The last few years have been marked by economic and political uncertainty. As we just entered into 2025, there is cautious optimism for increased stability—though no guarantees. Below, we explore the key developments and challenges businesses and individuals can anticipate.
Federal Election: Political Advertising Resumes
With a federal election on the horizon, prepare for an influx of political messages across social media, voicemail, and TV. Opposition parties will question if Australians are better off, while incumbents will emphasize their achievements.
The 2025-26 Federal Budget is set to be delivered on 25 March 2025, suggesting the election will occur in either March or May 2025, but no later than 17 May 2025.
Legislative Uncertainty: Key Bills in Limbo
The final parliamentary sitting day of 2024 saw 32 bills passed, including several with implications for businesses and individuals. However, two significant proposals remain unresolved:
1. Division 296 Tax: 30% on Super Earnings Over $3 Million
The proposed Division 296 tax would impose a 30% tax rate on earnings from superannuation balances exceeding $3 million, starting 1 July 2025. Currently, the enabling legislation is stalled in the Senate and unlikely to pass before the election. If the bill lapses, the next government will determine whether to revisit or abandon the measure.
2. $20,000 Instant Asset Write-Off for Small Businesses
The government proposed extending the $20,000 instant asset write-off for eligible small businesses for the 2024-25 financial year. However, this measure was unexpectedly removed from the final enabling legislation. Without this extension, the write-off threshold will revert to $1,000, creating uncertainty for small businesses planning asset investments.
Tax and Superannuation Changes
1. Foreign Resident Capital Gains Withholding (FRCGW)
From 1 January 2025, changes to capital gains withholding will apply to foreign residents selling Australian property:
- The withholding rate will increase from 12.5% to 15%.
- The value threshold (currently $750,000) will be removed, applying the withholding to all property sales by foreign residents.
The reforms will affect property acquisitions made on or after 1 January 2025.
2. Superannuation Guarantee Increase
The Superannuation Guarantee (SG) rate will rise from 11.5% to 12% on 1 July 2025, marking the final step in the legislated increase.
3. Superannuation on Paid Parental Leave
From 1 July 2025, superannuation contributions (12% of Paid Parental Leave payments) will be paid to eligible parents’ super funds.
Economic Outlook: Interest Rates and Cost of Living
Interest Rates
While inflation eased from 5.4% to 2.8% over the year to September 2024, the Reserve Bank of Australia (RBA) remains cautious. Governor Michele Bullock emphasized the need for sustainable inflation levels within the 2-3% target range before rate cuts occur. Forecasts for interest rate reductions vary:
- CBA: February 2025
- ANZ and Westpac: May 2025
- NAB: June 2025
Cost of Living Pressures
Australia’s economic growth remains sluggish, with just 0.8% growth through 2024—the lowest since the December 2020 quarter. Personal income tax cuts and energy subsidies have provided some relief, but rising mortgage costs continue to strain households. Government spending remains a key driver of economic activity.
International Developments: The Trump Effect
Donald Trump has been inaugurated as U.S. President on 20 January 2025, with the Republican Party controlling both the Senate and the House. Trump’s proposed policies, including tariffs on imports from China, Canada, and Mexico, raise concerns of a trade war. Key statements include:
- A 25% tariff on goods from Canada and Mexico.
- An additional 10% tariff on Chinese imports.
For Australia, these policies could have a secondary impact, given China’s significance as Australia’s largest trading partner, accounting for 26% of two-way trade in 2023. A slowdown in China’s economy may negatively affect Australia’s economic growth. The immediate result has been a decline in the AUD/USD, currently hovering around 63c.
Environmental Policy: New Car Emissions Standards
From 1 January 2025, vehicle manufacturers will face mandatory CO2 emissions targets for new cars. These targets will gradually tighten over time, requiring manufacturers to produce more fuel-efficient or zero-emission vehicles.
While manufacturers can still sell any type of vehicle, they must balance less efficient models with more fuel-efficient ones. Suppliers who meet or exceed their targets will earn credits, while those who fall short will have two years to either trade credits or generate them before facing penalties.
Workplace Changes: Wage Theft Criminalised
Effective 1 January 2025, intentional underpayment of wages or superannuation will become a criminal offence. Employers face penalties if they intentionally fail to pay required amounts under the Fair Work Act or relevant agreements.
- Penalties: Fines up to three times the underpayment amount or a maximum of $7.825 million.
Transitioning Away from Cheques
The government has outlined a plan to phase out cheques:
- Cheques will no longer be issued after 30 June 2028.
- Cheques will no longer be accepted after 30 September 2029.
Usage of cheques has declined by 90% in the last decade, and banks have already begun discontinuing chequebooks for new customers. Despite this transition, cash remains an essential payment method.
Cash Remains Essential
While Australians increasingly use digital payments, the government has emphasized the importance of cash:
- 1.5 million Australians rely on cash for over 80% of in-person payments.
- Cash provides a backup during digital outages or natural disasters.
The government intends to mandate that businesses accept cash for essential items, with certain exemptions for small businesses.
Final Thoughts: Slow and Steady Progress
2025 promises measured changes in tax, superannuation, and economic policy, along with ongoing political and international challenges. While the path toward stability remains uncertain, businesses and individuals should prepare for key transitions in legislation, workplace regulation, and global trade conditions.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
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By Zoe Ma @ Pitt Martin Tax
