Alternative Minimum Tax (AMT) Australia 2025: Guide for High-Income Earners

The 2025 financial year is shaping up to be a pivotal one for high-income earners and investors across Australia. The Alternative Minimum Tax (AMT)—long a fixture in the US—has re-entered the local conversation, with policymakers and tax experts debating its merits as a tool for ensuring Australia’s wealthiest pay their fair share. But what exactly is the AMT, how might it impact you, and what changes are on the horizon for the upcoming year?

What Is the Alternative Minimum Tax (AMT)?

The Alternative Minimum Tax is a parallel tax system designed to prevent high-income earners from using deductions and loopholes to significantly reduce their tax bills. While Australia does not currently have an AMT in the same way as the United States, the 2025 Federal Budget has reignited discussion about introducing such a regime, particularly in response to rising income inequality and aggressive tax planning by the ultra-wealthy.

• Purpose: The AMT ensures individuals and businesses pay at least a minimum amount of tax, regardless of deductions or credits claimed.

• Scope: It typically targets high-income individuals, trusts, and large corporations.

• International Context: The US has long applied an AMT, and the OECD’s Pillar Two global minimum tax for multinationals is influencing local debates.

2025 Policy Updates: The AMT Debate Heats Up

With the release of the 2025 Federal Budget, the Albanese government has floated the idea of an Australian AMT as part of broader tax reform. While no formal legislation is in place yet, several proposals are under review:

• Thresholds: Early drafts suggest the AMT could apply to individuals earning over $400,000 and trusts with significant passive income.

• Rate: A flat minimum tax rate of 20-25% is under discussion, targeting those who reduce their effective tax rate below this level via deductions, negative gearing, or franking credits.

• Exemptions: Primary residences and small business income may be exempt, while complex investment structures are in the spotlight.

Tax experts, including the Grattan Institute and the Tax Institute of Australia, have weighed in. Some argue it would close loopholes and boost revenue, while others warn of increased complexity and compliance costs.

How Could AMT Affect High-Income Australians?

Let’s consider a real-world scenario for 2025. Imagine Sarah, a Sydney-based executive earning $500,000 per year. Through investment property losses, superannuation contributions, and other deductions, her effective tax rate drops to 18%—well below the top marginal rate.

Under the proposed AMT:

• If the AMT threshold is set at $400,000 with a 22% minimum rate, Sarah would need to pay additional tax to bring her effective rate up to 22%.

• Trusts, family offices, and large investors using franking credits or capital gains concessions could also see their tax benefits curtailed.

• For most PAYG employees and small business owners outside high-income brackets, the impact would be minimal or nonexistent.

Key sectors to watch:

• Property investors leveraging negative gearing

• Shareholders with large franking credit claims

• Trust beneficiaries and family office structures

What Should You Do to Prepare?

While the AMT is not yet law, the direction of tax reform is clear: the government is seeking to close loopholes and improve tax fairness. High-income earners and their advisers should:

• Review current tax strategies: Assess reliance on deductions, trusts, and franking credits.

• Model AMT scenarios: Use your 2024 return as a base case to estimate potential additional liabilities if AMT is introduced.

• Stay informed: Watch for Treasury consultations and draft legislation in the second half of 2025.

• Consider timing: The government may apply AMT rules prospectively, but some changes could be backdated to the 2025-26 financial year.

The Bottom Line

The Alternative Minimum Tax is firmly on the policy agenda for 2025. While details are still emerging, high-income Australians—especially those with complex investment arrangements—should be on alert for sweeping changes. Reviewing your tax position now could help you avoid surprises if the AMT becomes a reality. As always, keeping ahead of legislative updates and future-proofing your financial strategies is essential in the new tax era.