Our May 2025 newsletter highlights some key tax changes and developments that may affect you or your business.

What’s new?

Small business instant asset write-off

The impasse over the small business instant asset write-off (IAWO) was resolved before the 2025 Federal election was called.

As previously advised in TaxWise, following the enactment of enabling legislation to temporarily increase the IAWO threshold for 2023–24 to $20,000, the Government proposed extending the $20,000 threshold for 12 months to 30 June 2025. After some delays in Parliament, the enabling legislation to give effect to this was enacted just before the election.

This means the IAWO threshold for 2024–25 is $20,000 and allows small businesses (aggregated annual turnover of less than $10 million) to immediately write off the full cost of an eligible depreciating asset that costs less than $20,000 and is acquired and first used, or installed ready for use, by 30 June 2025.

The Government has proposed that the $20,000 IAWO will again be extended for a further 12 months to 30 June 2026. Without this legislative change, the IAWO threshold will revert to $1,000 for 2025–26.

Working from home

If you work from home, you are likely to incur deductible work-related expenses. You can claim the actual expenses provided you keep adequate records from the start of the income year to demonstrate:

• You incurred the expenses you are claiming directly as a result of working from home;
• How you calculated the income-producing portion of the expenses.

Alternatively, you can use the ATO’s fixed rate method for calculating the work-related additional running expenses incurred as a result of working from home. The ATO has recently updated its guidelines (in Practical Compliance Guideline PCG 2023/1) relating to the fixed rate method.

The fixed rate method enables you to claim a deduction for additional expenses incurred as a result of working from home by using a fixed rate for each hour you worked from home during the income year:

• Energy expenses (electricity and gas) for lighting, heating, cooling and electronic items used while working from home;
• Internet expenses;
• Mobile and home phone usage expenses; and
• Stationery and computer consumables.

The fixed rate from 1 July 2024 is 70 cents per hour. It was 67 cents per hour for the 2022–23 and 2023–24 income years.

You must keep:

• Records showing the total number of actual hours you worked from home during the income year; and
• One document, such as an invoice, bill or credit card statement, for each of the additional running expenses that you have incurred during the income year.

Election proposals

Given the outcome of the Federal election on Saturday, 3 May 2025, below is a brief summary of the key tax measures announced by the Government during the election campaign (further information can be found on the ALP’s website). These are non-business tax measures.

20% reduction on all student loans

The Government will reduce all student loans (that exist on 1 June 2025) by 20% by 1 June 2025. This includes ELP, VET Student Loans, Australian Apprenticeship Support Loans and other income-contingent student support loan accounts.

Standard tax deduction

From 1 July 2026, individuals will be able to claim an instant tax deduction for work-related expenses totalling less than $1,000 without the need for receipts. To be eligible for the instant tax deduction, individuals will have to earn labour income (not only business or investment income).

Personal income tax cuts

The income tax cuts announced as part of the Federal Budget 2025–26 are now law.

From 1 July 2026, the 16% tax rate (for taxable income between $18,200 and $45,000) will be reduced to 15%. The rate will then be reduced to 14% from 1 July 2027.

Moving from quarterly to monthly reporting

From March 2025, small businesses that have a history of failing to comply will start to receive communication from the ATO notifying them of their new monthly reporting cycle, effective from 1 April 2025. These businesses have not responded to previous communications from the ATO and demonstrate a poor compliance history, for example:

• Paying late or not paying the amount due;
• Not lodging or lodging late;
• Reporting their tax obligations incorrectly.

Small businesses that disagree with the ATO’s decision and do not consider they have a history of failing to comply can lodge an objection for this reviewable GST decision within the time limit.

After 12 months, a small business can ask the ATO to change its reporting cycle back to quarterly. The ATO will do this only if satisfied that the business is complying with its obligations.

Party-planning for employees

Is your business planning a party for employees, or thinking in advance about an end-of-financial-year celebration? If so, make sure you consider the fringe benefits tax (FBT) implications as the party or celebrations may constitute entertainment-related fringe benefits.

This will depend on:

• The amount spent on each employee;
• When and where the party is held;
• Who attends – is it just employees, or are partners, clients or suppliers also invited; and
• The value and type of gifts provided.

Remember to keep all records relating to any fringe benefits provided, including how the taxable value of benefits is calculated.

FBT thresholds and rates for 2025-26

The FBT rate and the gross-up rates are the same for the 2025–26 FBT year as for 2024–25.

The FBT rate is 47%. The gross-up rates are:

• 2.0802 where the benefit provider is entitled to a GST credit (type 1 gross-up rate); and
• 1.8868 where the benefit provider is not entitled to a GST credit (type 2 gross-up rate).

Some rates that have changed include:

• The benchmark interest rate (e.g. for loan fringe benefits) — 8.62% for 2025–26 (down from 8.77% for 2024–25);
• The record keeping exemption (also relevant for eligibility to use the base rate method to calculate FBT) – $10,664 for 2025–26 (up from $10,334 for 2024–25);

The motor vehicle (other than a car) cents per kilometre rates have also increased for 2025–26. They are:

• 0–2500cc – 69 cents (up from 67 cents for 2024–25);
• Over 250cc – 80 cents (up from 77 cents for 2024–25);
• Motorcycles – 20 cents (up from 19 cents for 2024–25).

The weekly amounts the ATO considers to be reasonable food and drink amounts for a living-away-from-home allowance (LAFHA) paid to employees living away from home, whether within Australia or overseas, are set out in an ATO Taxation Determination (TD 2025/2).

The weekly amounts for locations in Australia are set out in the table below.

FBT record keeping and plug-in hybrid exemption changes

The ATO has reminded employers of some changes that might impact their FBT obligations.

Alternative record-keeping changes

Your business can now use existing records instead of travel diaries and declarations for some fringe benefits. You may prefer to continue using the current approved forms or have the choice of using a combination of both methods for each employee and each benefit.

If using existing corporate records, your business needs to meet the minimum required information at the time of lodging the FBT return.

Keeping the right records ensures your business can correctly calculate the taxable value of the benefit and support its FBT position.

Plug-in hybrid electric vehicle changes

The FBT exemption for plug-in hybrid electric vehicles (PHEVs) ended on 31 March 2025, so 2024–25 may be the last year that your business can claim the exemption.

Your business can continue to apply the exemption if:

• That PHEV was used, or available for use, before 1 April 2025 (and that use was exempt); and
• It has a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025.

Published 21 May, 2025