Australia stands at a critical juncture as the re-elected Labor Government faces mounting economic pressures and a tax system in urgent need of reform.
The Tax Institute has delivered its Incoming Government Brief: June 2025 to Treasurer Jim Chalmers, calling for immediate action on long-stalled reforms while outlining a vision for comprehensive structural change.
The Tax Institute has reiterated its longstanding call for holistic, principled and bipartisan tax reform to serve as a core, long-term priority for the Government. “Now is the time to future-proof Australia’s tax and super systems through structural reform,” said Julie Abdalla, FTI, Head of Tax & Legal at The Tax Institute “Major reform takes time and courage. We must start with the right intent and build toward a simpler, more sustainable framework.”
In the shorter term, the Brief urges the Government to progress many previously announced but unenacted tax and superannuation measures. These include technical and integrity-based amendments that are ready to move forward, along with areas in urgent need of further consultation and legislative clarity.
“The Government is navigating significant economic, fiscal and social challenges, compounded by global volatility and ongoing cost-of-living pressures,” said Julie. “Businesses, practitioners and everyday taxpayers are also contending with increasing regulatory obligations, retrospective legislative changes, and an increasingly complex compliance environment.”
The Brief:
- sets out a categorised roadmap of high, medium and lower priority tax and superannuation measures, spanning prior announcements of the current and previous governments, as well as new recommendations initiated by The Tax Institute (priorities are listed in Appendix A of the Brief);
- identifies systemic issues, including inadequate consultation processes, the impact of retrospective measures (that apply from a date that precedes when they become law), and the growing compliance burden on taxpayers and advisers; and
- measures that require further refinement through consultation or should not proceed in their current form.
The Tax Institute is committed to working constructively with the Government, the Treasury, and the ATO, to ensure Australia’s tax and superannuation laws are fit-for-purpose and effectively implemented. Tim Sandow, CTA, President of The Tax Institute said, “Our Brief focuses on reforms that improve integrity, reduce complexity, and provide taxpayers with greater certainty. Retrospective changes and rushed reforms without sufficient consultation have undermined confidence. We stand ready to support the Government in balancing its short-term legislative priorities with the long-term vision of meaningful tax reform”.
A number of key announced tax and superannuation measures should be the Government’s foremost priority. The Tax Institute’s comments on the highest priority measures are set out below.
Measures to address financial abuse
Julie expressed strong support for the Government’s efforts to address financial abuse involving the weaponisation of tax and corporate systems. She highlighted the importance of reforms that would offer stronger protections for victim-survivors, who can be saddled with tax debts they were unaware of or did not consent to.
Payday super
The Tax Institute supports the introduction of payday super as a step towards closing the $5.2 billion superannuation guarantee gap and improving retirement outcomes for Australians. Julie recommends deferring the proposed start date of 1 July 2026 by, ideally, 24 months.
Key stakeholders, including the ATO, software providers and employers, are not yet equipped to implement the necessary changes, as many are awaiting final legislation before upgrading their systems. Further targeted consultation is needed before the measure is legislated.
Corporate tax residency
Tim, also noted that despite previous announcements, uncertainty remains around how Australia’s corporate tax residency rules are applied. This issue continues to create complexity for taxpayers and may discourage growth of Australian businesses. He observed that the profession had broadly supported earlier proposals to treat foreign companies with a significant economic connection to Australia as tax residents.
Expanding this approach to also include trusts and corporate limited partnerships could simplify the system further. Tim encouraged the Government to revisit this area of reform to provide greater certainty, reduce compliance costs, and better support Australian companies to expand offshore and take Australian products and services to the world.
Small business instant asset write-off
The Tax Institute recommends that the Government permanently increase the instant asset write-off (IAWO) threshold to $30,000 and broaden eligibility to businesses with an aggregated turnover of less than $50 million. In Tim’s view, the recurrent pattern of annual temporary extensions creates unnecessary uncertainty for businesses and adds to legislative and administrative complexity. A permanent increase to the threshold would provide greater clarity, reduce compliance burdens, and give businesses the confidence to plan and invest in productive assets.
While the recent announcement to extend the temporarily increased $20,000 threshold for another 12 months to 30 June 2026 is a positive interim step, The Tax Institute advocates for a long-term solution. Tim considers that legislating a permanent threshold early in the new Parliament would deliver more consistent policy settings and better incentivise small and medium business to invest in eligible capital assets that contribute to their growth.
Family trust distribution tax
The rules governing family trust elections, interposed entity elections and family trust distribution tax (FTDT) are highly complex areas of the tax law that have applied for more than 30 years. In Tim’s view it is essential that these rules remain fit for purpose and reflect contemporary arrangements, particularly as private groups deal with succession challenges and changes of controllers.
There are widespread misunderstandings by taxpayers as to what actions might result in an FTDT liability arising, particularly in relation to distributions by or to associated entities that are controlled by related family members, but which technically fall outside the definition of ‘family group’.
Even inadvertent errors, without any tax avoidance motive can result in multi-million dollar assessments of FTDT and the general interest charge which is non-deductible from 1 July 2025, potentially bankrupting many Australian businesses. The rules should also be amended so FTDT notices issued by the Commissioner are limited to a four-year amendment period.
Division 296
The Tax Institute supports efforts to improve equity in the superannuation system, but considers that Division 296, as proposed, requires significant redesign. Julie said the measure must be amended to reduce the inequitable impact of taxing unrealised gains and ensure it operates fairly and efficiently.
Other concerns include the lack of indexation of the $3 million threshold, the inability to carry back unrealised losses, and anomalies such as the imposition of tax on deceased estates depending on the date of death. Further targeted consultation is essential before the measure is progressed.
Division 7A
Small business taxpayers need certainty in the law when managing their tax affairs. For many small businesses in Australia, the treatment of structures and transactions involving private companies to comply with Division 7A is crucial. Yet, more than 25 amendments have been made to Division 7A in the 28 years since its introduction in 1997, introducing significant complexity and additional compliance costs.
Tim says the proposed reforms regarding clarifications, simplified methods and the safe harbour would reduce this compliance burden for SMEs, but that the reforms require further consultation to ensure they work as desired.
This article is based on information from The Tax Institute and is provided by us for informational purposes only.
Keep up to date with our stories on LinkedIn, Twitter, Facebook and Instagram.
