Clarifying the rules for MITs

The Government will amend the tax laws to clarify the rules for managed investment trusts (MIT) to ensure that the concessional final MIT withholding tax rates for fund payments made by MITs (being 15% ordinarily or 10% for clean building MITs) will continue to be available where the MIT is ultimately owned by a single foreign specified widely-held investor.

This measure was earlier announced by Treasury on 13 March 2025 in response to the ATO's Taxpayer Alert TA 2025/1 released on 7 March 2025. This measure will apply to fund payments from 13 March 2025.

In TA 2025/1, the ATO expressed its concern about 'captive MITs', being a MIT structure that is ultimately directly and indirectly owned by the same investor. It generally takes the form of a two-investor holding structure (typically as 99% / 1% unitholders), where one of the investors is a subsidiary of the other investor or the investors are commonly owned.

The ATO's concern targets the restructuring of Australian land holding from a non-MIT entity (e.g. an Australian company) into an Australian unit trust that seeks to qualify as a MIT based on a 'captive MIT' structure. The restructures are generally motivated by a purpose of allowing the unitholders to obtain the concessional final withholding tax rates for fund payments and capital gains made on a property sale by the unit trust.

The ATO expresses the concern that such restructures present the risk that:

• the Australian unit trust does not qualify as a managed investment scheme (MIS) as defined in the Corporations Act 2001 (Cth) where the unitholders in the trust are all companies within the same corporate group and the promoter of the trust is also a member of that corporate group. This is important as MIS-qualification is generally a criterion for MIT eligibility; and
• the dominant purpose of such restructures is to obtain a tax benefit, being access to the concessional final MIT withholding tax rate in circumstances where a higher tax rate would have otherwise applied if the land interest remained held by the original entity (e.g. an Australian company with a 30% tax rate). The tax benefit that arises due to the restructures is caught by the Part IVA anti-avoidance provision.

The MIT rules specifically allow a specified widely-held investor (except a collective investment trust) to be the single direct unitholder of a MIT. A specified widely-held investor includes a:

• pension fund / superannuation fund with at least 50 members;
• life insurance company;
• sovereign wealth fund; or
• a limited partnership where at least 95% of the membership interests are owned by any of the above entities and the remaining membership interests are held by a general partner.

It appears that the drafting of TA 2025/1 could target a 'captive MIT' that is, for example, 99% owned by a foreign pension fund and 1% owned by a subsidiary of the foreign pension fund, in circumstances where the foreign pension fund could instead have been MIT eligible if it had been the 100% unitholder from the outset.

It appears that this unintended consequence is the reason why the Treasurer announced on 13 March 2025 that the Government would amend the income tax laws to make clear that trusts ultimately owned by a single widely‑held investor (e.g. a foreign pension fund) are able to access the MIT concessions.

Although this is a welcome announcement, there is still a query on whether this amendment will apply to foreign collective investment vehicles (which under current law are specifically excluded from being the single direct unitholder of a MIT).

Deferral of withholding measure for clean building MITs

In the 2023–24 Budget, the Government had announced that it would extend the 10% concessional MIT withholding tax rate for fund payments made by a clean building MIT to data centres and warehouses where construction commences after 9 May 2023, 7:30 PM (AEST).

The data centres and warehouses are required to meet the relevant energy efficiency standard in order to attract the reduced MIT withholding rate. This would include a new minimum energy efficiency requirement of a 6-star rating from the Green Building Council Australia or under the National Australian Built Environment Rating System.

Originally, this measure was intended to apply from 1 July 2025.

The Government has now announced that it will defer the start date of this measure, so that it starts on the first 1 January, 1 April, 1 July or 1 October after the relevant legislation receives Royal Assent.

Deferral of the changes to the foreign resident capital gains tax regime

The Government will defer the start of the changes to the foreign resident capital gains tax (CGT) regime announced in the 2024/2025 Budget, 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 amending legislation receives Royal Assent.

The Government announced in the 2024-25 Budget that it proposed to amend the foreign resident CGT regime to expand its operation and ensure greater compliance by foreign residents with their CGT obligations in Australia. The proposal seeks to close a perceived gap on the amount of CGT being collected when foreign residents dispose of their indirect interests in Australian land. The original announcement predicted that the changes would raise $200 million per annum – which seemed ambitious – and the Government has said that the deferral of the start date will decrease the tax take by $50 million.

As we canvased in our Federal Budget 2024/25 Highlights article, the amendments are intended to:

• broaden the types of assets on which foreign residents are subject to CGT;
• amend the point-in-time principal asset test to a 365-day testing period; and
• require foreign residents disposing of shares, units and other membership interests exceeding A$20 million in value to notify the ATO, prior to the transaction being executed.

