The Federal Budget 2024-25

The Treasurer is promising that inflation will decline by 0.75% as a direct result of the
2024-25 Federal Budget initiatives includes energy relief for all households, a boost to Commonwealth Rent Assistance, and the freezing of the maximum co-payment on the Pharmaceutical Benefits Scheme.

This is a pre-election budget for the people with everyone getting a little something to ease the cost of living pressures. Like the Price is Right gameshow, it will all come down to the price paid at the checkout. If the consumer price index (CPI) returns to target by the end of 2024 off the back of the Budget initiatives as the Government anticipates, the Reserve Bank of Australia (RBA) may be inclined to reduce interest rates. However, at this stage, the RBA is not expecting inflation to return to the target range of 2-3% until the second half of 2025, and to the midpoint in 2026.

The 2023-24 surplus has increased to $9.3bn but is expected to decline to a deficit of $28.3bn in 2024-25, driven primarily by the Stage 3 tax cuts. For business, the Government is picking winners through targeted public investment with its Future Made in Australia Framework that they are betting will pave the way for private investment in net zero transformation and the strengthening of Australia’s domestic economic resilience.

For small and medium businesses, there is a little but not a lot – an extension of the $20k instant asset write-off until 30 June 2025 and a $325 rebate to eligible businesses towards 2024-25 energy bills. For foreign residents, the capital gains tax (CGT) regime will be amended to broaden the type of assets subject to CGT and introduce a modified 365-day principal asset testing period. 

Key measures:

• Previously announced Stage 3 tax cuts
• $300 energy bill relief for all Australian households and $325 for eligible small businesses – applied as an automatic quarterly credit.
• Student HELP debts will be cut by changing the way indexation is calculated. From 1 June 2023, it will be the lower of the CPI or the Wage Price Index (WPI), reducing the debt accumulated by more than 3 million Australians when the CPI spiked to 7.1%.
• Increase the Commonwealth rent assistance maximum rates by 10% from 20 September 2024.
• One year freeze on the maximum Pharmaceutical Benefits Scheme (PBS) patient co-payment for Medicare card holders and a five-year freeze for pensioners and other concession cardholders.

Those with large superannuation balances will be disappointed that the 30% tax on super earnings on balances above $3 million remains in place, this is set to commence from 1 July 2025.

Individuals & Families

Personal Income Tax Cuts Confirmed – From 1 July 2024

As previously announced, the Government has legislated permanent tax cuts for all Australian taxpayers from 1 July 2024. Relative to the previous Stage 3 plan, the redesigned cuts broaden the benefits of the tax cut by focusing on individuals with taxable income below $150,000.

Medicare Levy Low-Income Thresholds Increase – From 1 July 2023

The Medicare levy low-income thresholds will be increased for singles, families, seniors and pensioners from 1 July 2023.  The increases to the thresholds take account of recent movements in the CPI so that low-income taxpayers generally continue to be exempt from paying the Medicare levy.

$300 Energy Relief For Households – From 1 July 2024

Households will receive a credit of $300 on their energy bills credited as automatic quarterly instalments across 2024-25. Energy relief will also be provided to eligible small businesses in the form of a $325 rebate. Costing $3.5bn over three years from 2023-24, the measure extends and expands the Energy Bill Relief Fund. 

Capping Indexation Of HELP Debts – From Loan Accounts That Existed On 1 June 2023.

As previously announced, the Government will cap the HELP indexation rate to be the lower of either the CPI or the Wage Price Index (WPI) with effect from 1 June 2023. The change will apply to all HELP, VET Student Loans, Australian Apprenticeship Support Loans and other student support loan accounts that existed on 1 June 2023. By changing the calculation of HELP indexation from 1 June 2023, the indexation rate is reduced from:

• 7.1% to 3.2% in 2023, and
• 4.7% to around 4% in 2024.

This change resolves an issue for more than 3 million Australians with a HELP debt when the CPI indexation rate spiked to 7.1% last year. An individual with an average HELP debt of $26,500 will see around $1,200 wiped from their outstanding HELP loans this year, pending the passage of legislation.

Estimated indexation for HELP debts

*Actual credit amount will vary depending on individual circumstances including repayments made during the year. All HELP debts that were indexed in 2023 and are subject to indexation on 1 June 2024 will receive an indexation credit.

Superannuation on paid parental leave – From 1 July 2025

As previously announced, from 1 July 2025 superannuation will be paid on Paid Parental Leave payments from 1 July 2025. 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. This payment is in addition to the changes that saw families provided with an extra two weeks of leave (22 weeks total), which will increase to 24 weeks from July 2025 and 26 weeks from July 2026 (see Paid Parental Leave Amendment (More Support for Working Families) Bill 2023, Royal Assent 20 March 2024).

Increasing Commonwealth rent assistance – From 20 September 2024

The Commonwealth rent assistance maximum rates will increase by 10% from 20 September 2024. Recipients of Centrelink/Department of Veterans Affairs payments and those receiving family tax benefits may also receive rent assistance if they are paying rent or other rent-like payments over a minimum fortnightly threshold. 

