Tax Implications of the 2025-26 Budget for Australian Businesses

The Budget delivered by the Treasurer on Tuesday 27 March contained little that should concern Australian businesses.  But its modest coverage meant it failed to address many of the current issues that do concern Australian businesses. 

Budget announcements

Deferrals: the Budget announced the deferral of two prior announcements:

1. The proposed changes to the CGT rules expanding their operation with respect to non-residents will now not start until after the date of Royal Assent to the amendments (and no earlier than 1 October 2025). The Budget Papers do not say so explicitly, but presumably this means, the measure will apply to CGT events happening on and after the revised date.  The original announcement in the May 2024 Budget had said the measure would apply to CGT events happening on and after 1 July 2025.  Last year’s Budget had estimated the measure would generate $200m in 2025-26.
2. The proposal to expand the clean building MIT regime to cover data centres and warehouses has also been delayed and will not start until after Royal Assent to the amendments. The original announcement in the May 2023 Budget had said the measure would commence to apply to buildings where construction started after 9 May 2023 and would apply in income years from 1 July 2025. It is not clear whether the announcement will apply the amendments to buildings where construction started on or after 1 July 2025, but it seems more likely that the announcement will only push back the income year in which the deduction is first available.

Confirmations: the Budget Papers confirmed the recent announcement of amendments to clarify that MITs with a single widely-held owner will be acceptable. No further detail was added.  The Budget confirmed that the amendments, once enacted, will be backdated to 13 March 2025, meaning taxpayers will need to rely on the ATO’s stated intention not to apply compliance resources to review structures existing at the date of its Taxpayer Alert (7 March 2025).  This is discussed in our Tax Insight (available here).

ATO resourcing: continuing the practice of recent years, the Budget announced that the ATO will receive additional resources to continue several enforcement projects currently on foot. One of these is the Tax Avoidance Taskforce.  The ATO will receive $700m funding over 4 years to support, “the ATO’s continued tax compliance scrutiny on multinationals and other large taxpayers.”  The Taskforce is being extended for a further year. Overall, the Budget says the Government is investing about $1bn in the ATO and it expects the Taskforce to collect $3bn additional revenue. 

Budget silence

There is currently a long list of announced but unenacted measures from this Government (and there are others dating back to former Coalition governments).  The Budget had nothing to say about many important announced measures including –

• changes to Part IVA to enliven the rule for  “schemes that achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax” (announced in May 2023);
• changes to Part IVA to enliven the rule for, “schemes that reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents” (announced in May 2023);
• a new penalty to be imposed on significant global entities that have “mischaracterised or undervalued royalty payments to which royalty withholding tax would otherwise apply” (announced in May 2024);
• ensuring tax scheme penalties apply where taxpayers are in a loss position (announced in December 2024);
• penalising large taxpayers that, “mischaracterise or undervalue interest or dividend payments, to which withholding tax would otherwise apply (announced in December 2024); or
• applying Shortfall Interest Charge to repayments of overclaimed refundable offsets (announced in December 2024).

Nor did it have anything to say about the proverbial elephant-in-room: what changes are needed to Australia’s current international tax settings in light of the new administration in the US? There is a long list of Australian measures which have attracted adverse comment in the US including the GST (some in the US see it as simultaneously a barrier to imports and a subsidy to exports), the MAAL (Australia’s substitute for a DST), the News Bargaining Incentive, Pillar One – Amount B, Pillar Two (particularly the UTPR and the IIR when invoked by an intermediate parent entity), the ATO draft ruling on royalties (TR 2024/D1), the public disclosure of CbC data and, one would expect, the expanded CGT jurisdiction being claimed in the proposed CGT reforms. 

One of the President’s first Executive Orders asked the Secretary of the Treasury to investigate, “whether any foreign countries … have any tax rules in place … that are extraterritorial or disproportionately affect American companies …”  The Secretary is to “develop and present to the President … a list of options for protective measures … in response to such … tax rules …”

The proposed Defending American Jobs and Investment Act 2025 (H.R. 591), currently before the US Congress, would add additional measures into the Internal Revenue Code for the “enforcement of remedies against the extraterritorial taxes and discriminatory taxes of foreign countries.”  The Government must know that a major international tax storm is brewing, but it seems they are keeping their planning under wraps for the moment. 

Last minute legislation

Late on Wednesday evening Parliament enacted Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2025. It included:

• enacting the $20,000 instant asset write off for small businesses for the 2025 income year; and
• denying deductibility for Shortfall Interest Charge and General Interest Charge for assessments on or after 1 July 2025.