#075 - 2024-25 Federal Budget Analysis

Welcome to the Be Better Off Show where we try to have information that is helpful to our clients to make them healthier wealthier and wiser and today we're going to discuss the Australian Federal Budget for 2024 released last night by Jim Charmers Australia's Treasurer and I'm very pleased to be joined by our head of Tax Consulting Tony Nunes and and his colleague and tax consulting partner Lishi Huang to discuss the budget welcome Tony welcome Lishu thank you Brett thanks Brett hi

so great to have you um

last night the government had the difficult task of introducing measures that would address Australia's cost of living concerns without overstimulating an economy that the Reserve Bank has try has been desperately trying to moderate through multiple interest rate increases to attack inflation Tony how do you think they've gone with that difficult task well if this has never been a government that's gonna introduce a significant tax reform a few years ago you know

Bill Shorten lost the unleasable election and the opportunity to make significant tax reform is normally in the first year when you come in and uh you know become the government and win the election um that that opportunity they didn't take so the year before an election um you not gonna introduce significant tax reform you're not gonna introduce significant changes and this was never expected to be a budget where we gonna see anything like that so steady as she goes get ready for an election

don't upset too many people that's exactly it that's exactly it and um we've seen you know them so not not introducing significant changes everything that was in there was expected and um you know they haven't done anything that is gonna surprise everyone and surprise business the things so yep yep that's not nine and a half billion I think I I read um to the spend um the commentary is that you know interest rates aren't about to come down as a result but you know

they might stay little bit elevated for longer getting into the significant things that have happened um changes to individual tax rate small business instant asset write off further support for the ATO tax compliance program changes to the CGT regime for non residents um and increase group neon royalties paid to non residents these are the things that we've really called out in our summary that has been emailed to all of our clients overnight um do you guys

wanna take us through those five big measures um sort of one at a time and and share per your views

yeah so let's start with the personal finance changes and this is the stage 3 changes so this was announced by the previous government and if you recall coming up at the end of last year there was a lot of talk as to whether promises were gonna be broken whether the new government was going to continue with the stage 3 tax cuts because it was gonna cost the economy in the order of three three point one billion dollars and uh in January the labor government tweet the stage 3 tax cuts

and I think they they played their hands pretty well because they targeted more towards um low and middle income tax earners so they tweeked that and uh announced that then in January and this is now being confirmed in this budget yeah a little bit of movement and in the thresholds in a in a sort of thirty two and a half percent bracket falls to 30% but in importantly the threshold goes from 1 20 120,000 135,000 and then um at 37% rate up to 190 and then 45% 1 90 those threshold moves

should bring a bunch of relief to people in those in those brackets um protect them from the last few years bracket creep with this high inflation environment they could have gone further but but you know that's that's at least the start um I noticed here in the summary you have that we prepared you you called an increase in the Medicare levy threshold um the significance of that what what are they up to there

oh eh eh again that's just the tied into the search stage 3 tax cuts so there's um about a 17% benefit um to serve lower tax um to um the serve lower income earners um but again it just ties into the stage 3 tax cuts and they following through on that so typically when you see a change the personal income rates there's an adjustment to the Medicare rates as well great now into business financer

by abolishing tariffs to streamline business costs I hadn't heard much about this before the budget um what can you share about that and and how will that impact clients well there's there's the tarots on import duties the governments announced that there's a range of products that are are attracting these import tarot duties um again it ties into the cost of living so that increases the cost of these products that imported into Australia when you look at the numbers though

the income that the government is losing from these import tariffs is pretty small so that's why they've actually referred to them as nuisance tariffs because um all they're really doing is creating a lot of red tape for business and not generating much revenue so the government has decided to make the import of the products more efficient and also at the same time help with the cost of living crisis

terrific now Lishi, continued focus on multinationals what can you share with us here what's happening here um so probably comes as no surprise to multinationals that the government is continue to focus on revenue and income and making sure that they pay their fair share of tax in Australia there were a couple of um I guess big ticket items for clients in that space the first one is there was previously announced a measure to deny deductions for essentially royalty payments

to lower no tax jurisdictions the government's not gonna go ahead with that anymore but it's going to be wrapped up in the new minimum global tax and minimum domestic tax regime that's come out of the OECD um that is still in consultation so we don't know very much about exactly how that's going to be implemented but the idea there is to ensure that it's a fair playing field across the board for different countries and that there's a minimum tax of 15% um

for all of these multinational enterprises very interesting so I think the uh headline corporate rate in Australia is 30% for our clients who are largely small and medium sized businesses but uh that's right might only be 15 for the for the big guys very interesting so the this new penalty for undervalued royalties I'm largely applying to just big groups over billion in in revenues so if you're a client and you fit into that um into that class of or

or that category of of a turnover billion or more you need to talk to Tony and Lishi's

team. In terms of strengthening tax compliance um the governments provide initial hundred eighty seven million to target tax and superannuation fraud um increase personal income tax compliance program has been extended the shadow economy targeting cash payments have been extended ATO Tax Avoidance Task Force um has been extended um with the mandate to go and find another 2.4 billion so there is a huge amount of compliance um activity and a commitment from the government