A consultation process was held in July/August 2024, during which the Government released 'Strengthening the foreign resident capital gains tax regime - Consultation paper'. To date, no draft legislation has been released.

Tax integrity measures

In keeping with measures in recent Budgets, the Government will provide almost $1 billion in funding to the ATO over four years from 1 July 2025, to extend and expand tax compliance activities.

The largest portion of this funding, amounting to $717.8 million, will be allocated to a two-year expansion and a one-year extension of the Tax Avoidance Taskforce, with explicit reference to the ATO's ongoing tax compliance scrutiny of multinationals and other large taxpayers.

The remainder of the funding will be directed to extending and expanding the following initiatives:

1. the Shadow Economy Compliance Program which is intended to allow the ATO to continue to reduce shadow economy activity, protect revenue and prevent non-compliant businesses from undercutting competition;
2. the Personal Income Tax Compliance Program to allow the ATO to continue to target what it has identified as key non-compliance areas (overclaiming of tax deductions, incorrect reporting of income and 'inappropriate' tax agent influence); and
3. the Tax Integrity Program to enable the ATO to continue its engagement program to ensure timely payment of tax and superannuation liabilities by medium and large businesses and wealthy groups.

The Government expects the above measure to increase receipts by $3.2 billion over five years from 2024–25, and increase payments by $1.4 billion, including an increase in GST payments to the states and territories of $402.6 million and $31.0 million in unpaid superannuation to be disbursed to employees.

Tax practitioner regulation and compliance

Further to the Tax Practitioner Board's (TPB) recommendations in its 2019 Independent Review, the Government has announced measures to strengthen the sanctions available to the TPB and provide funding for additional compliance activities. The stated aim of these measures is to:

1. protect taxpayers from tax agent misconduct, including poor and unlawful tax advice;
2. maintain community confidence in the integrity of the tax system; and
3. support the sustainability of the tax profession by making it easier for tax and business activity statement (BAS) agents to re-enter the profession after taking career breaks. This could be achieved, as recommended by the TPB in its 2019 Independent Review, by granting the TPB greater flexibility in its tax and BAS agent registration framework, including determining the necessary experience required for registration as a tax practitioner.

Personal income tax measures

The Government announced two tax measures targeted at individual Australian taxpayers.

Specifically, new tax cuts for Australian individual taxpayers will be delivered over 2 years from 1 July 2026. These tax cuts are in addition to the tax cuts that became effective from 1 July 2024.

• 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%.

The Government will also increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from 1 July 2024. Individuals below the low-income threshold will either be exempt from paying the Medicare levy or will pay a reduced levy rate.

• The threshold for singles will be increased from $26,000 to $27,222.
• The family threshold will be increased from $43,846 to $45,907.
• For single seniors and pensioners, the threshold will be increased from $41,089 to $43,020.
• The family threshold for seniors and pensioners will be increased from $57,198 to $59,886.
• The family income thresholds will increase by $4,216 for each dependent child or student, up from $4,027.

The tax cuts and increase to the thresholds are estimated to decrease receipts by $17.1 billion and $648 million, respectively, over 5 years from 2024-25.

The Government also announced a number of additional measures framed as cost-of-living relief, including additional funding to limit the cost of PBS scripts to $25 and additional funding for new medicines to be added to the PBS. As announced on the weekend, the Government will also extend energy bill relief to the end of 2025 for Australian individuals and approximately 1 million small businesses by way of two $75 rebates.

Increased infrastructure spending

The Budget includes significant investments in Australian infrastructure projects, with $15.6 billion allocated over 10 years for projects not previously included in the Government's Infrastructure Investment Program. Newly funded projects include:

• $7.2 billion for safety upgrades on the Bruce Highway in Queensland;
• $2.3 billion for projects located in Western Sydney, including $1 billion allocated to preserve the corridor for the South West Sydney Rail Extension; and
• $2 billion for the Sunshine Station as part of the Melbourne Airport Rail project.

The Budget also includes $1.5 billion of funding which has been allocated over 8 years for existing infrastructure investment projects.

The Government announced that it will provide an equity investment of up to $3 billion over 7 years to the NBN Co to upgrade the remaining 622,000 NBN premises on the national fibre-to-the-node network, with NBN Co providing an additional $800 million to the project.

Support for Australian Made Metals

The Government announced further investments in Australia's metals industry – $3.2 billion over 19 years – separate to the critical minerals and green hydrogen tax incentives worth $13.7 billion announced in the 2024/25 Budget. The newly announced funding measures include:

• $2 billion for Green Aluminium Production Credits to provide support over 19 years to Australian aluminium smelters switching to renewable energy before 2036 (with the support for each eligible aluminium smelter provided over 10 years);
• $1 billion to fund the Green Iron Investment Fund, which will provide support over 7 years to iron ore producers establishing or transitioning into low emissions facilities in Australia. This includes $500 million for the transformation of the Whyalla Steelworks; and
• $219.3 million to provide immediate support for the Whyalla Steelworks over two years, following the South Australian Government placing the owner of the steelworks into administration in February 2025.

