The 2025 Federal Budget for the new financial year was announced on Tuesday, 25 March 2025, and introduces a range of tax measures that could impact your next tax return. The Budget delivers tax relief for individuals, introduces notable changes for small businesses, and increases ATO compliance efforts.

A key highlight is the reduction in the bottom income tax rate, which will decrease from 16% to 15% in 2026 and further to 14% in 2027. While the financial impact is relatively modest, estimated at approximately $5 per week in 2026 and $10 per week in 2027, the change aims to mitigate bracket creep and lower average tax rates, particularly for low- and middle-income earners. Under these reforms, the average tax rate for an individual earning the national average wage is not expected to exceed 2023-24 levels until at least 2031-32.

In addition, the government has introduced a $150 energy bill relief payment for all individual taxpayers and small businesses. This measure is intended to help address cost-of-living pressures.

Finally, if you’re a sole trader or small business owner, you’ll want to take note of the significant instant asset write of changes below.   

Personal Income Tax Cuts for 2026 and 2027

The government has announced reductions to the personal income tax rate for earnings between $18,200 and $45,000, with rates decreasing as follows: 

• From 16% to 15% from 1 July 2026

• From 15% to 14% from 1 July 2027

  
  

These reductions, combined with the previously legislated stage 3 tax cuts effective from 2024-25, will provide an average annual tax reduction of $2,229 in 2026-27 and $2,548 in 2027-28. This translates to approximately $50 per week in savings compared to 2023-24 tax settings. An individual earning the national average salary of $79,000 is expected to receive a total tax cut of $2,190 in 2027-28. 

Medicare Levy Low-Income Threshold Adjustments 

To support low-income earners, the government has increased the Medicare levy low-income thresholds for the 2024-25 income year: 

• Singles: Increased from $26,000 (2023-24) to $27,222

• Couples with no children: Increased from $43,846 (2023-24) to $45,907

• Additional amount per dependent child or student: Increased from $4,027 (2023-24) to $4,216

  
  

For single seniors and pensioners eligible for the Seniors and Pensioners Tax Offset (SAPTO): 

• Individual threshold: Increased from $41,089 (2023-24) to $43,020

• Family threshold: Increased from $57,198 (2023-24) to $59,886

• Additional per dependent child or student: $4,216,

Changes to the Instant Asset Write-Off for Small Businesses 

The Budget initially introduced a significant change for small businesses on 25 March 2025. The instant asset write-off, which currently allows deductions of up to $20,000, was set to drop back to $1,000 from 1 July 2025. This would have significantly reduced the amount small businesses could instantly claim on eligible assets, depending on legislative approval.

However, as of 4 April 2025, the government has announced a 12-month extension of the $20,000 instant asset write-off. This means eligible small businesses will be able to keep claiming an immediate deduction on assets costing less than $20,000 through the 2025–26 financial year, subject to the measure being passed by Parliament. The extension aims to support business investment and help with cash flow.

Not sure how this affects your business? Contact Steve Marsten 07 3876 6211 to ensure you’re claiming everything you’re entitled to and making the most of this extension. 

Increased ATO Funding for Compliance Activities

The government has allocated nearly $1 billion in additional funding to the Australian Taxation Office (ATO) to enhance tax compliance efforts. Key initiatives include: 

• Tax Avoidance Taskforce: $717.8 million over four years from 1 July 2025 to expand the Taskforce, focusing on multinationals and large corporate entities.

• Shadow Economy Compliance Program: $155.5 million over four years from 1 July 2025 to reduce tax evasion in the shadow economy, tackling issues such as worker exploitation, under-reported income, and illicit trade.

• Personal Income Tax Compliance Program: $75.7 million over four years from 1 July 2025 to enable the ATO to continue proactive, preventative, and corrective activities in key areas of non-compliance.

• Tax Integrity Program: $50.0 million over three years from 1 July 2026 to ensure timely payment of tax and superannuation liabilities by medium and large businesses and wealthy groups.

  
  

With the ATO cracking down on compliance, it’s even more important to ensure you stay on top of tax changes.

No Change to Superannuation Guarantee Rate 

The government has confirmed that the Superannuation Guarantee (SG) rate will increase as scheduled from 11.5% to 12% on 1 July 2025. This marks the final step in the gradual increase from 9.5% in 2020-21. 

Further Energy Bill Relief 

The government has decided to extend its energy bill rebate program until the end of 2025 by providing two additional instalments of $75 for households and small businesses. From 1 July 2025, eligible households and approximately one million small businesses will receive another $150 in rebates, applied automatically to their electricity bills in quarterly instalments. 

Reduction of Student Loan Debts 

The government will introduce changes that reduce Higher Education Loan Program (HELP) and other student debts for more than three million Australians by around $19 billion. This includes a one-time 20% reduction in outstanding student debt before indexation is applied on 1 June 2025, subject to legislative approval. This measure is expected to remove approximately $16 billion in debt.

Additionally, the government has committed $182.2 million over four years from 2024-25 (and $402.3 million from 2028-29 to 2034-35) to reform the student loan repayment system. The reforms will introduce a fairer repayment structure based on marginal tax rates and increase the income threshold before repayments begin. These changes are scheduled to take effect from 1 July 2025, pending legislative approval.

The previously legislated cap on HELP indexation, which ensures debts increase at the lower rate of either the Consumer Price Index or the Wage Price Index, remains in place. This policy, backdated to 1 June 2023, has already reduced outstanding student debt by approximately $3 billion.

The 2025 Federal Budget aims to deliver tax relief for individuals while implementing changes for small businesses and expanding ATO compliance measures.

While personal tax cuts may provide some financial relief, small businesses should prepare for the reduction in the instant asset write-off next year and increased ATO scrutiny.

To understand how these changes may affect you and to maximise available incentives, please contact Steve Marsten on 07 3876 6211.