With the 2025 Australian election approaching, both major parties have outlined different tax plans that could affect individuals and small business owners. Here’s a brief, overview of the key differences between Labor and the Liberal-National Coalition.

Income Tax

• Labor plans permanent tax cuts for low and middle-income earners by reducing the 19% tax bracket to 16% by July 2027. This would result in gradual, ongoing take-home pay increases. This equates to an annual saving of $536 for anyone earning more than $45,000 p.a. once fully implemented. The saving reduces for individuals earning less than $45,000.
• Liberal proposes immediate cost-of-living relief, offering a one-off tax rebate of up to $1,200 in 2024–25 for people earning less than $144,000 (the rebate is reduced for people earning less than $48,000 and more than $104,000). They also propose to half the fuel excise for a year, saving around $728 on the average fuel bill for a year. The Liberal party would cancel Labor’s future small tax cut to help fund these short-term measures.

Small Business Policies

• Labor will extend the $20,000 instant asset write-off for small businesses by another year and provide energy bill rebates of $150 for small businesses.
• Liberal promises broader policies to support small businesses including:
  • Making the instant asset write-off permanent and increasing the amount to $30,000.
  • Introducing an entrepreneurship accelerator – a tax break for new small businesses, allowing a 75% tax offset on the first $100,000 of profit (and 50% on the second $100k) in a business’s first year.
  • A “technology investment booster”: a $2,000 extra deduction for small businesses that spend at least $4,000 on digital upgrades.
  • A temporary FBT-free meal entertainment deduction where small businesses could claim up to $20,000 in business meal expenses (excluding alcohol) as tax-deductible without incurring Fringe Benefits Tax, for an initial two-year period.

On the negative side, the coalition have said that they will remove the FBT exemption on electric vehicles which will substantially increase the cost of these vehicles in future.

Deductions and Incentives

• Labor proposes a $1,000 automatic work-expense deduction from 2026–27 to simplify tax returns. You will still be able to claim more than $1,000 if you have substantiation. For anyone who currently claims less than $1,000 in work related deductions this represents a bonus extra tax deduction. For anyone currently claiming more than $1,000 the change has no impact. However, people in this position may want to consider salary sacrificing their work related expenses to take advantage of the bonus deduction if this proposal becomes law.
• Labor also proposes to increase tax on super balances over $3 million. Labor attempted to pass this increase during their last term but could not get support for it. They intend to try again next term but their success will depend on the make up of parliament.
• Liberal would offer mortgage interest deductions for first-home buyers who purchase a newly built home. The proposal would allow interest deductions on up to $650,000 of their mortgage for the first five years . In practical terms, this could mean thousands of dollars in tax savings each year for new homeowners – the Coalition claims an average dual-income family could be about $55,000 better off over five years from this policy.
• Liberal also promises no new taxes on superannuation.

All of the above proposals are dependent on the ability of each party to get a majority of both houses to agree to the changes. There is a good probability this will be harder than ever after this election.