The current maximum fortnightly rates are $188.20 for a single person and $177.20 combined for a couple. The measure will cost $1.9 billion over five years from 2023–24 (and $0.5 billion per year ongoing from 2028–29), and builds on the 15% increase in September 2023, taking the maximum rates over 40% higher than in May 2022.

Improving aged care support

The Government will provide funding of $2.2 billion over the next five years to deliver key aged care reforms and to continue to implement recommendations from the Royal Commission into Aged Care Quality and Safety.

This funding includes the release of an additional 24,100 home care packages in 2024-25. The Government has also agreed to defer the commencement date of the new Aged Care Act to 1 July 2025.

The Government is currently in the middle of considering and implementing changes to the way aged care is funded on the back of the Royal Commission into Aged Care Quality and Safety report released in 2021. 

This will likely impact home care and residential care fees in the future. Generally, with past reform, we have seen existing residents and home care recipients ‘grandfathered’ under the rules at the time they entered.

Increased flexibility for carer payment – From 20 March 2025

Currently, to receive the Centrelink Carer Payment, the caregiver is required to not be involved in work, study or training for more than 25 hours per week. This is to reflect the requirement that to receive this payment the caregiver should be providing the care recipient with ‘constant care’.

From 20 March 2025, the existing 25 hours per week will be amended to 100 hours over four weeks. This limit will no longer capture study, volunteering and travel time so will only apply to employment.

In addition:

• Carer Payment recipients exceeding the participation limit or their allowable temporary cessation of care days will have their payments suspended for up to six months, rather than cancelled. 
• Recipients will also be able to use single temporary cessation of care days where they exceed the participation limit, rather than the current seven-day minimum.

Higher JobSeeker rate for partial capacity to work – From 20 September 2024

The Government will extend eligibility for the existing higher rate of JobSeeker payment to single recipients with a partial capacity to work (zero to 14 hours per week) from 20 September 2024. Currently, those on JobSeeker payments aged 55 or over and who have been on the payment for nine continuous months receive a higher rate of payment. 

Freezing Social Security deeming rates – 12 months until 30 June 2025

When calculating Centrelink and Department of Veterans Affairs payments, rather than assessing the actual income from financial investments, a deemed rate of return based on the total value of these investments is assumed. Some common examples of financial investments include bank accounts, term deposits, shares and managed funds.

The Government proposes to freeze the deeming rates (shown below) until 1 July 2025:

Pharmaceutical Benefits Scheme co-payments – From 1 January 2024

The Government will ensure that the cost of medicines remains low by freezing indexation:

• PBS general co-payments to not be indexed between 1 January 2025 and 31 December 2025 (inclusive), with indexation resuming on 1 January 2026 
• PBS concessional co-payments to not be indexed between 1 January 2025 and 31 December 2029 (inclusive), with indexation resuming on 1 January 2030 

The $1 optional discount available on patient co-payments for subsidised prescriptions will be reduced each year by the relevant notional indexation amount until the $1 discount has been reduced from $1 to zero.

From 1 January 2024, you may pay up to $31.60 for most PBS medicines, or $7.70 if you have a concession card. The Australian Government pays the remaining cost (with the exception of brand premiums and certain other allowable charges).

Business & employers

$325 energy relief for small business – From 1 July 2024

Around one million small businesses will receive $325 off their energy bills over 2024–25. The support will apply as an automatic quarterly credit to energy bills. Energy relief will also be provided to households in the form of a $300 rebate. Costing $3.5bn over three years from 2023-24, the measure extends and expands the Energy Bill Relief Fund.

$20k Small business instant asset write-off extended – 1 July 2023 to 30 June 2025

Small businesses, with an aggregated turnover of less than $10 million, will be able to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2025. This measure extends the 2023-24 Budget announcement to the 2024-25 financial year. 

“Immediately deductible” means a tax deduction for the asset can be claimed in the same income year that the asset was purchased and used (or installed ready for use).  If the business is registered for GST, the cost of the asset needs to be less than $20,000 after subtracting the GST credits that can be claimed for the asset. If the business is not registered for GST, it is less than $20,000 including GST.

The write-off applies per asset, a small business can deduct the cost of multiple assets. The rules only apply to assets that fall within the scope of the depreciation provisions. Expenditure on capital improvements to buildings that fall within the scope of the capital works rules is not expected to qualify.

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter if the asset has been acquired by a small business entity that chooses to apply the simplified depreciation rules.

The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt-out will continue to be suspended until 30 June 2025. 
The increased small business instant asset write-off announced in the 2023-24 Federal Budget is not yet law, see Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023). Senate amendments proposed increasing the threshold from $20,000 to $30,000 and expanding the measure to apply to medium entities.

Unsure how the 2024-25 Federal Budget will affect you? Contact our Walker Hill Accounting team today! support@walkerhill.com.au.