Practice Updates 2025

Personal Tax Cuts

From 1 July 2026, personal income tax rates will change.

On the last sitting day of Parliament, the personal income tax rate reduction announced in the 2025-26 Federal Budget was confirmed. The modest reduction of 1% applies to the $18,201-$45,000 tax bracket, reducing from its current rate of 16% to 15% from 1 July 2026, then to 14% from 2027-28. The saving from the tax cut represents a maximum of $268 in the 2026-27 year and $536 from the 2027-28 year.

With a 1 July 2026 start date, the outcome of the Federal election on 3 May 2025 and subsequent budgets will determine whether this change comes to fruition.

FBT 2025: What You Need to Know

The Fringe Benefits Tax (FBT) year ends on 31 March. We’ve outlined the hot spots for employers and employees.

FBT Exemption for Electric Cars

Employers that provide employees with the use of eligible electric vehicles (EVs) can potentially qualify for an FBT exemption. This should normally be the case where:

• The car is a zero or low emission vehicle (battery electric, hydrogen fuel cell or plug-in hybrid electric);
• The car is both first held and used on or after 1 July 2022; and
• The value of the car is below the luxury car tax threshold for fuel efficient vehicles (which is $89,332 for 2024-25 financial year).

Plug-in hybrid vehicles no longer FBT exempt

From 1 April 2025, plug-in hybrid electric vehicles will no longer qualify for the FBT exemption unless:

• The use of the vehicle was exempt before 1 April 2025, and
• There is a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025.

If there is a break or change to that commitment on or after 1 April 2025 then the exemption normally won’t be available any more.

Why the ATO is Targeting Babyboomer Wealth

“Succession planning, and the tax risks associated with it, is our number one focus in 2025. In recent years we’ve observed an increase in reorganisations that appear to be connected to succession planning.”

– ATO Private Wealth Deputy Commissioner Louise Clarke

The Australian Taxation Office (ATO) thinks that wealthy babyboomer Australians, particularly those with successful family-controlled businesses, are planning and structuring to dispose of assets in a way in which the tax outcomes might not be in accord with the ATO’s expectations.

If you are within the ATO’s Top 500 (Australia’s largest and wealthiest private groups) or Next 5,000 (Australian residents who, together with their associates, control a net wealth of over $50 million) programs, expect the ATO to be paying close attention to how money flows through the entities you control.

A critical issue for many business owners is how to effectively (and compliantly) benefit from a successful business. In many cases, the owners have spent years building the business and the business has become not only a substantial asset, but a lucrative source of income either through salary and wages, dividends, or through the sale of shares or assets. Generally, under tax law, you can legitimately structure assets if there is a good reason to do so – like for asset protection, but if you tip across the line and the only viable reason for a structure is to reduce tax, then you risk the ATO taking a very close look at your operations or worse, denying any tax benefits under the general anti-avoidance rules in Part IVA of the tax rules, designed to combat “blatant, artificial or contrived” tax avoidance activities.