Not every Budget change is about CGT and trusts
The 2026-27 Federal Budget includes several measures that are directly relevant to small business owners, companies, partnerships, sole traders and start-ups. While the CGT and trust changes have attracted much of the attention, there are also measures aimed at deductions, depreciation, business losses, PAYG instalments and innovation.
For many small businesses, these changes may have a more immediate cash-flow impact than the larger structural tax reforms.
The $20,000 instant asset write-off becomes permanent
From 1 July 2026, the Government proposes to make the $20,000 instant asset write-off permanent for small businesses with aggregated turnover of less than $10 million. The ATO notes that this measure is not yet law, but if enacted, eligible businesses will be able to immediately deduct the full cost of eligible depreciating assets costing less than $20,000, provided the asset is first used or installed ready for use in the relevant income year.
This is a welcome change because the instant asset write-off has often been extended temporarily, creating uncertainty for business owners. Making the threshold permanent should make it easier for businesses to plan asset purchases, rather than waiting each year to see whether the measure will be extended again.
The $20,000 threshold applies on a per-asset basis. This means a business may be able to immediately deduct multiple assets in the same year, provided each eligible asset costs less than $20,000. For example, a business may buy several laptops, tools, pieces of equipment or items of office furniture and claim an immediate deduction for each item, as long as each asset is below the threshold and the usual deduction rules are satisfied. The threshold is not applied to the total invoice amount simply because the assets are purchased together.
However, businesses need to be careful where several items are bought as a package, set or system. The key question is whether each item is genuinely a separate depreciating asset, or whether the items together form one larger composite asset. The ATO’s guidance on composite assets says this is a question of fact and degree. Relevant factors include whether each item has its own identifiable function and commercial value, how physically or functionally integrated the items are, and whether the items were purchased to operate together as one system.
This can make a real difference. If the items are separate assets, the $20,000 threshold may apply to each item individually. If the items are better characterised as one integrated asset or system, the cost of the whole asset may need to be tested against the $20,000 threshold. For example, the ATO gives an example of a desktop computer package consisting of a desktop computer, monitor, wireless keyboard and mouse being treated as a single depreciating asset when purchased to function together as one integrated system.
The practical point for small businesses is not to assume that a bundled purchase can always be split into separate items for the instant asset write-off. Equally, do not assume that everything on one invoice must be treated as one asset. The treatment depends on what has actually been purchased and how the items function in the business.
Businesses should also remember that an instant write-off is not a cash rebate. The business still needs to fund the purchase. The deduction reduces taxable income, which may reduce tax payable, but it does not make the asset free. For example, if a company purchased a new computer for $3,000.00 this would reduce any tax payable by $750.00 ($3,000 * 25% “base rate” company tax rate). If the business is registered for GST and entitled to claim the full GST credit, the instant asset write-off threshold is generally applied to the GST-exclusive cost. If the business is not registered for GST, the GST-inclusive cost is relevant.
Timing also matters: the asset is only immediately deductible in the income year it is first used, or installed ready for use, for a taxable purpose – for example, a vehicle generally qualifies when it has been delivered and is ready for business use, not when it was merely ordered.
The new $1,000 instant tax deduction
From the 2026-27 income tax year, the Government will introduce an instant tax deduction of up to $1,000 for Australian tax residents who earn income from work. Eligible taxpayers will not need to itemise work-related expenses if claiming less than $1,000. Those with work-related expenses above $1,000 can still claim deductions in the usual way. Charitable donations, union fees, professional association fees and other non-work-related deductions can still be claimed separately.
For small business owners, the main point is that this is an individual-level deduction, not a new $1,000 deduction for every company, trust or partnership. Sole traders and working business owners should check how the final rules apply to their circumstances, particularly where they earn both employment income and business income.
It should also not replace proper record keeping for business expenses. Businesses still need evidence for deductions claimed by the business entity.
Loss carry-back returns for companies
The Budget also proposes to reintroduce loss carry-back rules for companies. For tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid up to two years earlier. The loss carry-back will apply to revenue losses only and will be limited by the company’s franking account balance.
This may be valuable for companies that have a profitable year followed by a downturn, expansion cost, temporary shock or major investment period. Instead of waiting to use the loss against future profits, the company may be able to access a refund of tax previously paid.
This measure is particularly relevant to trading companies, but less useful for businesses operated through trusts, partnerships or sole trader structures.
Support for start-up companies
From tax years commencing on or after 1 July 2028, start-up companies with aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to use that loss to generate a refundable tax offset. The offset will be limited to the value of FBT and PAYG withholding on wages paid to Australian employees in the loss year.
This measure is aimed at start-ups that are investing, employing staff and building capacity before they become profitable. It may be especially relevant for technology, research, product development and early-stage growth companies.
The limitation is important: the refund is linked to employment taxes paid. A start-up with no Australian employees may receive little or no benefit.
PAYG instalments and real-time cash flow
From 1 July 2027, small and medium businesses will be able to opt in to monthly PAYG instalment reporting and payment, and use ATO-approved calculations embedded in accounting software to calculate and vary instalments. The aim is to help instalments better reflect real-time business activity. Taxpayers with a demonstrated history of non-compliance will be required to report and pay PAYG instalments monthly.
For businesses with fluctuating income, this could be useful. Quarterly PAYG instalments can sometimes lag behind the reality of the business. A more dynamic system may help reduce overpayment in slower periods and reduce surprises in stronger periods.
R&D and venture capital measures
Innovation-focused businesses should also review the research and development (R&D) and venture capital changes. From 1 July 2028, the Government proposes changes to the Research and Development Tax Incentive, including increasing the offset for core R&D expenditure, reducing the intensity threshold from 2% to 1.5%, increasing the turnover threshold for the highest offset rate from $20 million to $50 million, and raising the maximum R&D expenditure threshold from $150 million to $200 million.
From 1 July 2027, the Government also proposes to expand venture capital tax incentives, including increasing the investee asset caps for VCLPs and ESVCLPs and increasing the maximum fund size for ESVCLPs.
These measures will not affect every small business, but they may be important for start-ups, high-growth companies and businesses seeking external investment.
The practical takeaway
The practical message is to plan purchases, structure and cash flow together. The permanent $20,000 instant asset write-off may support equipment investment from 1 July 2026. The $1,000 instant tax deduction may simplify individual tax returns. Company loss carry-back and start-up loss refundability may improve cash flow. PAYG changes may help businesses better match tax payments to trading conditions.
Small business owners should review these measures before making major purchases, changing structure or finalising investment plans. The best results will come from matching the tax opportunity to a genuine commercial decision.
Note: The changes discussed in this article are proposed Budget measures only. At the time of publishing, they still need to pass through Parliament before becoming law.
