Federal Budget 2026: Key Business Tax Measures in Focus
The 12 May 2026 Federal Budget introduced a range of targeted measures aimed at supporting business cash flow, innovation and investment.
These changes have practical implications for SMEs, start-ups and growing businesses. As with many Budget announcements, the measures are high-level and not yet law, and further detail will be critical in understanding how they apply.
Below is our practical breakdown of what’s been announced and what it may mean.
1. Loss Carry-Back Offset
For tax years from 1 July 2026 onwards, eligible companies will be able to carry back losses and offset them against tax paid up to two years earlier, generating a refundable tax offset. The measure is limited to revenue losses and capped by a company’s franking account balance.
For businesses moving from profit to loss, this effectively converts losses into immediate cash refunds. However, integrity rules apply and not all entities (such as trusts) can access the measure.
2. Loss Refundability for Start-Ups
For tax years from 1 July 2028 onwards, start-ups with turnover under $10 million will be able to convert losses from their first two years into a refundable tax offset, capped by payroll-related taxes paid (e.g., PAYG withholding and FBT).
While detail is limited, this could significantly improve outcomes for high-growth and early-stage businesses.
3. Instant Asset Write-Off
The Government will permanently extend the $20,000 instant asset write-off for small businesses with turnover up to $10 million from 1 July 2026. Eligible businesses will be able to immediately deduct the cost of certain depreciating assets, rather than claiming deductions over multiple years.
The continuation of simplified depreciation arrangements provides a degree of certainty for small businesses planning capital expenditure. Timing of asset purchases will continue to be critical in maximising the benefit.
4. Dynamic PAYG Instalments
From 1 July 2027, small and medium businesses will be able to opt into more dynamic PAYG instalments, with calculations integrated into accounting software. Under the Budget proposal, PAYG instalments will become more “dynamic”, meaning they will be calculated based on your current, real‑time performance, rather than relying heavily on historical data.
This will be done through:
- Integration with accounting software
- ATO‑approved calculation methods
- Option to report and pay monthly instead of quarterly
Businesses with a history of non-compliance (e.g. underpaid PAYG Instalments, late lodgements or payments, etc) may be required to transition to this monthly reporting.
5. R&D Tax Incentive
For tax years from 1 July 2028 onwards, the R&D Tax Incentive will be refined to target core innovation activities. Most prominently, refundable offsets will be denied to companies which are more than 10 years old, with the offset instead taking the form of a non-refundable offset which can reduce tax payable to nil (but not create a refund for the company). However, the turnover threshold to qualify for a refundable offset will increase from $20 million to $50 million.
There also will be other technical adjustments made as part of the claim process.
For businesses claiming the incentive, this reinforces the need for strong documentation and clear linkage between activities and eligible expenditure.
Short-term actions:
- Review eligibility for loss carry-back opportunities
- Assess utilisation of carried-forward losses for companies and start-ups
- Plan capital expenditure to maximise write-offs
- Monitor PAYG instalments
- Review current R&D claims and documentation
Medium-term actions:
- Model cash flow impacts of loss carry-back and PAYG changes
- Plan asset acquisition strategies around threshold levels
- Review ownership and funding structures for start-ups
- Strengthen internal reporting to manage dynamic instalments
- Prepare for increased scrutiny on R&D claims
Final Thoughts
Given the significant tax burden added to small business because of the changes to Capital Gains Tax (CGT) and the taxation of trusts also announced in this Budget, we are disappointed at this low level of support for small business. However, some clients will be advantaged by these changes.
Now is the time to review your current position, model the potential impacts, and ensure you’re positioned to take advantage of these measures as they evolve.