to increase funding in that area they get I think I read Tony three or four to one dollar return on the investment that they make in that space so they're pretty keen on that now for many of our clients the extension of the instant asset right off to 30 to June 2025 can you explain that too, for us Tony

yeah so the instant asset right off was introduced uh last year interesting enough it hasn't actually been introduced as legislation it it's uh it is it's still in in a Bill format um but they've now extended it by another year so hopefully this means that it's here to stay permanently but what it is it's really a measure to allow small businesses to claim a writeoff for any assets that they buy that are less than $20,000 it's on a per acid basis so it can add up very quickly

to a significant cash flow benefit if you can immediately claim your acid as a as a deduction so we have an annual turnover is under 10 million and for that's right has multiple companies that are in a in a consolidated tax paying group does the consolidated group need to be under 10 million or just an individual entity look at Sam it's a so group white turnover basis is not just whether you on a tax consolidated group which is considered a single taxpayer

but even if you in a non consolidated group the turnover is is the turn of all the entities is taken into account

great so that's that's you know should it is certainly something every client um who meets at criteria should be talking to their partner at Kelly Partners about accessing and finally the strengthening the Foreign Residence CGT regime what's this all about guys and if she take that one so that was actually a bit of a surprise in the budget um at the moment foreign residents are any taxed in Australia on certain types of capital gains largely related to real property assets um

the budget kind of snuck in that they were going to have a look at this and potentially um change the asset pool that subject to tax and also change some of the rules around indirect interest in real property and how that's going to be subject to tax so again there's not much information in the budget in terms of how that's going to impact lines but certainly we would be looking at the space quite closely to see um what flows from it I expect um based on the numbers

it doesn't look like the changes are going to be extremely significant I think the estimates about $600 million over the four years so we're not expecting wholesale changes to those rules but it will be interesting to see what changes are ahead yeah very interesting so so that is tax on real property is that correct that's right yeah so direct in indirect interest in land and assets deemed so things that's right so real property um other things that are deemed to be real property

like mining rights um interest in permanent establishments that are set up in Australia so it's not just real property in that sense um but there are currently there are rules that limit the taxation of non residents in relation to Australian capital gains and those are the rules that the um the government's looking at yeah so actual Australian property to AP that's one to keep in mind and wanted to speak to your Kelly Partners director and our senior people in our Tax Consulting group

Tony and Lishi

so Brett there's probably a couple of comments about what's not in the budget yep so what's not in the budget that should be yeah well unnecessary it should be but uh certain things that could affect our clients so I guess firstly you know you notice that there's been no changes announced to super so super has been one of those areas where government has introduced significant changes over the last uh few years and those changes have been mostly aimed at sort of high wealth individuals

now this budget had no changes uh to super so is it are they telling us that they gonna cease uh these tweaks to the super uh because super of course is is really hard to change you can uh one uh the idea of super is that you put your money in super and it's locked in there so when government changes the the rules um there's really all you can do without uh suffering significant penalty so what's your problem that Tony that they've introduced such significant change

they need the system to catch up with the changes even the accounting just for the changes of may need a couple of years to roll through and I also think with an election coming up they probably need a few people that have got you know a few dollars in super to vote for them that basically alienated anyone with a self managed super fund over you know 5 cents and so um maybe they're trying to get a few people to get a bit of amnesia about what they've done to them and uh vote for them

yeah I I think that that's probably on the money the other thing that that's interesting is Division 7A they've announced many years ago that Division 7A was gonna be reformed and we've had a number of views about Division 7A and recommendations and nothing's happened so it does leave us still in the lurch in in working out do we still have Division 7 as a planning tool because you know seven years is a long time to be locked into a a loan and if you go for a 25 year loan um

and the rule change in a year or two's time it's very difficult to change that so again there's been no announcement no guidance on what is happening in that very important space for our clients yeah again I do think that the present government preparing for an election and they know that they lost the unluzable election when they alienated people through what were perceived as aggressive and unfair tax changes so I do think they're trying to shrink the number of people that might react to

to those sorts of proposals at this point Tony that's how it feels um and obviously you're in into complex you know tax law that has long ranging implications as you've indicated so you know I don't I don't see any courage across the political board to do anything interesting with respect to tax reform and so anything that looks a little bit long dated or a little interesting I think is just being put to the side um there's a lot of pressure from the greens or you know um significant action on

uh the sort of on housing and rental affordability I do think there's plenty in this budget to to try and at least acknowledge um government's role in social housing and another um reforms that might have an impact in that area in particular um this this calling on universities to provide more housing for um overseas students that they seek to bring into to the country most of these universities are in city areas that are already experiencing real shortages in terms of home accommodation

and so it seems to be a range of of measures across across that issue in particular that that I think the politics of that is to blunt the green sort of attacks on on the Labour Party in in in that area so but the politics of the budget are probably more interested in the that are probably more interesting than the economics in this in this instance and it'll be interesting to see um how this goes down um with the public generally wanna thank Tony and Lisa for their time

I hope this is an episode that people enjoy um there's plenty to to more to discuss and we might um up to another episode episode 2 of the next week to see um to to hear some different views on on these matters but but as I love to say have a great day