Welcome to 2025, and what a year it’s going to be.
With an upcoming election and numerous policy promises, the Australian Taxation Office (ATO) has set its sights on some significant focus areas. This month, Division 7A, foreign resident withholding, and disposals of Australian property by foreign residents are under scrutiny.
Additionally, the December CPI has triggered an increase in the superannuation Transfer Balance Cap to $2 million, effective from 1 July 2025.
As these changes unfold, we’ll keep you updated through our social media channels on Twitter, Facebook, and LinkedIn.
Reforms to Donations and Philanthropic Giving
The Government is making it easier to claim tax deductions on donations by removing the $2 minimum requirement. Ancillary funds will be renamed ‘giving funds’, and there’s a proposal to increase their annual distribution rate.
To help charities manage funding for larger projects, these funds may soon be allowed to spread distributions over three years. No formal legislation has been released yet, but the changes are based on recommendations from the Productivity Commission and the Blueprint Expert Reference Group.
Build to Rent Affordability Standards
The Government has introduced new affordability standards for Build to Rent (BTR) developments as part of its plan to build 1.2 million homes by 2029. At least 10% of dwellings in these projects must be classified as affordable housing, with rent capped at 74.9% of market rates. These standards aim to ease housing pressures and improve access to affordable rental properties for eligible tenants.
Superannuation Transfer Balance Cap Increase
From 1 July 2025, the general Transfer Balance Cap (TBC) will rise from $1.9 million to $2 million due to CPI indexation. This change may create new opportunities for tax-effective retirement pensions and non-concessional contributions.
- Individuals starting a retirement phase income stream after 1 July 2025 can access the full $2 million cap.
- Those who already commenced a retirement income stream will have a personal TBC between $1.6 million and $2 million, depending on previous indexation.
- The Total Super Balance (TSB) threshold for non-concessional contributions (NCCs) will also increase, allowing more individuals to contribute.
- Update employment contracts and policies – Consult with an HR Consultant or Employment Lawyer to align contracts with these legal changes.
Foreign Exchange Rates
The ATO has published average and monthly foreign exchange rates for the year ending 31 December 2024 and up to 30 June 2025. These rates are used for tax reporting and compliance, especially for individuals and businesses with foreign income or assets.
Rental Bond Data-Matching Program
The ATO is expanding its rental bond data-matching program to track unreported rental income and ensure compliance. Data will be collected from state rental bond authorities up to the 2026 financial year, covering:
- Tenant and landlord details
- Rental bond amounts and lease agreements
- Bond refunds and property management records
This initiative helps identify undeclared rental income, incorrect capital gains tax (CGT) reporting, and non-compliance with foreign investment rules. Landlords should ensure their rental income is accurately reported to avoid penalties.
Foreign Resident Capital Gains Withholding Changes
From 1 January 2025, the withholding tax rate on property sales by foreign residents has increased from 12.5% to 15%, and the $750,000 property value threshold has been removed. This means:
- All Australian property sales by foreign residents are now subject to withholding, regardless of value.
- Australian residents selling property must provide a clearance certificate from the ATO to avoid withholding.
- Clearance certificates can take up to 28 days to process, so sellers should apply early to avoid cash flow issues.
These changes tighten compliance and aim to ensure foreign property owners meet their capital gains tax (CGT) obligations.
Foreign Residents Disposing of Property
The ATO is increasing scrutiny on foreign residents who sell taxable Australian property and fail to report capital gains. Areas of focus include:
- Undeclared property sales and incorrect CGT reporting
- Failure to withhold the 15% capital gains tax (CGT) withholding by buyers when purchasing from a foreign resident
- Attempts to manipulate asset valuations to avoid CGT obligations
Foreign sellers must lodge a tax return and correctly declare any gain or loss. Buyers should also ensure they comply with withholding requirements to avoid penalties.
