The last few years have been a rollercoaster ride of instability. 2025 holds hope, but not a guarantee, of greater stability and certainty. We explore some of the key changes and challenges.
An Election: What It Means for Businesses
As political campaigns heat up ahead of an expected election in March or May 2025, key tax legislation remains unresolved:
- $3m superannuation tax: The proposed 30% tax on earnings for superannuation balances above $3 million is stalled in the Senate. If not passed before the election, it may be abandoned or revisited by the new government.
- $20,000 instant asset write-off: The extension of this benefit for small businesses was removed from legislation at the last moment. Without it, the threshold reverts to $1,000, leaving SMEs uncertain about tax treatment for current or planned asset investments.
With political changes on the horizon, businesses should keep an eye on legislative developments to stay prepared.
Tax & Super Changes
Several important changes to tax and superannuation are on the horizon:
- Foreign resident capital gains withholding: From 1 January 2025, the withholding rate for property sales by foreign residents increases from 12.5% to 15%, and the threshold is removed. This means all sales of Australian land and buildings by foreign residents, regardless of value, will be subject to withholding for acquisitions made after this date.
- Superannuation Guarantee increase: The Superannuation Guarantee rate will rise from 11.5% to 12% on 1 July 2025, marking the final legislated increase.
- Super on Paid Parental Leave: From 1 July 2025, superannuation will be paid on Paid Parental Leave payments, with eligible parents receiving an additional 12% of their PPL as a contribution to their superannuation fund.
Businesses and individuals should plan for these changes to ensure compliance and take advantage of new benefits.
Interest Rates: What to Expect in 2025
The Reserve Bank of Australia (RBA) acknowledged easing inflation, which dropped from 5.4% to 2.8% over the year to September 2024. However, RBA Governor Michele Bullock indicated that inflation still has a way to go before reaching the target range of 2% to 3% sustainably.
Major banks have differing predictions for the next rate cut:
- Commbank: February 2025
- ANZ and Westpac: May 2025
- NAB: June 2025
The RBA remains cautious, monitoring inflation trends closely before taking action, making 2025 a critical year for businesses and households managing interest rate expectations.
Cost of Living Pressures: A Slow Recovery
The latest National Accounts revealed modest growth in living standards, up just 0.2% in the September quarter, with discretionary spending increasing by only 0.1%. While personal income tax cuts and energy subsidies introduced in July 2024 have provided some relief, their full impact is still unfolding.
Rising mortgage costs continue to weigh on households, contributing to Australia’s sluggish annual economic growth of 0.8%—the lowest since late 2020. With economic activity heavily reliant on Government spending, 2025 is expected to bring slow and steady progress as cost-of-living pressures persist.
The ‘Trump Effect’: Implications for Australia
With President-elect Trump set to take office on 20 January 2025, his administration’s trade policies could have ripple effects for Australia. Key proposals include a 25% tariff on goods from Mexico and Canada and a 10% additional tariff on Chinese imports. These measures could spark a trade war, potentially slowing China’s economy, which heavily influences Australia’s own economic stability.
China remains Australia’s largest trading partner, accounting for 26% of total trade in 2023. Any economic slowdown in China could significantly impact Australian industries and the broader region. The uncertainty has already affected the AUD/USD exchange rate, now sitting around 64 cents. Businesses should monitor developments closely to prepare for potential challenges in the global trade environment.
Fuel-Efficient Cars: New Standards for 2025
From 1 January 2025, new CO2 emissions standards for vehicle manufacturers will take effect. These standards set an average CO2 target for all new cars produced, requiring manufacturers to offer more fuel-efficient, low, or zero-emission vehicles to meet the targets.
Manufacturers can still sell less fuel-efficient cars, but these must be balanced by more efficient models. Companies meeting or beating their targets will earn credits, while those falling short will have two years to trade or generate credits before penalties apply. This shift aims to encourage a wider range of environmentally friendly vehicle options.
Wage Theft Criminalised from 1 January 2025
From 1 January 2025, intentionally underpaying workers will be a criminal offence. Employers will breach the law if they fail to pay wages, superannuation, or other entitlements required under the Fair Work Act or industrial agreements and do so intentionally.
Convictions for wage theft carry significant penalties, including fines up to three times the amount of the underpayment and up to $7.825 million. Businesses must review their payroll practices to ensure full compliance and avoid severe legal and financial consequences.
Phasing Out Cheques: Transition Plan Announced
The Australian Government has set a timeline to phase out cheques, with issuance stopping by 30 June 2028 and acceptance ending by 30 September 2029. The use of cheques has declined by 90% over the past decade, and banks are already limiting chequebooks for new customers. Australia follows global trends, with countries like Denmark and New Zealand phasing out cheques years ago.
Cash Remains Important
While digital payments dominate, cash remains vital for 1.5 million Australians who rely on it for over 80% of in-person transactions. Cash also serves as a backup during natural disasters or digital outages. The Government plans to mandate that businesses accept cash for essential items, with exemptions for small businesses.
Card Payment Surcharges
Businesses can charge a card payment surcharge but must limit it to the actual cost of processing the payment, ensuring fairness to consumers. As the shift away from cheques accelerates, cash and digital payments will continue to play critical roles in Australia’s evolving payment landscape.
With so many shifts on the horizon, 2025 promises to be a pivotal year. Businesses should stay informed and proactive to navigate these changes effectively.
If you have any questions regarding the above information, please do not hesitate to contact our office to speak to one of our team.
