The 2026-27 federal budget landed on 12 May with some of the biggest tax reforms Australia’s seen in over 25 years. And if you’re a small business owner, a lot of it is for you.
Here at Australian Business Magazine, we’ve spent weeks reviewing the budget papers, Treasury factsheets, and expert commentary. That way, you won’t have to spend hours sorting through it all yourself.
This guide covers everything that affects your small business budget, including:
- The permanent $20,000 instant asset write-off
- Loss carry-back and startup refund changes
- Capital gains tax and trust tax reforms
- Cash flow and PAYG instalment updates
- Compliance cuts and mental health support
- A full timeline of when each change kicks in
Ready? Let’s get into it.
What Did the 2026 Federal Budget Announce for Small Businesses?
The 2026 Federal Budget, delivered on 12 May 2026, introduced a series of major tax and business reforms. Treasurer Jim Chalmers described it as the most important tax reform package in more than 25 years.
This budget combines stable relief for small business owners with reforms that won’t be fully implemented until 2028.
Here’s an overview of the federal budget tax changes announced:
- Permanent Instant Asset Write-Off: The $20,000 instant asset write-off is now permanent from 1 July 2026. Small businesses with a turnover under $10 million can immediately deduct eligible assets like vehicles, tools, and office equipment each financial year.
- Two-Year Loss Carry-Back Returns: Companies can now carry back tax losses and claim a refund against tax paid in the previous two income years. This change applies to businesses with aggregated annual global turnover under $1 billion, so it covers the vast majority of Australian companies.
- Startup Loss Refundability From 2028: From the 2028-29 financial year, startups in their first two years of operation can convert tax losses into a refundable tax offset. However, the refund is capped by the amount of fringe benefits tax and withholding tax paid on employee wages.
- Capital Gains Tax Overhaul From 2027: The 50% CGT discount gets replaced by an inflation-based indexation method from 1 July 2027. At the same time, a 30% minimum tax on net capital gains kicks in, which changes how business owners calculate gains on asset sales.
- 30 Per Cent Trust Minimum Tax: Discretionary trusts will pay a minimum tax rate of 30% on distributions from 1 July 2028. However, primary producers and fixed trusts won’t be affected. Businesses that want to restructure will also have a three-year relief period starting in July 2027.
- $250 Working Australians Tax Offset: Australian workers, including around 1.5 million sole traders, will get an ongoing annual tax cut of $250 from the 2027-28 financial year. It’s automatic and will reduce your tax bill at lodgement.
Honestly, that’s a lot to unpack, and most of these changes roll out over the next two to three years. We’re going deeper into them throughout our article, so keep reading.
How Does the $20,000 Instant Asset Write-Off Work Now?
The $20,000 instant asset write-off is now a permanent deduction for small businesses under $10 million turnover from 1 July 2026. The write-off had been extended temporarily year after year before this budget.
Since that uncertainty is gone now, you can plan equipment upgrades without watching for an expiry date. We’ll take a look at how these write-offs work in practice.
Eligible Assets and Turnover Threshold
Any new or second-hand asset under $20,000 qualifies if your aggregated annual turnover sits below $10 million. And this threshold applies per asset, rather than as a combined total. That covers vehicles, tools, office furniture, and business software, among other eligible assets.
Each item just needs to be first used or installed, ready for use within that income year (paperwork alone isn’t enough). For example, you could buy a $15,000 van, a $9,000 espresso machine, and a $4,500 laptop in the same financial year, and deduct all three in full.
Simplified Depreciation Pool for Larger Assets
Did you know that spending more than $20,000 on a single asset doesn’t mean you have to miss out on depreciation benefits? Assets valued at $20,000 or more get placed into the small business simplified depreciation pool instead of being written off immediately.
In that pool, you’ll claim a 15% deduction in the first year you start using the asset. Every year after that, the pool will depreciate at 30% on a diminishing value basis. While it’s not as quick as an instant write-off, it still gives you a larger deduction in the early years.
Growth Tip: Equipment purchases that improve productivity can generate returns long after the tax benefit has been claimed.
Re-Entry Suspension Until June 2027
The five-year re-entry lockout for the simplified depreciation regime will stay suspended until 30 June 2027. Normally, if you opted out of the simplified depreciation rules, you’d have to wait five years before you could use them again. But that lockout is currently on pause.
So if you left the regime a year or two ago, you can jump back in right now and start claiming instant write-offs on qualifying purchases. However, you should check with your accountant before the suspension window closes.
What Changed With Tax Loss Carry-Back and Startup Refunds?
The federal government permanently reintroduced a two-year loss carry-back for companies with a turnover of under $1 billion from 1 July 2026.
