed to employees. 

The $999m in additional funding over the next four years to the ATO will extend and expand its compliance activities, specifically: 

• From 1 July 2025:
  • $717.8m will be allocated over four years to fund a two-year expansion and one-year extension of the Tax Avoidance Taskforce, supporting the ATO’s ongoing focus on multinationals and large taxpayers. The Tax Avoidance Taskforce currently was due to end at 30 June 2028 – now potentially at 30 June 2029;
  • $155.5m over four years to extend and expand the Shadow Economy Compliance Program, to target shadow economy behaviour such as worker exploitation, under‑reporting of taxable income and illicit tobacco activity that undercuts competition;
  • $75.7m over four years to extend and expand the Personal Income Tax Compliance Program, so the ATO can continue to deliver a combination of proactive, preventative and corrective activities in key areas of non-compliance; and 
• From 1 July 2026:
  • $50m over three years from 1 July 2026 to extend the Tax Integrity Program, to help ensure ongoing timely payment of tax and superannuation liabilities by medium and large businesses and wealthy groups. 

This funding boost is expected to significantly enhance the ATO's ability to enforce taxpayer compliance and contribute to a fairer and more sustainable tax system. 

International tax 

Compliance requirements 

While the latest Federal Budget did not introduce new measures, the compliance requirements announced in the 2024-2025 Federal Budget will begin to impact taxpayers this financial year. These measures include: 

• Changes to the Thin Capitalisation regime: The thin capitalisation rules, which limit deductions that can be claimed in respect of debt funding, have been updated with the introduction of the Fixed Ratio Test, Group Ratio Test, and Third-Party Debt Test. Before applying these tests, the quantum of debt must also be tested as arm’s length.
• Introduction of Public Country-by-Country reporting: This reporting regime requires Country-by-Country Reporting Entities in Australia to publicly disclose their financial performance, business activities, and tax practices, aiming to increase multinational taxpayer accountability.
• Adoption of BEPS Pillar Two: Key elements of this OECD solution have been legislated in Australia, allowing the imposition of a top-up tax on Australian-resident multinational taxpayers to ensure their group meets the global minimum tax rate of 15 per cent. 

Each of these measures adds complexity to the disclosure requirements imposed on multinational enterprises, increasing their compliance costs. 

While there are limited changes in the budget for multinationals, new legislation introduced over the past year has led to a steady rise in disclosures and compliance. Additionally, with increased funding, we anticipate he ATO will continue to prioritise reviews and enforcement for multinationals. 

Banning foreign buyers of established homes

From 1 April 2025 the Government will implement a two-year ban on foreign buyers purchasing existing dwellings in attempt to boost Australia’s housing supply.  

This initiative will apply to foreign persons, including temporary residents and foreign-owned companies, who will be banned from purchasing established dwellings for two years unless an exception applies. Such exceptions will include: 

• Investments that significantly increase housing supply or support the availability of housing on a commercial scale
• Purchases by foreign-owned companies to provide housing for workers in certain circumstances 

To enforce this ban, the ATO will receive $5.7m in funding over four years from 2025-26.  

The ATO and Treasury will also be provided with $8.9m over four years from 2025-26 and $1.9m per year ongoing from 2029-30 to implement an audit program and enhance their compliance approach to target land banking by foreign investors. This is designed to encourage foreign investors to put vacant land to use for residential and commercial developments within reasonable timeframes. 

These measures are estimated to decrease receipts by $90m and increase payments by $14.6m over five years from 2024-25. 

Small business tax

Small business and franchisee support and protection  

The Government announced measures that indirectly assist small businesses and franchisees. These include $7.1m over two years from 2025-26 for the Australian Competition and Consumer Commission (ACCC) to increase its oversight of franchises and enforcement of the Franchising Code of Conduct. Additionally, the Government will allocate $3m over four years from 2025-26 to the Australian Securities and Investment Commission (ASIC) to improve its data analytics capability to target enforcement activities to deter illegal phoenixing, particularly directed at the construction sector – a sector that is seen to be more susceptible to this practice.  

Incentives for small businesses   

The Government has announced a $1.8b extension of the Energy Bill Relief Fund. From 1 July 2025 through to 31 December 2025, households and eligible small businesses can receive up to $150 in energy bill rebates, applied in two quarterly instalments of $75 each. This extends the Energy Bill Relief Fund that was announced in the 2024–25 Budget and is in addition to other state rebates.  

Pausing indexation on draught beer excise and excise equivalent customs duty rates and increasing support under the existing Excise remission scheme for manufacturers of alcoholic beverages and Wine Equalisation Tax Producer rebate. 

Providing $207m to continue the stabilisation of Australia’s business registers and undertake targeted uplifts, including linking Director Identification Numbers to the Company Register.