Federal Budget 2025: Re-announcements, deferrals and ATO funding

The federal government’s 2025-26 Budget focused on discretionary expenditure in the lead-up to what is anticipated to be a closely contested election, as opposed to substantial corporate tax reform.

The headline grabbing tax measure – a staggered two-year reduction in the rate of the 16% personal income tax bracket down to 14% commencing from 1 July 2026 – is consistent with this.

Perhaps it is no surprise: pundits were already calling this the Budget that was not meant to be.

This may leave some disappointed; for example, the measures proposed in Allegra Spender’s ‘Tax Green Paper’ appear to have gained little traction. We anticipate, therefore, that business tax reform will continue its current, lacklustre trajectory – that is, reforms announced on a largely piecemeal basis with an overarching tenor of targeting large multinationals and cross-border arrangements (albeit perhaps now more cautiously). One thing is for sure: the ATO will continue to be funded to conduct its audit activities.

Summarised below are the key business tax measures announced in the 2025-26 Federal Budget, together with a broader stocktake of the present corporate tax landscape.

Key business tax measures announced in the 2025-26 Budget

Below are the key Commonwealth tax measures announced in last night’s budget, being reannouncements, deferrals and ATO funding.

Allowances and deferrals on Managed Investment Trusts (MITs)

Reiterated intention to introduce measures to allow ‘genuine’ MITs

The Commissioner has made it clear in TA 2025/1 that he thinks that the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) (and other relevant provisions) can apply to restructures designed to result in a MIT outcome. The Tax Alert also made reference to the potential application of Part IVA in relation to investment structures which are indirectly wholly-owned by a widely held entity (for the purposes of s 275-20(4) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997)). No detail was provided, but it is generally believed that this relates to issues arising out of the requirement for any such vehicle to be a Managed Investment Scheme (MIS).

This has been supplemented by a press release on 13 March 2025 from the Assistant Treasurer and Minister for Financial Services. It states that genuinely widely held investors will retain access to MITs. This seems to suggest that, absent a restructure, the MIS requirement will not be an issue.

The Budget has now reaffirmed the intention to amend the MIT rules, albeit without providing any further detail on what these measures may look like. These measures are intended to apply to fund payments from 13 March 2025 (being the date of the Assistant Treasurer's press release). Both the Commissioner’s Taxpayer Alert and the Minister’s Statement (and by extension, this Budget announcement) will need to be supplemented in due course; for example, to clarify the nature of the misuse being targeted, and the measures which will be implemented to target this misuse.

Deferred commencement of clean building MIT concession for data centres

Initially announced in the 2023-24 Budget, and due to have commenced from 1 July 2025, the government had committed to extend the reduced 10% clean building MIT withholding rate to MITs that hold data centres and warehouses. This was provided that construction commenced after 9 May 2023, and provided those properties met the relevant energy efficiency standards. At the same time, the government intends to increase the clean energy rating eligibility requirements to a 6-star rating from the Green Building Council Australia or under the National Australian Built Environment Rating System.

We had not seen much movement on this measure to date. Perhaps unsurprisingly then, in this Budget, the government has deferred the start date to the first 1 January, 1 April, 1 July or 1 October after the relevant Act receives Royal Assent. In other words, the government is no longer committing to a hard start date for this measure.

Deferred commencement of changes to the Foreign Resident CGT Regime

Announced in last year’s Budget, these amendments would:

• broaden the definition of taxable Australian real property to assets with a ‘close economic connection to Australian land’;
  
  
• amend the point in time principal asset test to a 365-day testing period; and
  
  
• require foreign residents to notify the ATO of any disposals of shares or units that have a value exceeding $20 million (prior to the transaction being executed).

Initially intended to be effective from 1 July 2025, the government has now announced a deferral of commencement 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.

Further funding the ATO’s focus on multinational and large taxpayers

The Budget includes an additional $999 million in funding for the ATO to extend and expand tax compliance activities. The government has specifically identified that the majority of this funding will be used to support “the ATO’s continued tax compliance scrutiny on multinationals and other large taxpayers”.

