2026-27 Federal Budget

What the Budget means if you run a small business

The Budget delivers several genuinely useful measures for small business — the $20,000 instant asset write-off made permanent, loss carry-back returning, and more flexible PAYG instalments. There’s also an R&D Tax Incentive overhaul and a multi-stage wind-down of the EV FBT discount to plan for.

Now permanent

$20,000

Instant asset write-off for businesses under $10M turnover. No more annual extension scramble.

Loss carry-back returns

2 years

Companies under $1bn turnover can carry losses back against tax paid up to 2 years earlier, from 1 July 2026.

EV FBT discount

Winds down

From 1 April 2027 for cars over $75,000, and 1 April 2029 for all electric cars. Lock in current arrangements before then.

The headline changes

Four measures most small businesses can use

The Budget bundles together several positive changes that will affect day-to-day tax planning and cash flow. None of them are revolutionary, but together they give small businesses more certainty and more flexibility.

Cash flow win From 1 July 2026

$20,000 instant asset write-off made permanent

The $20,000 threshold for the small business instant asset write-off is now permanent, not annually extended. Eligible businesses (under $10 million turnover) can continue to immediately deduct individual assets under $20,000.

Threshold applies to each asset, not the total purchases for the year
Assets $20,000 or more go into the simplified depreciation pool (15% first year, 30% thereafter)
The 5-year lockout rule for opting out of simplified depreciation remains suspended until 30 June 2027
End of the annual scramble around 30 June to confirm the threshold is still in place

Resilience tool From 1 July 2026

Loss carry-back returns — permanently

Companies with aggregated global turnover under $1 billion can carry tax losses back against tax paid in the prior two income years — receiving a refund equal to the tax saved had the loss been incurred in the earlier year.

Up to 85,000 companies expected to benefit each year
Applies to revenue losses only, not capital losses
Limited to the company’s franking account balance (you can’t refund more than has been paid in)
Useful for businesses hit by a one-off bad year that had paid tax in earlier good years

For start-ups From 1 July 2028

Loss refundability for small start-ups

Start-up companies in their first two years of operation with turnover under $10 million will be able to convert tax losses into a refundable tax offset.

Offset is capped at the value of FBT and withholding tax on wages paid to Australian employees in the loss year
Designed to support genuinely new businesses with employees, not pre-revenue investment vehicles
Useful for new businesses with payroll but limited revenue while they grow
Doesn’t start until 2028-29 — longer planning horizon

Cash flow flexibility From 1 July 2027

Optional monthly PAYG instalments

Small and medium businesses will be able to opt in to monthly PAYG instalments (rather than quarterly), and the ATO will expand its dynamic PAYG calculations using business software data.

Helpful for businesses with lumpy quarterly cash flow who’d rather pay smaller amounts more often
Dynamic instalments use real-time data from your accounting software to calculate liability more accurately
Reduces the size of year-end true-up surprises
Worth considering if quarterly instalments routinely cause cash flow stress

A planning window that’s closing

The EV FBT discount is being wound back

The current FBT exemption for eligible electric vehicles is moving to a permanent 25% discount over three stages. The transitional rules reward locking in current arrangements before the stages close.

EV FBT discount transition

Three stages, three different rules — arrangement timing matters

Now — 1 April 2027

100% exemption

Full FBT discount on eligible EVs

Eligible electric cars (up to luxury car tax fuel-efficient threshold) get a full FBT exemption. Available for new arrangements until April 2027 for high-value EVs.

1 April 2027 — 1 April 2029

100% / 25%

Split treatment by EV value

EVs up to $75,000: continue with 100% FBT discount until 1 April 2029. EVs above $75,000 (up to LCT threshold): drop to a 25% FBT discount from this date.

From 1 April 2029

25% permanent

Implemented via 15% statutory rate

All eligible electric cars (up to LCT threshold) get a permanent 25% FBT discount. Existing arrangements keep their original rate for the life of the arrangement.

