With the Federal Budget introducing notable tax cuts effective from 1 July, taxpayers can expect significant savings. However, the ATO will enhance compliance and crack down on tax fraud, focusing on common errors and forming a new taskforce. Additionally, small business owners should note upcoming changes to trust tax return reporting requirements.

As the financial year draws to a close, significant changes are on the horizon for Australian taxpayers. The latest Federal Budget has introduced a suite of reforms aimed at providing financial relief, enhancing compliance, and streamlining tax reporting processes.

This tax update explores newly legislated tax cuts, key ATO focus areas, and important adjustments for trust tax returns. Here are some of those updates and how they could impact your financial planning and obligations in the coming year:

Tax cuts for Australian taxpayers

From 1 July, all Australian taxpayers will benefit from significant tax cuts introduced in the recent Federal Budget. These changes, legislated in February, promise an average weekly saving of $36[i]. The lowest tax rate will drop from 19% to 16%, and the marginal rate for incomes between $45,001 and $135,000 will reduce from 32.5% to 30%. Higher income brackets will also see adjustments, with the 37% rate applying to earnings between $135,001 and $190,000, and the 45% rate beginning at $190,000. This reform aims to alleviate the cost-of-living pressures felt by many households.

Additionally, the ATO gains new discretion to halt collection of historical tax debts for individuals and small businesses. While these cuts provide immediate financial relief, they also come with increased ATO oversight, focusing on tax compliance and fraud prevention.

Whilst these measures not only allow Australians to retain more of their earnings, they also encourage greater workforce participation. This approach underscores the government’s efforts to support Australians with both financial relief and strengthened regulatory frameworks.

Key focus areas for the ATO

The ATO has announced that it will be intensifying its scrutiny of three common errors that taxpayers make in their returns lodged this financial year[ii]. One major focus area is the incorrect claiming of work-related expenses. Many taxpayers mistakenly overclaim or misreport these expenses, which can include anything from travel costs to home office setups. To address this, the ATO is stressing the importance of comprehensive substantiation. Taxpayers must provide detailed records and receipts to validate their claims, especially for work-from-home expenses, which have become more prevalent since the pandemic.

Another key area under the ATO’s microscope is the inflation of deduction claims for rental properties. This includes overstating expenses related to repairs and maintenance. Rental landlords are urged to carefully review their claims and ensure they are accurately documented. Proper categorisation of these expenses will prevent potential penalties and disallowances.

The third focal point is the failure to include all sources of income when lodging a return. It is crucial for taxpayers to report every form of income accurately, whether it comes from employment, investments, or other sources. Omissions can result in significant adjustments and penalties.

The Australian Government will strengthen the foreign resident capital gains tax (CGT) rules, effective from 1 July 2025. The changes will clarify and broaden taxable assets, amend the point-in-time principal asset test to a 365-day testing period, and require foreign residents disposing of shares over AUD 20 million to notify the ATO pre-transaction. The measure ensures Australia can tax foreign residents on asset sales connected to Australian land, aligns foreign resident CGT rules with international standards, and enhances oversight and compliance through a new ATO notification process[iii].

Changes for trust tax returns

Starting 1 July, small business owners who are trustees or trust beneficiaries must adhere to new income tax reporting changes under the Modernisation of Trust Administration Systems (MTAS)[iv].

Trustees will need to include four additional CGT labels in the trust tax return statement of distribution, providing beneficiaries with essential information for their trust income reporting obligations.

Beneficiaries should look for the new trust income schedule form, which replicates fields from the trustee’s statement of distribution, making it straightforward to copy the necessary information. Trustees are advised to provide beneficiaries with the trust statement of distribution to facilitate accurate reporting, especially for distributions from managed funds. These measures aim to streamline trust income reporting and ensure compliance with the updated tax regulations.

If you would like more information or further clarification on the new tax measures and how they affect you, or if you need help with your tax return, contact our office today.

DISCLAIMER: All information on Focus Wealth Advisers is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider your personal circumstances and seek professional advice before making any decisions based on this information.

[i] Australian Government (2024) Tax cuts for every taxpayer

[ii] ATO (2024) ATO flags 3 key focus areas for this tax time

[iii] ATO (2024) Strengthening the foreign resident capital gains tax regime

[iv] ATO (2024) Changes are coming for trust tax returns