Federal Budget
Federal Budget must address continued uncertainty for small businesses
Published on: 19 Mar 2025
SYDNEY, 19 March 2025: With the election in less than two months, a number of key announced but unenacted tax and superannuation measures (ABUMs) mean small businesses in Australia continue to grapple with major uncertainty for their economic futures. Addressing these measures and providing small business owners with much-needed certainty should be the Government’s priority, says The Tax Institute.
Robyn Jacobson, Senior Advocate at The Tax Institute, said that resolutions on two key ABUMs are a priority in the upcoming Budget.
Division 7A still in limbo a decade on from proposed reforms
Division 7A of Part III of the Income Tax Assessment Act 1936 is an integrity measure that impacts many private companies and privately held groups. Even nearly 30 years after its introduction, Division 7A remains a source of great confusion to taxpayers. Proposed reforms, announced as part of the Federal Budget 2015–16, remain in limbo a decade on, adding to the uncertainty.
The ATO republished its position that an unpaid present entitlement of a corporate beneficiary to a share of trust income does not constitute a ‘loan’ under Division 7A in TD 2022/11. However, the decision of the Full Federal Court of Australia (FCAFC) in Commissioner of Taxation v Bendel [2025] FCAFC 15 (Bendel) challenges this view. Most recently, the ATO maintains its position in an interim decision impact statement, pending whether the High Court of Australia grants special leave to the Commissioner to appeal the decision in Bendel (the Commissioner applied for special leave on 18 March 2025).
Jacobson said, ‘the Government should undertake further consultation with stakeholders before any changes are made to Division 7A. We acknowledge the timing may be impacted by a possible appeal of the FCAFC’s decision in Bendel to the High Court, but the operation of Division 7A requires clarification. Taxpayers will continue to be challenged to comply with the law where the rules remain ambiguous and unclear.’
Instant asset write-off (IAWO) threshold changes for the 7th time
Two days before 30 June 2024, the IAWO threshold was finally increased to $20,000 for 2023–24, allowing small businesses to immediately write-off the cost of eligible depreciating assets until 30 June 2024. Although the Government separately proposed to extend the $20,000 IAWO threshold for 12 months until 30 June 2025, the relevant schedule was removed from the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 before enactment.
Jacobson said, ‘The proposed increase for 2024–25 would mark the seventh change in the IAWO threshold since 12 May 2015. We need to move to a permanent increased threshold to reduce compliance costs for taxpayers and provide certainty to businesses that just want to get on with running their businesses.’
The status of this measure remains unclear, and yet again, small business taxpayers lack certainty on the tax treatment of their business assets. Without legislative change, the threshold reverts to $1,000 from 1 July 2024.
‘Legislating this measure is now a matter of urgency. Many eligible small businesses are holding off making the necessary investments for their future until they have legislative certainty,’ said Jacobson.
ENDS
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