The Budget also includes $2 billion to recapitalise the Clean Energy Finance Corporation, to invest in renewable energy, energy efficiency and low emissions technologies.

The Treasurer's Budget Speech made clear that the announcements were designed to support the more substantive investments announced in the 2024/25 Budget – $22.7 billion over a decade – included in the 'Future Made in Australia' plan. The Government also restated previously announced measures from the 2024/25 Budget, such as funding for the Future Made in Australian Innovation Fund and the 'front door' scheme designed act as a single-entry point for investors, in the Budget Overview for the economy.

Restricting foreign ownership of housing

The Government will ban foreign persons (including temporary residents and foreign-owned companies) from purchasing established dwellings for two years starting on 1 April 2025, 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
• purchases by foreign-owned companies to provide housing for workers in certain circumstances.

The ban is intended to increase the number of Australians able to buy homes by removing competition from foreign investors, while also encouraging foreign persons to boost Australia's housing supply. The Government will provide $5.7 million in funding to the ATO over four years from 2025-26 to enforce the ban.

The Government will also target land banking by foreign investors, announcing $8.9 million in funding to the ATO and Treasury over four years from 2025-26 and $1.9 million per year from 2029-30 onwards to implement an audit program and enhance their compliance approach in this area. The Government hopes this will ensure foreign investors comply with requirements to put vacant land to use for residential and commercial developments within reasonable timeframes.

This measure is estimated to decrease receipts by $90 million and increase payments by $14.6 million over five years.

More Housing Support

As part of the Government's plan to ease housing shortages and improve affordability, the Government has announced that it will provide $58.8 million over five years from 2024-25 to increase the supply and adoption of prefabricated and modular housing construction. This includes:

• $4.7 million over four years from 2024-25 to develop a voluntary certification and rating scheme for prefabricated and modular housing manufacturers; and
• $49.3 million over two years from 2025-26 to support states and territories to scale up existing projects for prefabricated and modular housing construction.

In addition to the Government's investment to increasing housing supply, the Government has announced that it will provide an additional $800 million investment to expand the Help to Buy scheme, such that more home buyers become eligible for the scheme, by increasing property price caps and increasing income caps. Broadly, the Help to Buy scheme is based on a shared equity platform that allows eligible home buyers to "co-buy" their property with the government, thereby reducing the size of the deposit or mortgage required to buy a home.

The property price caps will be increased such it will be tied to the median house price in that region, rather than the median dwelling price.

The income cap for singles will be increased from $90,000 to $100,000, and the income cap for joint applicants will be increased from $120,000 to $160,000.

We note that, as at the date of this article, the start of the Help to Buy scheme has not been determined and it is not expected to begin taking applications until later this year.

The Government also announced that it will provide $4.9 million over four years from 2025-26 to continue the Regional Home Guarantee and Family Home Guarantee streams of the Home Guarantee Scheme.

Increase in funding across stages of education

The Government has announced a number of measures in an effort to support students and bolster educational initiatives across every stage of education.

The measures primarily support reforming early education and care, investing in public schools, and making free TAFE permanent.

Additionally, the Government announced measures regarding student debt relief, which builds upon the legislated cap on HELP indexation based on the lower of the Consumer Price Index or the Wage Price Index.

Significant spending measures include:

• $626.9 million over four years from 2025–26 to reframe and expand the New Energy Apprenticeships Program as the Key Apprenticeship Program.
• $407.5 million of funding over four years from 2025–26 to signatories to the Better and Fairer Schools Agreement (Full and Fair Funding 2025-2034) bilateral agreements. This funding is to be directed at delivering reforms to help lift education standards.
• $77.8 million over four years from 2025–26 to extend the current interim Australian Apprenticeship Incentive System program settings for a further six months from 1 July 2025 to 31 December 2025.
• $4.5 million over four years from 2025–26 to Services Australia to implement the Child Care Subsidy 3 Day Guarantee, the proposed subsidy to give all families earning less than $530,000 a year access to the childcare subsidy for three days a week.
• $2.2 million in the 2025-2026 financial year to extend the extend the Australian Academy of Science school STEM programs.

Other measures announced include:

• Reducing outstanding student debts by 20 per cent, which removed $16 billion in debt and transition the repayment system to a marginal repayment system, with a higher minimum payment threshold.
• New university funding support to provide more university places and better support students from under-represented backgrounds.
• Introduction of legislation to make permanent 100,000 Free TAFE places every year from 2027.

