Federal Budget | Business and investment

Key takeaways

Two new production tax incentives have been announced in order to accelerate investment in Australia’s critical minerals and hydrogen processing and production capabilities.
The instant asset write-off scheme for small business will be extended for another year to 30 June 2025.
Changes to strengthen the foreign investment framework were announced in the lead-up to the Budget.

The Government has announced its Future Made in Australia package which supports refining and processing critical minerals and Australia’s potential to become a renewable energy superpower. We also see the expansion of the instant asset write-off for small businesses together with measures to strengthen the foreign investment framework.

Production tax incentives

The Government will provide an estimated $19.7 billion over ten years from 2024–25 to accelerate investment in Future Made in Australia priority industries - including renewable hydrogen, green metals, low carbon liquid fuels, refining and processing of critical minerals and manufacturing of clean energy technologies including in solar and battery supply chains.

This includes the introduction of two new Production Tax Incentives - Critical Minerals Production Tax Incentive and a Hydrogen Production Tax Incentive.

Production tax incentives to drive critical minerals investment and unleash Australia’s potential to become a renewable energy superpower.

To support refining and processing of critical minerals in Australia, the Critical Minerals Production Tax Incentive will be introduced to provide a production incentive valued at 10 per cent of relevant processing and refining costs for Australia’s 31 critical minerals. This incentive will be applicable for up to ten years per project, for production between 2027–28 and 2039–40, for projects that reach final investment decisions by 2030.

In order to promote accelerated investment in renewable hydrogen, the Hydrogen Production Tax Incentive will provide a $2 incentive per kilogram of renewable hydrogen produced for up to ten years per project, between 2027–28 and 2039–40 for projects that reach final investment decisions by 2030.

These incentives appear broad, but the detail will be determined through a consultation process. It will be important to confirm how these incentives will be treated from a Pillar Two perspective (i.e. the proposed Global and Domestic Minimum Tax rules to be introduced in Australia), including considering whether they will satisfy the requirements to be considered a “Qualified Refundable Tax Credit” in calculating the jurisdictional “Effective Tax Rate” for in-scope entities in Australia.

Approximately $566 million has also been allocated to Geoscience Australia to map Australia’s critical and strategic minerals that will further develop the sector.

Other incentives

The Budget also includes a number of other incentives which are focused, for example, on the manufacturing of clean energy technologies. These incentives include the Solar Sunshot Program and the Battery Breakthrough Initiative.

Small business support – $20,000 instant asset write-off

Small businesses with aggregated turnover of less than $10 million will be eligible for the $20,000 instant asset write-off for an additional year. This will enable small businesses to immediately deduct eligible depreciating assets costing less than $20,000 that are first used or installed ready for use by 30 June 2025. From 1 July 2025, the asset cost threshold will revert to $1,000.

The $20,000 threshold will apply on a per asset basis, so small businesses can instantly deduct the cost of multiple assets.

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter.

The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended until 30 June 2025 (i.e. it is permissible to re-enter the simplified depreciation regime until 30 June 2025).

Strengthening the foreign investment framework

As announced by the Treasurer in the lead up to this Budget on 1 May 2024, the Government will reform and renew Australia’s foreign investment framework in an effort to make it work better for investors, the economy, and Australia’s national interest.

The Government has recognised that foreign investment has a key role to play in our economy, noting Government estimates put direct and portfolio foreign investment in Australia to be worth approximately $3.5 trillion in 2023. These latest reforms are said to make Australia more attractive for investment while safeguarding national security, ensure that foreign investors pay their fair share of tax, and apply under a framework that can evolve to respond to the changing global and economic environment and in a more streamlined and transparent process.

Specifically, the Government has indicated that it will have a stronger risk-based assessment of investment proposals that consider the balance of economic benefits and security risks, supporting effective and efficient decisions in these areas. In addition, this would be consistent with the Government’s Future Made in Australia agenda.

From a tax perspective, considerations relating to the review of foreign investment proposals are aimed at the Government ensuring that multinationals pay their fair share of tax. As part of the revised framework, the Government has stated the additional scrutiny will be applied to foreign investment proposals with certain tax characteristics likely to be considered higher risk, including internal reorganisations, pre-sale structuring steps, high-risk related party financing arrangements and migration of assets to jurisdictions with low tax rates.

In addition, the Government has said that it will take appropriate and proportionate action to mitigate identified tax risks through applying conditions on the transaction while the Treasury or the Australian Taxation Office may also commence reviews following completion of any proposed acquisition(s).

To this end, the Government released an updated foreign investment policy document on 1 May 2024 which outlines the new risk-based approach. Treasury will publish further detail and public guidance over the next few months.

Changes to superannuation guarantee entitlements

All employees will receive the benefit of an already-legislated increase in the minimum superannuation guarantee (SG) entitlement. Specifically, the minimum SG rate will increase from 11 per cent to 11.5 per cent from 1 July 2024.

Payday super

Limited announcements were made in this 2024-25 Budget relating to the Government’s proposed payday super, following consultation by the Treasury in late 2023. Under the proposals, employers will be required to pay their employees’ superannuation guarantee entitlements on the same day that they pay salary and wages. Subject to the passage of legislation (to be introduced), this change will apply from 1 July 2026.

The 2024-25 Budget provides further funding, as part of the Productivity, Education and Training Fund, to support workplaces to implement policy changes such as payday superannuation, which is expected to require significant reform in compliance and governance to ensure employers pay their workers correctly and on-time.