The Federal Budget 2026, handed down on 12 May, is one of the most consequential in recent memory, particularly for small and medium business owners. From permanent tax certainty on assets and losses to sweeping changes in how trusts and capital gains are taxed, this federal budget 2026 summary covers the reforms that reshape your planning landscape from 1 July 2026 onwards.
Here are the 10 takeaways that matter most if you run an SME in Australia.
1. The $20,000 Instant Asset Write-Off Is Now Permanent
From 1 July 2026, the $20,000 instant asset write-off is locked in permanently for businesses with an annual turnover under $10 million. No more waiting on Budget night to see if it has been extended for another year. If you need a new piece of equipment, vehicle, or technology, you can write it off immediately rather than depreciating it over several years.
Assets at $20,000 or above can still be placed in the small business simplified depreciation pool. The rule preventing businesses from re-entering the pool for five years after opting out remains suspended until 30 June 2027.
Why it matters: Consistent, predictable rules let you plan capital expenditure with confidence.
2. Loss Carry-Back Is Back, and It's Permanent
From 1 July 2026, companies with a global annual turnover under $1 billion can carry back a tax loss and offset it against tax paid in the prior two years, and receive that tax back as cash. This is limited to the company’s franking account balance, and applies to revenue losses only.
For start-ups with turnover under $10 million, a separate loss refundability measure launches from 1 July 2028: if the company is in a loss position in its first two years, it can claim a refundable offset capped at the FBT and PAYG withholding paid through payroll for Australian employees in that year.
Why it matters: If your business has had a tough year after profitable ones, this federal budget Australia measure provides genuine cash flow relief without having to wait for future profits to absorb the loss.
3. Capital Gains Tax: The CGT Discount Is Being Replaced
The federal budget 2026 capital gains tax changes are among the most significant in a generation. The 50% CGT discount, a cornerstone of Australian investment planning since 1999, will be replaced by cost base indexation for assets sold after 1 July 2027. A 30% minimum tax will also apply to net capital gains from that date, for assets held by individuals, trusts, and partnerships.
Gains realised before 1 July 2027 retain the existing 50% discount. Investors in new residential property can choose between the discount and indexation going forward.
Why it matters: If you are planning to sell a business, property, or investment asset, the timing of that sale now carries significant tax consequences. Get advice well before 1 July 2027.
Also read: Small Business Capital Gains Tax Concessions in Australia: Complete Guide for 2026 — the existing small business CGT concessions remain intact under this budget, and understanding how they interact with the new rules could significantly reduce what you owe.
4. Pre-1985 Assets Will Enter the CGT Net for the First Time
One of the bigger surprises in the federal budget 2026 summary was the treatment of pre-CGT assets. Assets acquired before 20 September 1985, those which have never been subject to CGT, will be brought into the tax system from 1 July 2027. Gains on these assets accruing from that date will be taxable.
Owners have two options: sell before 1 July 2027 to crystallise an untaxed gain, or obtain a market valuation of the asset as at 1 July 2027, so that only post-that-date gains are assessable.
Why it matters: Many family businesses and long-held properties fall into this category. A formal valuation now could save significant tax later.
5. Discretionary Trusts Face a 30% Minimum Distribution Tax
From 1 July 2028, trustees of discretionary trusts will be required to pay a minimum 30% tax on distributions. The trustee collects and remits this tax, and eligible beneficiaries receive a non-refundable credit.
Excluded from this measure: fixed trusts, widely held trusts, SMSFs, special disability trusts, deceased estates, charitable trusts, and primary production income. To support restructuring, rollover relief is available for three years from 1 July 2027 for businesses that want to move from a discretionary trust into a company or fixed trust structure.
Why it matters: Many SMEs use discretionary trusts for income splitting and succession planning. This federal budget Australia change fundamentally alters the economics of that structure. Beneficiaries with non-trust income below $45,000 will be most affected and may need their arrangements reviewed before 2028.
6. Negative Gearing Restricted to New Builds From 1 July 2027
From 1 July 2027, negative gearing deductions will only be available for new residential builds. Losses on established investment properties purchased after that date can only be offset against rental income or capital gains from residential property; they cannot be offset against wages or other income. Excess losses can be carried forward.
Existing negatively geared properties and those under contract but not yet settled are protected under current rules until sold.
Why it matters: If property investment forms part of your business or personal wealth strategy, this changes the calculus significantly, particularly for SME owners who currently offset rental losses against business income.
7. EV Incentive Changes: The FBT Exemption Is Being Wound Back
The federal budget EV incentive changes will affect businesses using electric vehicles through fleets, salary packaging, or novated leasing. The full FBT exemption for EVs is being phased out. Up to 1 April 2029, new novated leases on EVs valued at $75,000 or under can still access the full exemption. After that date, EVs under the luxury car tax threshold receive a permanent 25% FBT discount – via a 15% statutory formula rate – rather than a full exemption. Existing novated leases are not affected.
Why it matters: If EVs are part of your salary packaging or fleet strategy, now is the time to act, particularly for higher-value vehicles where the economics change materially after April 2029.
8. Monthly PAYG Flexibility for Small and Medium Businesses
From 1 July 2027, small and medium businesses can opt in to reporting and paying PAYG instalments monthly, using an ATO-approved calculation embedded directly in accounting software. This gives businesses a real-time view of their tax position rather than managing quarterly surprises.
Why it matters: Better cash flow visibility and reduced end-of-year instalment shocks – especially valuable for businesses with variable or seasonal revenue.
9. A $250 Tax Offset for Working Australians, Including Sole Traders
Among the Australian federal budget tax cuts in this year’s package, sole traders get one of the most direct wins. From the 2027–28 income year, a permanent $250 Working Australians Tax Offset applies to income from work, including wages, salaries, and the business income of sole traders. This is a new measure, distinct from the previously announced standard deduction. Depending on your business structure and income mix, how this offset interacts with your overall tax position is worth reviewing with your adviser.
Why it matters: Modest but meaningful relief for sole trader business owners – one of the few federal budget Australia measures that applies directly to the self-employed.
10. Small Business CGT Concessions Are Preserved
Amid all the Australian federal budget 2026 capital gains tax changes, the existing small business CGT concessions remain intact. Eligible small businesses can still halve or completely disregard CGT on the sale of qualifying active assets. This is a critical relief measure for business owners approaching retirement or succession.
Why it matters: For many SME owners, their business is their retirement fund. The preservation of these concessions provides meaningful protection, though the surrounding changes on trusts and CGT still warrant a close review of your ownership structure before the 2027 deadlines arrive.
Federal Budget Australia: Key Dates at a Glance
- 1 July 2026: Permanent instant asset write-off and loss carry-back take effect
- 1 July 2027: CGT discount replaced by indexation; pre-CGT assets enter the tax net; negative gearing restricted to new builds; rollover relief window opens for trust restructuring
- 1 July 2027: Monthly PAYG opt-in commences
- 1 July 2028: 30% minimum trust distribution tax begins; R&D incentive reforms; start-up loss refundability launches
- 1 April 2029: Full EV FBT exemption ends; 25% discount applies thereafter
Disclaimer: Several measures in this federal budget 2026 summary are contingent on legislation passing Parliament and may become contested policy settings depending on the outcome of the next federal election. Speak to your accountant or adviser before making structural or investment decisions based on these announcements.
Need help working through what this means for your business? Get in touch with the Befree team.