That is, almost three quarters of this funding ($717.8 million) has been specifically earmarked for the ATO’s Tax Avoidance Taskforce. This comes as no surprise, with Corrs forecasting a prioritisation of Tax Avoidance Taskforce funding in November 2024. This taskforce is the ATO’s largest audit taskforce and was previously funded until 2026. The funding extends and expands the taskforce for a further two years.

The remaining funding will be used by the ATO to target the shadow economy (which the ATO considers to be legal and illegal economic activity that is not reported or taxed), for personal income tax compliance and to ensure the timely payment of tax and superannuation liabilities.

Funding for the Tax Practitioners Board

The government has also announced changes to the operations of the Tax Practitioners Board (TPB), which will receive an additional $27.3 million in funding. The TPB is responsible for registering and regulating tax agents and BAS agents and is supported by secondees from the ATO. The government will strengthen sanctions available to the TPB and fund it to undertake additional compliance activities and modernise the practitioner registration framework. This measure implements recommendations addressing tax agent misconduct that were first published as part of the 2019 Independent Review of the TPB.

It is unclear how the TPB will identify the stated ‘high-risk tax practitioners’ to target in its compliance activities. However, this measure (alongside the announced increases to ATO funding), reflects the government’s desire to address perceived risks to the integrity of the tax system, particularly tax avoidance by multinationals and large corporates. It is not all ‘stick’ though, with measures announced to increase the ease of re-entry for tax professionals into the industry.

The broader ‘state of play’: A recap of recent changes and developments in the Australian corporate tax landscape (beyond those in the 2025-26 Budget)

Federal tax measures which have recently commenced

Summarised below are key Commonwealth tax measures which have recently commenced:

• Build to rent tax incentives and other housing measures:
  
  
  • the capital works tax deduction depreciation rate of eligible new build-to-rent projects increased from 2.5% to 4%; and
    
    
  • the final withholding tax rate for eligible fund payments from MITs attributable to residential build-to-rent projects decreased from 30% to 15%.
    
    To access these concessions, the underlying development must meet certain eligibility conditions, and a ‘misuse tax’ may be imposed if these conditions cease to be satisfied over the 15-year life of a project. Some of the detail is summarised in our article, Build-to-rent measures: exposure draft legislation released. However, we understand that there are a broad range of design and implementation issues (which have been shared with the ATO), which will require clarification if the new rules are to be effective.
    
    The government’s recent policies, when viewed as a whole, highlight the lack of comprehensive tax reform which leads to contradictory outcomes in some cases.
    
    On the one hand, the recently introduced build-to-rent (BTR) MIT incentives are intended to encourage long-term housing supply by introducing various tax benefits. While these measures have their own challenges, they are an attempt to move the dial in the right direction by attracting foreign capital.
    
    On the other hand, the recently enacted thin capitalisation provisions severely limit the ways in which foreign capital can participate in housing transactions, while the lack of GST credits on the delivery of such projects is a disincentive to BTR investment.
    
    This creates further uncertainty, and contradicts the government’s stated goal of tackling Australia’s housing crisis. To resolve this policy tension, the government could consider the introduction of special gearing rules in relation to residential projects as well as measures to allow the ability to claim GST credits (noting that such credits currently are permitted only for registered charities that provide low-cost accommodation). Without such adjustments, the conflicting effects of the BTR incentives and thin capitalisation limitations could stifle investment, ultimately undermining the government’s objective of expanding long-term rental housing.
    
    In this Budget, the government turned to non-tax housing-related measures – most notably in the form of a two-year ban (from 1 April 2025) on foreign persons from purchasing established dwellings, with some exceptions. Exceptions to the ban will include investments that significantly increase housing supply or support the availability of housing on a commercial scale, and certain purchases by foreign-owned companies to provide housing for workers. The intention behind this measure is to enable Australians to buy homes that would have otherwise been bought by foreign persons. The Budget announcement indicates that this measure will be administered by the ATO and the Treasury.
    