This measure originally appeared during COVID as a temporary lifeline. But now, it’s a permanent part of the tax system, and around 85,000 businesses are expected to benefit each year from it.
Below are the four parts of the loss carry-back and startup refund changes:
- Permanent Loss Carry-Back: If your company records a tax loss this financial year, you can carry it back and claim a refund against company tax paid in the previous two income years.
- Turnover Cap at $1 Billion: Only companies with an aggregated annual global turnover under $1 billion can use this measure. That’s a wide net, and most Australian small and medium businesses fall well under it.
- Startup Refundable Tax Offset: As we mentioned earlier, new companies in their first two years can convert tax losses into a refundable tax offset from the 2028-29 financial year. The refund is capped by fringe benefits tax and withholding tax paid on employee wages.
- Franking Account Balance Cap: Your carry-back refund can’t exceed your company’s franking account balance at the end of the income year. You can only get back what you’ve already paid in company tax.
As you can see, these changes give companies a real cash flow buffer during tough stretches, instead of forcing them to sit on tax losses for years before they become useful.
How Will Capital Gains Tax Reforms Affect Small Businesses?
Capital gains tax reforms will replace the 50% CGT discount with inflation-based cost base indexation from 1 July 2027. This is the biggest overhaul of the capital gains tax system in over two decades, which will affect anyone who holds assets through an individual structure, trust, or partnership.
Let’s get into more detail about the three main CGT changes that work for small businesses.
Indexation Replaces the 50 Per Cent Capital Gains Tax Discount
From 1 July 2027, investors will pay tax only on real capital gains after adjusting the cost base for inflation. Under the old system, you’d simply halve the gain if you held the asset for 12 months or more. But sadly, that flat 50% discount is gone.
The new method works like the pre-1999 indexation approach. Your cost base gets adjusted each year upward based on the consumer price index (CPI), so you’re only taxed on the portion of the gain that exceeds inflation.
That said, investors in new residential builds can still choose the 50% discount if it gives them a better result.
30 Per Cent Minimum Tax on Capital Gains
Even with indexation reducing your taxable gain, you’ll still owe at least 30% tax on any net capital gain. This minimum rate applies to individuals, trusts, and partnerships from 1 July 2027. It also covers pre-1985 assets, which were previously CGT-free.
However, only gains that accrue after 1 July 2027 get taxed under the new rules. So if you bought a commercial property in 1990 and sold it in 2029, the gain built up before July 2027 will still be taxed under the old rules.
Existing Small Business CGT Concessions
If you’re planning to sell your business, the existing small business CGT concessions aren’t going anywhere. The federal government confirmed that all four concessions will stay in place, including the 15-year exemption, the 50% active asset reduction, the retirement exemption, and the rollover provision.
This decision gives business owners greater certainty when planning a business sale or ownership transfer, because the concessions will continue to operate under the current rules.
Pro Tip: You should review your financial position with your accountant. The trust and CGT changes together could change how you structure the deal.
What Does the Trust Tax Mean for Small Business Owners?
A 30% minimum tax on discretionary trust distributions takes effect from 1 July 2028.
Currently, trustees can split income among beneficiaries at lower marginal tax rates. But under the new rules, the trustee pays 30% tax on the trust’s taxable income, and beneficiaries receive non-refundable credits for that amount.
The table here includes a breakdown of how the trust tax changes will work:
| Detail | What It Means |
| Minimum tax rate | 30% on the taxable income of discretionary trusts from 1 July 2028 |
| Who pays | The trustee pays the minimum tax, not individual beneficiaries |
| Beneficiary credits | Non-refundable tax credits issued to non-corporate beneficiaries for the tax the trustee paid |
| Exemptions | Primary production income, fixed trusts, widely held trusts, complying super funds, special disability trusts, deceased estates, and charitable trusts |
| Rollover relief | 3 years from 1 July 2027 for restructuring into a company or fixed trust, with relief from CGT and income tax consequences |
| Who isn’t affected | Around half of discretionary trusts already distributing at 30%+ marginal rates won’t see any change |
| Support available | Australian Small Business and Family Enterprise Ombudsman available from 1 January 2027 to help with restructuring advice |
If your business runs through a discretionary trust and you’re distributing income to beneficiaries on lower tax rates, this change will affect you directly. Specifically, the income splitting advantage that’s been available for decades will be massively reduced from July 2028.
That said, you’ve still got time, since the three-year rollover relief window will open on 1 July 2027. That gives you until June 2030 to move into a company or fixed trust without facing capital gains tax or other income tax consequences.
And if you’re considering a restructure, it’s worth starting those conversations with your accountant now rather than waiting until the deadline.
What Investment and Cash Flow Support Did the Budget Include?