The arrangement-commencement date is the key planning point

All eligible electric cars retain the FBT discount rate that was in place when the arrangement commenced. That means a salary-packaged or company-provided EV with an arrangement starting before the relevant cutoff retains the more generous treatment for the life of the arrangement.

For EVs over $75,000, the cutoff is 1 April 2027 — arrangements commencing before then keep the 100% exemption permanently. For EVs under $75,000, the cutoff is 1 April 2029. Clients considering an EV novation should be aware of these dates well in advance.

If you claim R&D Tax Incentive

R&D Tax Incentive: more generous, but narrower

From 1 July 2028, the R&D Tax Incentive is being reformed. The headline offset rates go up meaningfully, but supporting activities are removed from eligibility — so the same business may get a higher rate on a smaller eligible base.

More generous

Where the changes help

Core R&D offset rate increased — for SMEs under $50M turnover, the offset becomes the corporate tax rate plus 23% (i.e. up to 48%), versus the current 18.5% premium
Refundable offset threshold raised — from $20M to $50M turnover, expanding access for growing businesses
Maximum spend cap increased — from $150M to $200M per year
Intensity threshold lowered — from 2% to 1.5%, qualifying more businesses for higher offset rates

More restrictive

Where the changes tighten

Supporting R&D activities removed from eligibility — only core R&D expenditure qualifies. Significant scope narrowing for many claimants
Refundability tied to age — refundable offset only for entities younger than 10 years. Older SMEs get a non-refundable equivalent
Minimum spend threshold raised — from $20,000 to $50,000, with smaller projects required to use a Research Service Provider
Net effect for an established small business may be similar or worse than today, depending on how much of their spend was on supporting activities

If you currently claim R&DTI, get a fresh assessment

The reform is part of the government’s response to the Ambitious Australia Strategic Examination of R&D. The intent is to redirect support away from claims that wouldn’t have happened anyway (often supporting activities) and towards genuine experimental R&D. For businesses with eligible core R&D, the higher rate is genuinely generous. For businesses where most claimed spend was supporting activities, the net effect could be worse.

Worth a review during 2027-28 to understand how your current claim pattern translates to the new framework.

Other items worth knowing

Smaller measures that may still affect you

Several measures sit alongside the headline changes — some directly relevant to specific industries, others administrative items worth flagging.

From 12 May 2026

Venture capital incentives expanded

VCLP investee asset size cap increased from $250M to $480M; ESVCLP cap from $50M to $80M. Maximum ESVCLP fund size lifted to $270M. Eligible venture capital investor program closed to new applications.

From 1 July 2025

Medicare levy thresholds up 2.9%

Routine annual increase. Singles threshold rises to $28,011. Family threshold $47,238. Over 1 million Australians on lower incomes will continue to be exempt or pay a reduced rate.

From 1 April 2026

Fuel excise temporarily halved

For three months from 1 April 2026, fuel excise drops from 52.6c to 20.6c per litre. Heavy vehicle road user charge reduced to zero. ATO also offering temporary tax relief (payment plans, interest remission) for businesses hit by fuel supply issues.

From 2026-27

Business register reforms (Tranche 2)

Director IDs to be linked to the Companies Register. Director information to be synchronised with the ACNC Charities Register. ABN authentication uplift. Administrative tightening rather than substantive change.

Now & ongoing

Small Business Debt Helpline extended

Funding extended for the Small Business Debt Helpline (financial counselling) and the NewAccess for Small Business Owners mental health coaching program. Free resources for business owners under financial pressure.

Watch this space

ATO compliance focus expanding

$86.3M over 4 years for ATO to strengthen the tax system against fraud, including expanded monitoring of tax agent activity. The ATO can now pause or waive debts of victims of agent fraud, and recover from the agent directly.

Worked example

Loss carry-back in practice

A small business hit by a single bad year that had been profitable previously. Showing how the new loss carry-back regime turns the year-3 loss into a refund of prior-year tax.