    
• Implementation of a global minimum tax and domestic minimum tax (Pillar 2): The government has passed legislation to implement global and domestic minimum tax rates (in a manner broadly consistent with OECD Global Anti-Base Erosion Model Rules).^[1] Of note:
  
  
  • a 15% global minimum tax applies to fiscal years starting on or after 1 January 2024, supplemented by the ‘undertaxed profits rule’, which applies from 1 January 2025; and
    
    
  • a 15% domestic minimum tax applies to income years starting on or after 1 January 2024.
    
    
• Foreign Resident CGT Withholding: Effective from 1 January 2025, the rate of foreign resident CGT withholding was increased from 12.5% to 15% and the $750,000 de minimis was removed. ^[2]
  
  
• Country by country reporting: The ATO has tightened exemptions from country by country reporting requirements, effective from 1 January 2025. Certain disclosed information will now also be made publicly available.

Federal tax measures which have been passed but are yet to commence

The key Commonwealth tax measure that passed Parliament but is yet to commence, is the new Hydrogen Production and Critical Minerals Tax Incentive regime. Commencing from 1 July 2027 as part of the government’s broader ‘Future Made in Australia’ programme announced in last year’s Budget, it comprised of the following

• Hydrogen Production Tax Incentive: Introduction of a temporary, uncapped refundable tax offset, provided at a rate of $2 per kilogram of renewable hydrogen produced by eligible projects. Further details are summarised in our article, Proposed $6.7 billion Hydrogen Production Tax Incentive for renewable hydrogen.
  
  
• Critical Minerals Production Tax Incentive: Introduction of a temporary measure to provide eligible recipients with a refundable tax offset of 10% for the costs of refining and processing 31 critical minerals in Australia.

Federal tax measures which have not yet been legislated

Summarised below are key Commonwealth tax measures, which have to date been announced but not legislated:

• Expanding the general anti-avoidance rule (GAAR) in the income tax law: Part of its broader suite of measures targeting multinationals, the government previously announced proposed amendments to the GAAR in Part IVA to apply to:
  
  
  • schemes that reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents; and
    
    
  • schemes that achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax.
    
    
• Royalty penalties: Announced in last year’s Budget, and in the broader context of the PepsiCo case (and the Commissioner’s charge on ‘embedded royalties’), the government announced that it would introduce a new penalty for taxpayers with more than $1 billion in annual turnover globally, who have mischaracterised or undervalued royalty payments.
  
  Given the Commissioner’s draft ruling TR 2024/D1 is still on hold, it remains to be seen what steps, if any, will be taken by the Treasury to push forward with this new penalty regime.
  
  
• Strengthening tax penalties: Announced in the 2024-25 Mid-Year Economic and Fiscal Outlook, and proposed to be effective from 1 July 2026, Treasury announced amendments that would seek to ensure that penalties apply when taxpayers are in a loss position, and that large taxpayers would be penalised for mischaracterising or undervaluing interest or dividend payments to which withholding tax would otherwise apply.
  
  
• Denial of deductions for general interest charge and shortfall interest charge: Contained in a Bill introduced on 28 November 2024, and intended to be effective from 1 July 2025, the government is proposing to introduce measures to deny deductibility for shortfall interest charge amounts (being interest applied to underpaid tax liabilities as a result of an amended assessment) and general interest charge amounts (being interest that is applied more broadly to unpaid tax liabilities which are overdue).

Additional developments in the anti-avoidance space

Recent cases

The ATO was unsuccessful in four of the five Part IVA court cases in 2024:

• In two of the unsuccessful cases (Minerva and Mylan)^[3], the court found there were sufficient commercial reasons for the taxpayer to enter into or carry out the arrangement.
  
  
• In the other two unsuccessful cases (PepsiCo and Ierna)^[4] the court found there was no relevant tax benefit.
  
