The pre-election Australian Federal Budget – tax cuts and nothing much else

The most surprising part of the 2025-2026 Federal Budget was that it was held in March this year. Neither Australian taxpayers nor offshore investors with an eye on investment in Australia will be surprised at the Budget’s measures. The announcement of tax cuts for all Australians in a pre-election Budget was predictable, given the key election focus on cutting the cost of living.

Our budget analysis covers the key business-related tax measures of largest impact to Clayton Utz's clients and the industries in which they operate. Of course, the centre piece of the tax measures is mentioned first.

Personal income taxes

Every Australian is receiving a new tax cut from 1 July 2026. These tax cuts are in addition to the first round that the Government legislated last year. The new tax cuts are:

• From 1 July 2026, the 16% rate will be reduced to 15%.
• From 1 July 2027, the 15% rate will be reduced further to 14%.

This measure is estimated to decrease receipts by $17.1 billion over five years from 2024-25.

Amendments to existing measures

The Federal Government did not announce any new amendments to tax laws. Some further information was provided on three significant, previously announced measures:

Reaffirmation that there will be clarification on tax laws which aim to incentivise long-term foreign passive investment in Australia by providing certain foreign investors access to a lower withholding tax rate.

This will be achieved through removing ambiguity on the operation of managed investment trust (MIT) regime.

The measure was announced on 13 March 2025 which complemented a tax alert issued by the ATO on 7 March 2025.

It is intended to reaffirm that "genuine, foreign based widely‑held investors, such as pension funds, can still access concessional withholding tax rates on eligible distributions to members through managed investment trusts", while also flagging that the ATO is currently reviewing arrangements which seek to take advantage of the MIT withholding regime through certain restructures.  An exampleis arrangements which involve the acquisition of commercial property through a corporate entity and then restructured into a unit trust as new investors are introduced.

The start date of the Clean Building MIT Withholding Tax Regime will be deferred from 1 July 2025 to the first 1 January, 1 April, 1 July or 1 October after the Act receives Royal Assent.

This measure was first announced in the 2023-2024 Budget by the Federal Government to facilitate and encourage foreign investment in digital infrastructure in Australia by amending the MIT regime to provide foreign investors access to a concessional 10% withholding tax rate on fund payments from MITs who invest in eligible data centres that meet the applicable energy efficiency standards. This announcement is still subject to the passage of legislation.

The start date of the Strengthening the foreign resident capital gains tax regime will be deferred from 1 July 2025 to the later of 1 October 2025 or the first 1 January, 1 April, 1 July or 1 October after the Act receives Royal Assent.

On 23 July 2024 the Federal Government released a discussion paper in relation to the taxation of foreign residents. The consultation process in respect of this paper closed on 20 August 2024.

This paper followed the Government announcement in the 2024-2025 Budget that it will strengthen the foreign resident capital gains tax regime to ensure foreign residents pay their fair share of tax in Australia. It also aims to provide greater certainty for foreign investors by better aligning our domestic legislation with international tax best practice.

At a high-level the measures will extend to taxation on foreign residents to the following property:

• Leases or licenses to use land situated in Australia, including (but not limited to) pastoral leases and licences, for example, an agreement to lease land that is used in a manner that gives rise to the creation of emissions permits;
• Australian water entitlements in relation to land situated in Australia;
• Infrastructure and machinery installed on land situated in Australia, including land subject to a mining, quarrying or prospecting right of an entity, for example:
  • energy and telecommunications infrastructure, such as wind turbines, solar panels, batteries, transmission towers, transmission lines and substations; and
  • transport infrastructure, such as rail networks, ports and airports;
  • heavy machinery installed on land for use in mining operations, such as mining drills and ore crushers;
• An option or right to acquire one of the above assets (or similar asset types with a close economic connection to Australian land and/or natural resources); and
• A non-portfolio membership interest in an entity where more than 50% of the underlying entity’s market value is derived from the above assets.

If enacted in its current form, the measure will have significant capital gains tax implications for any foreign investors with an interest in the above within Australia. As with the Clean Building MIT Withholding Tax Regime, this measure is not yet law.

Tax integrity: boost to the ATO's Tax Avoidance Taskforce

Similar to previous years, the Australian Taxation Office (ATO) has again received significant additional funding to expand its tax compliance activities. This additional funding totals just under $1 billion and includes:

• $718 million for the Tax Avoidance Taskforce, to support the ATO's continued scrutiny on multinationals and large taxpayers. This is in addition to the $1 billion funding from the 2024-25 Budget, which extended the taskforce to FY27 and FY28. As of 30 June 2024, the taskforce had helped raise $39 billion in tax liabilities since its inception on 1 July 2016, with $23 billion of this being from public groups and multinationals.
• $76 million for the Personal Income Tax Compliance Program.
• $50 million for the Tax Integrity Program, to enable the ATO to continue its engagement program for the timely payment of tax and superannuation liabilities.

It is estimated that this additional funding will:

• increase receipts by $3 billion over five years; and
• increase payments by $1 billion, including an increase in GST payments to the states and territories ($403 million).

The funding for the Tax Avoidance Taskforce will enable the ATO to continue its compliance focus on priority tax risk areas including global profit shifting risks, transfer pricing, DPT, royalties, and intangibles.

This is supported by strengthening the powers of the Tax Practitioners Board as well as imposing higher penalties on tax practitioners that are "high-risk". This is likely a continuation of the crack down trigger by the PwC saga.

Superannuation compliance

Consistent with last year's Federal Budget, tax and superannuation compliance remain key focus areas for the ATO. Increased ATO funding for tax compliance and enforcement activities is expected to result in $31million of unpaid superannuation to be distributed to employees. Following the Government's recent release of its draft Payday Super legislation, employers should continue to prioritise superannuation compliance or risk tough penalties and interest.

As expected, the Federal Budget has not announced any other superannuation measures. The statutory superannuation guarantee rate will still increase as scheduled to 12% from 1 July 2025.

Recapitalisation of Clean Energy Finance Corporation

The Government announced that it will provide $2 billion to recapitalise the Clean Energy Finance Corporation to invest in renewable energy, energy efficiency and low emissions technologies. Clean Energy Finance Corporations' investments compliment the Australian Government focus on sustainable investments, therefore, the investment of this money should further stimulate the industries where tax incentives are also aimed.

Restricting foreign ownership of housing

The Federal Government announced that it will ensure that foreign investment in housing supports the Government's broader agenda to boost Australia's housing supply by preventing temporary residents or Australian-owned companies from purchasing established dwellings for two years from 1 April 2025, unless an exception applies.

The Government has noted that exceptions to this will apply, such as if the investment would significantly increase housing supply.

Supporting the supply and adoption of prefabricated and modular housing

The Federal Government announced that it will support States and Territories to scale up existing projects for prefabricated and modular housing construction by providing $49.3 million over two years. An additional $4.7 million to be provided over four years to develop a voluntary certification and rating scheme for prefabricated and modular housing manufacturers.