The budget introduced four measures to help small and medium businesses manage cash flow and invest in growth. The package includes more flexible PAYG instalments, payday super, ATO-approved tax tools, and expanded venture capital and R&D incentives.
We’ll explain these measures now.
Monthly PAYG Instalment Flexibility
If you’ve ever paid a PAYG instalment that didn’t reflect your actual income, this change is for you. From 1 July 2027, small and medium businesses can opt into monthly PAYG instalments instead of quarterly ones.
In fact, the Australian Taxation Office (ATO) is building approved calculators into accounting software to help businesses work out PAYG instalments using real trading figures. PAYG payments should then more closely match actual income. It could make cash flow easier to manage and reduce the chances of paying too much tax upfront.
That’s a real improvement to cash flow for businesses with seasonal or uneven revenue.
Payday Super From July 2026
Did you know that employers must start paying super at the same time as employee wages from 1 July 2026? The change is already law and will replace the current quarterly payment system (manual payroll processes may become harder to manage now).
The ATO will monitor this compliance through Single Touch Payroll data from day one. There’s a seven-business-day window to get each payment to the fund after payday.
So if you’re still using manual processes or the old Small Business Superannuation Clearing House, now’s the time to switch. Audit your payroll systems and business software before the end of June.
ATO-Approved Calculators in Accounting Software
Alongside monthly PAYG, the ATO is also rolling out approved calculators built into accounting software. The office’s dynamic instalments pilot will allow businesses to vary their PAYG instalments based on actual performance rather than estimates.
Providers like Xero and MYOB are expected to build compliant calculators ahead of the July 2027 rollout. Once live, these tools will help you manage cash flow by matching your tax payments to what your business is actually earning. It’ll remove uncertainties from instalment calculations and reduce the risk of overpaying.
Compliance Note: Businesses remain responsible for the accuracy of their records, even when approved software performs the calculations.
Venture Capital and R&D Incentive Changes
Venture capital tax incentives will expand from 1 July 2027. The changes will increase several investment caps to reflect the higher valuations that many growing companies now attract.
For example, the Early Stage Venture Capital Limited Partnership (ESVCLP) investee asset cap at the time of investment will rise from $50 million to $80 million. Meanwhile, the tax incentive cap for fully tax-exempt returns will increase from $250 million to $420 million.
Not only that, but the maximum ESVCLP fund size will also increase from $200 million to $270 million. In addition, changes to the R&D tax incentive will take effect from 1 July 2028.
Under the new rules, the tax offset for eligible core R&D activities will increase, with rates ranging from 25% to 50% depending on the business and activity.
Young businesses under 10 years old will also get access to the higher refundable offset as they grow.
What Compliance and Red Tape Cuts Did the Budget Include?
The budget included six measures aimed at reducing compliance costs and administrative burden for businesses. These measures cover Australian Standards, tariffs, payroll tax administration, migrant skills recognition, digital government services, and electric vehicle tax concessions.
Here’s an overview of the changes announced in the 2026 federal budget:
- Free Australian Standards Access: Mandatory Australian Standards covering construction, work health and safety, and product safety are now available online at no cost. Businesses previously had to pay for access to many of these documents.
- 497 Nuisance Tariffs Removed: From 1 July 2026, the federal government will abolish 497 nuisance tariffs. The change applies to around $23 billion worth of imports and is expected to reduce compliance costs.
- Payroll Tax Administration Reforms: A joint federal and state initiative will simplify payroll tax administration. The reforms aim to reduce duplicate reporting requirements and improve consistency across jurisdictions.
- Faster Migrant Skills Recognition: Additional funding will support quicker skills assessments for migrant trades workers. Businesses may gain faster access to qualified workers in areas facing labour shortages.
- Digital ID and Tell-Us-Once Services: New government services will reduce paperwork across agencies. Business owners will be able to share information once instead of submitting the same details multiple times.
- Electric Vehicle FBT Changes: Eligible electric vehicles valued at up to $75,000 will retain the full FBT exemption until 1 April 2029. Existing arrangements that began before 1 April 2027 will remain grandfathered.
In combination, the reforms point to greater alignment between digital systems and regulatory obligations.
What Mental Health and Financial Support Is Available?
Small business owners can access two government-funded support services: NewAccess for mental health coaching and the Small Business Debt Helpline for financial counselling. The federal government has extended funding for both programs until 30 June 2027 as part of an $8 million business support package.
Let’s find out what each program offers and how to access it.
NewAccess for Small Business Owners
You don’t need a GP referral or a mental health plan to access this program. NewAccess is a free, confidential mental health coaching service built specifically for small business owners. It’s been extended to 30 June 2027 under the new budget funding.