  
• The one successful case for the ATO (Merchant)^[5] was a relatively straightforward related party wash sale.

Three of these cases (Merchant, Ierna and PepsiCo) are currently being appealed. Both parties have made submissions in PepsiCo, with the High Court expected to hear the case in April 2025.

The ATO also recently lost in Bendel,^[6] (in relation to Division 7A and unpaid present entitlements from trusts) and has been required to refund $600 million to taxpayers from successful objection and litigation challenges generally over the past two financial years.

These developments are in addition to the previously announced proposed amendments to Part IVA (as discussed above).

Future ATO enforcement

Despite the ATO’s recent losses on Part IVA and other anti-avoidance measures, no Budget announcements were made this year to specifically tighten anti-avoidance rules, with focus rather being on funding enforcement action. The ATO intends to take firmer action sooner where taxpayers fail to meet their obligations.

Indeed, despite recent losses on Part IVA (notably Mylan), in February 2025 the ATO confirmed they will continue to test whether Part IVA and the transfer pricing rules apply in relation to taxpayers’ debt arrangements. The ATO also confirmed in March 2025 that they will continue to apply their views on trusts and Division 7A, despite losing Bendel in the Full Federal Court (at least until the outcome of their special leave application is known).

This is consistent with the ATO treating large and multinational taxpayers as a ‘key focus area’. Additionally, ATO priority areas and programs include:

• domestic and international private equity (which is a new focus area);
  
  
• the diverted profits tax;
  
  
• transfer pricing;
  
  
• withholding tax;
  
  
• intangibles;
  
  
• foreign investment;
  
  
• other international arrangements involving both public and private groups;
  
  
• advisers (including the use of legal professional privilege); and
  
  
• the ongoing Top 100, Top 500 and Top 1000 programs.

Changes to FIRB Tax Conditions

On 14 March 2025, Treasury published updated Guidance Notes (GN) on the foreign investment framework, including in respect of the Tax Conditions framework (GN 12).

As an overarching observation, the updates to the Tax Condition GN reflect recent experiences with FIRB. That is, the government is increasingly scrutinising the tax arrangements of multinationals, and FIRB is increasingly looking to tailor the conditions imposed based on the specific tax risks identified following assessment of each application. This is now reflected in the preamble of the Tax Condition GN.

Consistent with this, the Tax Condition GN has been updated to remove the more expansive list of ‘standard’ tax conditions. These have been replaced with a list of ‘specific tax issues of interest’ and a non-exhaustive guide in relation to information which may be required under tax conditions. Both of these are more closely aligned with the Commissioner’s current areas of interest, including:

• proposed acquisitions which are part of a global restructure;
  
  
• proposed acquisitions which involve related party financing;
  
  
• proposed acquisitions of entities which are subject to thin capitalisation rules; and
  
  
• transactions involving private equity.

Treasury has stated that these amendments have been made to “clarify tax arrangements that will attract greater scrutiny in the foreign investment assessment process to ensure that foreign investors pay their fair share of tax.” Considering the broad range of applications that would be captured by the above list, it is safe to assume that most (if not all) transactions will attract probing tax enquiries when engaging with FIRB, and that more precisely tailored tax conditions will in turn be imposed. For example, the market has been seeing FIRB and the ATO raise questions probing the interposition of entities into acquisition structures (including to test the tax cost-setting exercises acquirers regularly undertake when doing so). In fact, the updated Tax Checklist sets out information that FIRB expects to be provided as part of the FIRB application (as a separate matter from any tax conditions requiring further information as a condition of granting FIRB approval). The information required at the outset of the FIRB process has also been expanded to capture the above areas of interest.

The information in the Tax Checklist was previously framed as being new information that the ATO may request during the application process, particularly for large investments and those in the infrastructure space. Now, the information in the Tax Checklist is required by the ATO for all applications, regardless of size or industry. A failure to provide the information in the initial application is likely to cause delays in receiving FIRB approval, as the ATO will have to request the information or make provision of the missing information a condition of approval.