Build to Rent Developments
The ATO has updated its guidance on tax incentives for Build to Rent (BTR) developments, which offer benefits for property investors and developers. Key incentives include:
- Accelerated capital works deductions at 4% per year for BTR developments
- A reduced 15% withholding tax rate on eligible rental income and capital gains
- Mandatory notification to the ATO before starting or modifying a BTR project
From 1 January 2025, owners or purchasers of BTR developments must lodge a notice with the ATO within 28 days of any major changes. These incentives aim to boost Australia’s long-term rental housing supply.
Division 7A Myths Debunked
The ATO is cracking down on common Division 7A mistakes, particularly around loans and payments made by private companies to shareholders and their associates. Key misconceptions include:
- Shareholders can freely use company money – No, Division 7A may apply to any payments, loans, or benefits provided.
- It only applies to direct shareholders – No, associates of shareholders (such as family members) are also covered.
- Journal entries can offset loan repayments – No, repayments must be properly documented and made before deadlines.
- Temporarily repaying a loan avoids Division 7A – No, reborrowing funds after repayment may still trigger Division 7A rules.
Business owners should review their loan arrangements and ensure compliance to avoid unexpected tax liabilities.
Receiving Payments or Assets from Foreign Trusts
The ATO is increasing scrutiny on Australian residents who receive money, gifts, or assets from foreign trusts. Under Section 99B of the ITAA 1936, these amounts may be taxable unless specific exemptions apply.
Key focus areas include:
- Loans or payments made on behalf of an Australian resident
- Distributions disguised as gifts from family members
- Transfers of trust assets that haven’t been taxed in Australia
The ATO expects taxpayers to verify the source of foreign funds and determine whether they need to be reported as assessable income. Failure to comply may result in penalties and tax adjustments.
New International Tax Measures Affecting Private Groups
The ATO has introduced stricter tax rules for private groups with international dealings. Key changes include:
- Thin Capitalisation Rules – New tests apply to limit debt deductions for businesses with cross-border financing.
- Global Minimum Tax – Large multinational groups must pay a minimum 15% tax on their Australian profits.
- Expanded CGT Rules for Foreign Residents – From 1 July 2025, foreign entities selling certain Australian assets must meet stricter compliance and reporting requirements.
These measures aim to prevent profit shifting and tax avoidance by multinational and foreign-controlled businesses.
Treasury Laws Amendment (Responsible Buy Now, Pay Later and Other Measures) Bill 2024
The new legislation introduces stricter rules for Buy Now, Pay Later (BNPL) services and multinational businesses. Key changes include:
- Increased consumer protection measures for BNPL users.
- New reporting requirements for large multinational enterprises.
- Stricter tax compliance obligations for global corporations.
These changes align with international tax reforms and aim to improve financial regulation.
Capital Gains Tax for Foreign Residents
The ATO is increasing oversight on foreign residents who sell taxable Australian property. Areas of focus include:
- Failure to declare capital gains or lodging incorrect tax returns.
- Avoiding CGT through staggered sell-downs or asset reclassification.
- Incorrect valuation of taxable assets to reduce tax liability.
Foreign sellers must lodge a return and declare capital gains correctly, while buyers must withhold 15% of the sale price if required.
Inbound Related-Party Funding for Property and Construction
The ATO is monitoring financing arrangements between related parties in property and construction. Key concerns include:
- Loans structured to shift profits offshore and reduce taxable income.
- Uncommercial loan terms that don’t reflect market conditions.
- High-risk financing arrangements that may trigger ATO audits.
Businesses with cross-border loans should ensure compliance with arm’s length tax rules to avoid penalties.
Superannuation Changes for Financial Advice Fees
The ATO has clarified rules on financial advice fees paid from superannuation accounts. To be deductible:
- The fee must relate directly to a member’s super account.
- The payment must be requested or consented to by the member.
- Proper documentation must be maintained.
Super funds and advisers must review compliance to avoid tax disputes.