NewAccess connects you with a trained coach over six sessions. Each session focuses on practical strategies for managing stress, worry, and the kind of pressure that comes with keeping a business running.
You can self-refer online or by phone, and your conversations will stay between you and your coach. It’s one of those services a lot of business owners don’t know exists until someone mentions it (despite being available for years).
Small Business Debt Helpline
The Small Business Debt Helpline provides free financial counselling for business owners under financial pressure. It’s also been extended through to 30 June 2027 as part of the same $8 million funding package.
The helpline puts you in touch with qualified financial counsellors. They can help you work through tax obligations, manage cash flow problems, and figure out your options when debts start stacking up.
And the best thing about this program is that it’s not only for businesses on the verge of closing. A lot of owners call when they’re still afloat but can feel things tightening.
Valuable Reminder: The earlier a business owner understands their financial position, the more opportunities they usually have to improve it.
When Do These 2026 Budget Changes Take Effect?
The 11 budget measures will take effect in stages across three key dates: July 2026, July 2027, and July 2028. Most of the changes still need to pass Parliament before they become law. Payday super, however, is the main exception, as it has already been legislated.
See the table below for details on each measure.
| Measure | Start Date | Who It Applies To | Legislation Needed? |
| $20,000 instant asset write-off (permanent) | 1 July 2026 | Businesses under $10m turnover | Yes |
| Two-year loss carry-back | 1 July 2026 | Companies under $1bn turnover | Yes |
| Payday super | 1 July 2026 | All employers | Already passed |
| EV fringe benefits tax changes | 1 April 2027 (phased) | Employers providing EVs | Yes |
| Monthly PAYG flexibility | 1 July 2027 | Small and medium businesses | Yes |
| CGT indexation replaces 50% discount | 1 July 2027 | Individuals, trusts, partnerships | Yes |
| Venture capital incentive expansion | 1 July 2027 | VCLPs and ESVCLPs | Yes |
| Working Australians Tax Offset ($250) | 2027–28 FY | Workers incl. sole traders | Yes |
| 30% minimum tax on discretionary trusts | 1 July 2028 | Discretionary trusts | Yes |
| Startup loss refundability | 2028–29 FY | Startups under $10m, first 2 years | Yes |
| R&D Tax Incentive reforms | 1 July 2028 | R&D claimants | Yes |
The July 2026 changes are the ones you need to focus on first. For instance, if you haven’t updated your payroll software for payday super, now’s the time to do it. You can also take your time with eligible equipment purchases under $20,000, as the instant asset write-off is now permanent.
And for the July 2027 and 2028 changes, you’ve got breathing room (but “breathing room” doesn’t mean “ignore it”). In particular, the CGT and trust reforms could affect how you structure your asset sales, business ownership, and succession planning.
That’s why we strongly recommend reviewing your financial plan with your accountant as early as you can.
It’s also worth noting that budget announcements aren’t law until Parliament passes them. While the instant asset write-off and loss carry-back are unlikely to face opposition, the trust and CGT reforms could attract major debate.
So, it’s a good idea to keep an eye on how the legislation progresses over the next 12 months.
What Actions Should Business Owners Take Now?
The 2026 federal budget includes a mix of measures designed to support small businesses through tax relief, compliance reductions, and long-term structural reforms. Some changes are already live, and others won’t hit until 2028, but they’ll create budget winners and losers across different sectors.
Either way, the time to plan is now. The July 2026 changes should be your immediate focus. Make sure your payroll systems are ready for the Payday Super, and keep the permanent $20,000 instant asset write-off in mind when planning future equipment purchases.
For more guides on running and growing a business in Australia, check out our other articles.
Frequently Asked Questions (FAQs)
Here are answers to a few common questions that business owners and startup founders often ask when planning for the years ahead.
How Can Small Businesses Improve Business Cash Flow?
Business cash flow often improves when owners:
- Separate fixed costs from variable costs
- Review one-off costs
- Avoid relying on a business loan for routine expenses.
These small changes can have a significant impact over time.
Why Is Venture Capital Investment Important for Startups?
Venture capital investment can help support early-stage companies that may struggle to secure traditional funding. Measures that facilitate venture capital investment can also improve access to funding across high-growth sectors.
What Should Businesses Know About Development Tax Incentives?
Development tax incentive programs encourage businesses to invest in new products, technology, and innovation. Eligibility rules vary across programs and may require businesses to meet criteria like approved R&D activity, investment type, or size-based thresholds.
How Do Tax Years Commencing on Different Dates Affect Planning?
Some tax measures apply only to specific tax years commencing after a certain date. So careful review of commencement dates can guide decisions on asset purchases, R&D expenditure, and other transactions. These decisions will ensure that activities fall within the eligible period for tax benefits.
