2026–27 Federal Budget Introduces Major Business Tax Changes
The 2026–27 Federal Budget has delivered a comprehensive business tax relief package aimed at helping Australian businesses navigate economic uncertainty while encouraging investment, innovation, and long-term growth.
The measures include a permanent extension of the instant asset write-off, changes to trust taxation, expanded start-up support, venture capital incentives, and significant research and development (R&D) reforms.
Here’s what business owners need to know.
Permanent $20,000 Instant Asset Write-Off Confirmed
Small businesses will benefit from the permanent extension of the $20,000 instant asset write-off for businesses with annual turnover of up to $10 million.
Previously, the threshold was scheduled to fall back to just $1,000 from 30 June 2026. The extension now provides ongoing certainty for businesses planning equipment purchases and expansion.
Key details:
- Eligible businesses can immediately deduct assets costing less than $20,000.
- Assets valued at $20,000 or more can continue to be allocated to the small business simplified depreciation pool.
- Pool deductions remain at 15% in the first year and 30% in subsequent years.
- Restrictions preventing businesses from re-entering the simplified depreciation regime after opting out remain suspended until 30 June 2027.
This measure is expected to improve cash flow and encourage continued investment in business assets and technology.
New 30% Minimum Tax for Trust Distributions
From 1 July 2028, discretionary trusts will be subject to a minimum 30% tax rate on taxable income.
While beneficiaries will receive non-refundable tax credits for tax paid by trustees, the reform could increase the effective tax burden for lower income beneficiaries who would otherwise pay less than 30% tax personally.
Additional support for restructuring
To assist affected businesses, the government will introduce expanded rollover relief for three years from 1 July 2027.
This will help discretionary trusts restructure into:
- Companies
- Fixed trusts
Business owners operating through family or discretionary trusts should review their structures well before the changes commence.
Loss Carry-Back Tax Relief Returns
From 1 July 2026, eligible companies with aggregated annual global turnover below $1 billion will again be able to carry back tax losses.
This allows businesses to offset current-year tax losses against taxes paid in previous profitable years, improving cash flow during difficult trading periods.
Important conditions:
- Applies only to revenue losses
- Limited by the company’s franking account balance
- Losses can be carried back up to two years
The reinstatement of this measure offers valuable support for businesses experiencing temporary downturns.
Expanded Tax Support for Start-Ups
New tax loss refundability provisions will support eligible start-up businesses from 1 July 2028.
Start-up companies with annual turnover below $10 million that incur tax losses during their first two years will be able to convert those losses into refundable tax offsets.
Refund limits
The refundable offset will be capped based on:
- Fringe Benefits Tax (FBT) paid
- PAYG withholding tax on wages paid to Australian employees
This measure is designed to improve early-stage cash flow and encourage entrepreneurship in Australia.
Venture Capital Incentives Increased
The Budget also includes significant increases to venture capital investment thresholds from 1 July 2027.
Updated investment caps include:
- Venture capital limited partnership (VCLP) investee asset cap increasing from:
- $250 million to $480 million
- Early-stage venture capital limited partnership (ESVCLP) asset cap increasing from:
- $50 million to $80 million
- Maximum ESVCLP fund size increasing from:
- $200 million to $270 million
These are the first major increases in more than 20 years and are intended to stimulate greater private investment in Australian businesses and innovation.
FBT Exemption Changes for Electric Vehicles
The Federal Budget confirmed proposed changes to the Fringe Benefits Tax (FBT) exemption for electric vehicles (EVs).
The current full exemption will gradually transition to a permanent 25% discount system from 1 April 2029.
What businesses need to know
No changes immediately
- No changes apply in the current FBT year ending 31 March 2027.
- EVs valued below $75,000 remain fully exempt until 1 April 2029.
Transitional changes for 2027–28 and 2028–29
- EVs under $75,000 continue receiving a full exemption.
- EVs above $75,000 but below the luxury car tax threshold will receive a 25% discount on payable FBT.
From 2029–30 onwards
- All eligible EVs below the luxury car tax threshold will receive a 25% FBT discount instead of a full exemption.
Businesses considering electric vehicle fleets should factor these upcoming changes into future purchasing decisions.
Major Research & Development Tax Incentive Reforms
Significant reforms to the Research and Development Tax Incentive (RDTI) will commence from 1 July 2028.
Key changes include:
- Core R&D offset rates increasing by 4.5 percentage points
- Intensity threshold reducing from 2% to 1.5%
- Turnover threshold for the highest offset rate increasing from:
- $20 million to $50 million
- Maximum eligible expenditure threshold increasing from:
- $150 million to $200 million
However, some restrictions will apply:
- Supporting R&D expenditure will no longer qualify
- Minimum expenditure threshold increases from:
- $20,000 to $50,000
These reforms aim to encourage larger-scale innovation investment while tightening eligibility rules.
Streamlined PAYG Tax Reporting for SMEs
From 1 July 2027, small and medium-sized businesses will be able to opt into monthly PAYG instalment reporting and payments.
The system will use ATO-approved calculations integrated into accounting software to better reflect real-time business activity and improve tax management.
This initiative is designed to simplify compliance and improve cash flow forecasting for businesses.
Professional Advice Is Essential
The 2026–27 Federal Budget introduces major business tax reforms that create both opportunities and risks for Australian businesses.
Because many of these measures interact with one another and commence at different times, strategic planning will be essential to maximise available tax concessions and minimise unintended tax consequences.
Businesses should seek professional advice to:
- Review current business structures
- Assess eligibility for concessions
- Plan future investments
- Optimise cash flow strategies
- Prepare for upcoming compliance changes
Contact our office to discuss how these reforms may affect your business and how you can take advantage of the available opportunities.