Greenway Trading Pty Ltd — small business client

Profitable 2026-27 and 2027-28, then a $150,000 loss in 2028-29

Greenway is a small business operating as a Pty Ltd company. Two strong years followed by a loss-making year due to a major customer leaving. Franking account has accumulated from tax paid on the earlier profits.

2026-27 taxable income $300,000

2026-27 company tax (25%) $75,000

2027-28 taxable income $280,000

2027-28 company tax (25%) $70,000

2028-29 tax loss ($150,000)

Loss carry-back refund (25% × $150,000) $37,500

Greenway gets a $37,500 refund of previously-paid company tax, applied against the franking account balance. Without loss carry-back, the $150,000 loss would have been carried forward against future profits — useful, but with no immediate cash flow benefit in the year the loss actually hit. The refund arrives when the business needs it most.

What you should do

Practical steps for the next 12 to 18 months

Most of these measures don’t need immediate action, but a few are worth thinking through in this year’s planning and equipment purchase decisions.

Plan equipment purchases around the $20,000 threshold

Permanence means no more end-of-year rushed decisions. But the threshold still matters: $19,990 = immediate deduction; $20,010 = pool depreciation. Worth being deliberate about timing and pricing where you can.

If you’re considering an EV novation — check the dates

For EVs over $75,000, the deadline to lock in the 100% exemption is 1 April 2027. For EVs up to $75,000, it’s 1 April 2029. Arrangements starting before those dates retain the more generous rate for the life of the arrangement.

If your company has had a bad year — check loss carry-back

If you incur a loss in 2026-27 or later and have paid company tax in the prior two years, you can now claim a cash refund. Subject to your franking account balance and revenue-loss-only rules.

If you claim R&DTI — rebuild your eligibility model

The supporting activities removal is the bigger story than the rate increase. Review your current claim composition during 2027-28 to understand the net impact when the reform starts in July 2028.

Consider monthly PAYG if cash flow is lumpy

Quarterly instalments don’t suit every business. From 1 July 2027 you can opt in to monthly. Worth considering if BAS deadlines routinely cause cash flow stress.

If you have a start-up in early years — check loss refundability eligibility

From 1 July 2028, start-up companies under $10M turnover in their first two years can convert tax losses into refundable offsets — capped at FBT and withholding paid for Australian employees. Useful for businesses with payroll but limited revenue.

The trust minimum tax is separate

If you run your business through a discretionary trust, the new 30% minimum trust tax from 1 July 2028 is a bigger consideration than any of the measures on this page. The small business measures here apply regardless of structure, but the trust changes affect how you take profits out. There’s a separate page covering the trust changes in detail.

Other Budget changes that might apply to you

Small business owners usually fit more than one of these

Most business owners also have personal investments, run their business through a trust, or have an SMSF. The full picture matters more than any single measure.

If this applies

I run a business through a trust

A 30% minimum tax on discretionary trusts from 1 July 2028, with rollover relief to restructure.

Read about trust changes If this applies

I have a Self-Managed Super Fund

Division 296 from 1 July 2026 affects balances over $3 million. Cost base reset planning before 30 June 2026.

Read about SMSF changes If this applies

I own (or am buying) an investment property

Negative gearing limited to new builds from 1 July 2027, plus the end of the 50% CGT discount.

Read about property changes If this applies

I hold shares or other investments

The 50% CGT discount is being replaced with indexation and a 30% minimum tax on real gains.

Read about CGT changes If this applies

I’m a PAYG employee

Two more rate cuts plus a $1,000 instant deduction and the new $250 Working Australians offset.

Read about employee changes If this applies

I’m retired or close to it

Private health insurance rebate cut for 65+, CGT changes, pension supplement updates.

Read about retirement changes

Structure, cashflow, compliance and tax — pulling in the same direction.

The Budget’s small business measures help, but they only work properly when integrated with your broader plan. We can model the impact for your specific business — structure, equipment decisions, succession, the lot — rather than treating each measure in isolation.

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