Announcements regarding the taxation of crypto assets

By 2022 it was conservatively estimated that over one million Australians held at least one cryptocurrency, and that the total value of the crypto market in Australia was A $21.6 billion (a fraction of the OECD’s 2021 estimate of a worldwide crypto market value of USD $3 trillion).

Within this context, on 21 March 2025 Treasury issued its Statement on Developing an Innovative Australian Digital Asset Industry, in which the government expressed its desire to encourage and foster the digital asset industry in Australia. This statement was released in conjunction with the Board of Taxation’s Review of the tax treatment of digital assets and transactions in Australia. In summary, the Board reached four conclusions:

1. The taxation of crypto assets and transactions can generally be accommodated by Australia’s current taxation law.
   
   
2. New legislation to deal with the taxation of crypto asset transactions should not be introduced.
   
   
3. At the present time, any uncertainties about how the taxation law applies to crypto assets and transactions are best managed administratively by taxpayers and the ATO working co-operatively within the current law.
   
   
4. In some areas, taxpayers require more comprehensive information and guidance (including examples and case studies) from the ATO (to rely upon) so that they can ensure their tax disclosures will be acceptable to the ATO.

Perhaps unsurprising in light of the above recommendations, for the time being, taxpayers are left with a somewhat stagnant position. For example, in its Response to the Board of Taxation’s Review, the government simply states that it “agrees that no crypto specific tax legislation should be introduced at the current time.”

This is despite a number of submissions being made to the Board of Taxation calling for, for example, clarification of the tax treatment of collective investment vehicles which invested in crypto assets. Indeed, the current itemised definition of ‘eligible investment business’ at s 102M of ITAA 1936 does not specifically include crypto assets. Even if a collective investment vehicle that engages in crypto asset transactions could be a MIT, any capital election that it makes would not apply to crypto assets (which are not included in the list of covered assets at s 275-105 of ITAA 1997. Ultimately the Board observes that whether the legislation should be changed to permit a MIT to engage in crypto asset transactions, and whether crypto asset transactions should be covered by the capital election, is a policy issue for the government. In other words, watch this space.

Conclusion

Those wishing for a change of tack or surprise corporate tax announcement in this year’s Budget will be disappointed. Previously announced measures will continue, including recent thin capitalisation reform, proposed amendments to foreign resident CGT exemptions, BTR measures and Pillar Two. However, the lack of new measures in this year’s Budget is unlikely to herald a slowdown in scrutiny of multinationals. Rather, this space will remain a strong practical focus of tax authorities, with additional resources for enforcement activity, sanctions for tax agent misconduct, and continued ATO scrutiny of inbound acquisitions through the FIRB process. Treasury and the ATO are likely to remain willing to address areas of concern, whether through administrative means or mid-term announcements. As always, corporate taxpayers in Australia are recommended to remain vigilant in an increasingly complex regulatory environment.

^{[1]  Minerva Financial Group Pty Ltd v Commissioner of Taxation [2024] FCAFC 28; and Mylan Australia Holding Pty Ltd v Commissioner of Taxation [2024] FCA 253}

^{[2]  PepsiCo, Inc v Commissioner of Taxation [2024] FCAFC 86; and Ierna v Commissioner of Taxation [2024] FCA 592}

^{[3]  Merchant v Commissioner of Taxation [2024] FCA 498}

^{[4]  Commissioner of Taxation v Bendel [2025] FCAFC 15}

^{[5]  Taxation (Multinational—Global and Domestic Minimum Tax) Imposition Act 2024 (Cth); Taxation (Multinational—Global and Domestic Minimum Tax) Act 2024 (Cth); Treasury Laws Amendment (Multinational—Global and Domestic Minimum Tax) (Consequential) Act 2024 (Cth).}

^{[6]  Treasury Laws Amendment (2024 Tax and Other Measures No. 1) Act 2024 (Cth).}