Fringe Benefits Tax and Employee Classification Updates
The ATO has updated guidance on Fringe Benefits Tax (FBT) and employee classification. Key updates:
- Clarifications on what constitutes an “employee” for PAYG withholding and superannuation.
- FBT implications for staff entertainment, travel benefits, and non-cash perks.
- Employers must ensure correct classification and FBT compliance to avoid unexpected tax liabilities.
Build to Rent Determination
The Government has finalized tax rules for Build to Rent (BTR) developments.
- Rent for affordable dwellings must be 74.9% or less of market rates.
- Eligibility is based on income thresholds for tenants.
- Developers must comply with affordability rules to qualify for tax incentives.
These measures aim to boost rental housing supply and ease housing affordability pressures.
Legislation: Superannuation (Objective) Bill 2023
The Superannuation (Objective) Bill 2023 has passed, enshrining the purpose of superannuation into law.
- Future policy changes must align with this objective.
- Ensures super remains focused on retirement savings rather than short-term access.
This law aims to provide long-term stability for Australia’s super system.
Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024
The Government has introduced reforms to simplify merger and acquisition regulations.
- The ACCC now has stronger oversight on competition impacts.
- A streamlined process for business acquisitions and takeovers.
- More transparency in approval decisions.
These changes modernize corporate regulation and improve competition rules.
Aged Care Bill 2024
The Aged Care Bill introduces major reforms in how aged care is funded.
- New funding models based on care needs.
- Higher transparency and regulation of aged care providers.
- Improved contribution system for those receiving care.
These changes aim to enhance service quality and financial sustainability in the aged care sector.
Time Limits for GST and Fuel Tax Credit Claims
The ATO has finalized rules on the time limits for claiming GST and fuel tax credits.
- Generally, claims must be made within four years.
- Adjustments may apply for increasing or decreasing corrections.
- The time limit differs from income tax amendment periods.
Businesses should review claim periods to avoid missing out on credits.
R&D Tax Scheme – Promoter Penalties
The Federal Court has upheld penalties against promoters of R&D tax exploitation schemes.
- Businesses must ensure R&D claims are legitimate and meet ATO guidelines.
- Heavy penalties apply for those found promoting or engaging in fraudulent claims.
- The ATO is increasing audits on R&D tax offsets.
Companies claiming R&D incentives should ensure full compliance to avoid penalties.
Thin Capitalisation – Third-Party Debt Test
The ATO has issued guidance on applying the third-party debt test in thin capitalisation rules.
- New debt deduction limits apply to certain businesses.
- Interest deductions must align with commercial market terms.
- High-risk debt arrangements will be reviewed closely.
Businesses relying on debt financing should reassess their structures for compliance.
Suspected Fraud Involving Unconnected Third Parties
The ATO has introduced stronger measures to detect fraud involving unauthorized third-party transactions.
- New fraud detection procedures for stolen personal data.
- Increased protections for taxpayer accounts.
- Stricter reporting requirements for financial institutions.
Taxpayers should regularly check their ATO accounts to detect suspicious activity early.
PAYG Withholding – Employee Classification
The ATO has clarified when an individual is considered an “employee” for PAYG withholding and superannuation.
- Aligns with recent court rulings on contractor vs employee status
- Employers must review contracts and worker classifications.
- Misclassification may result in back taxes and penalties.
Businesses should ensure their PAYG and super obligations are correctly applied.
Application of CGT Event K6
The ATO has updated its guidance on CGT event K6, which applies to pre-CGT shares or units.
- Clarifies when capital gains tax applies.
- Updates valuation rules for pre-CGT assets.
- Helps determine tax treatment for inherited or transferred shares.
Investors should review their CGT positions based on these changes.
With major tax and superannuation changes taking effect in 2025, businesses and individuals must stay informed and compliant. These updates impact tax planning, investment strategies, and business operations across various sectors.
If you have any questions regarding the above information, please do not hesitate to contact our office to speak to one of our team.