The Government also intends to achieve savings of $3.0 million over two years by reallocating funding from the International Educational Support program to invest in policy priorities in the Education portfolio.

With the federal election required to be called on or before 17 May 2025, this Budget was not expected to introduce many topical tax measures.

The Government delivered a Budget consistent with these expectations, concentrating instead on measures relevant to voters in the upcoming federal election, including cost of living, education, health, housing and significant infrastructure projects. However, there remain many tax measures left unenacted from previous Budgets that many will be disappointed remain unresolved, including:

• Changes to corporate tax residency – This Budget does not include any further announcements in relation to the long awaited (and desired) changes to the corporate tax residency tests. The withdrawal of former Taxation Ruling (TR) TR 2004/15, and release of TR 2018/5 in light of Bywater, resulted in a significant change in the application of the corporate tax residency tests, and in particular, the central management and control test for residency. These reforms have been repeatedly earmarked for introduction since the 2021/2022 Budget and will leave many corporates at the mercy of costly compliance and governance practices due to continuing uncertainty.
• Denial of deduction for ATO interest expenses – The Budget made no further announcements in relation to this measure introduced as part of the 2023/2024 Mid-Year Economic and Fiscal Outlook, however the relevant enacting legislation is currently before Parliament, and awaiting a third reading after being considered in detail following the second reading being agreed to on 10 February 2025.
• Public registry of beneficial ownership – The Government had previously announced that it will implement a public registry of beneficial ownership to improve transparency on corporate structures, to show who ultimately owns (or controls) a company or legal vehicle. No further announcements were included in this Budget, however an exposure draft for the enacting legislation is awaiting introduction into Parliament.
• Better targeted superannuation concessions – This reform was announced in the 2023/2024 Budget, and was intended to ensure generous superannuation concessions are better targeted and sustainable. It would bring the headline tax rate to 30 per cent, up from 15 per cent, for earnings corresponding to the proportion of an individual’s total superannuation balance that is greater than $3 million. No further announcements relating to this reform were announced in this Budget, however the relevant enacting legislation is currently before the Senate.
• Luxury Car Tax – modernising the luxury car tax for fuel-efficient vehicles – The Government had previously announced it would modernise the Luxury Car Tax (LCT) by tightening the definition of a fuel-efficient vehicle and updating the indexation rate for the LCT value threshold for all-other luxury vehicles, from 1 July 2025. While there were no announcements in this Budget relating to this measure, the relevant enacting legislation is currently before Parliament, and awaiting a third reading after being considered in detail following the second reading was agreed to on 10 February 2025.

Payday Super

While this year's Federal Budget did not include any key superannuation announcements, exposure draft legislation was released on 14 March 2025 in relation to Payday Super, a key announcement from the 2023-24 Federal Budget.

Currently, employers are required to make superannuation guarantee contributions to their employees' chosen superannuation funds on a quarterly basis. Under the new Payday Super regime, contributions will be made at times more closely linked with an employee's salary payments.

The aim of the regime is to bolster the superannuation framework in Australia and address the issue of unpaid superannuation. More regular superannuation payments will not only enable employees to better monitor their entitlements but will also make it more challenging for employers to take advantage of them. Employees will be able to verify these contributions by inspecting the transactions within their superannuation accounts and can hold employers accountable for any non-compliance either directly or via the Fair Work Ombudsman or the ATO.

Unlike other measures that were deferred in this year's Budget, the introduction of the Payday Super regime is still scheduled to commence on 1 July 2026.

While the exposure draft legislation is currently subject to consultation, the key takeaways are:

• superannuation contributions must be deposited into employees' superannuation accounts within 7 days of 'payday';
• superannuation guarantee shortfalls on which the superannuation guarantee charge is calculated will only consider qualifying earnings – that is, the superannuation guarantee charge is no longer levied on the employer's 'salary and wages', which may be broader than ordinary time earnings;
• exemptions include a 2-week deferral for new employees and small off-cycle payments, which are due with the next regular pay cycle. Employers can also seek an exceptional circumstances determination from the Commissioner to extend the period within which contributions are required to be made;
• the maximum contributions base now applies on an annual basis rather than quarterly;
• employers are no longer required to lodge superannuation guarantee statements, rather they can make a voluntary disclosure statement reporting that they have a superannuation guarantee shortfall;
• the current administration component of the superannuation guarantee charge is replaced by a scalable amount known as the administrative uplift amount; and
• currently, only on time contributions are deductible to an employer. Under the new regime, the superannuation guarantee charge (which includes the administrative uplift amount) will also be deductible.