Key Budget-Driven Changes Hitting Businesses
Australia’s 2026-27 Budget introduced several changes that businesses—especially small and growing companies—should know in relation to structure, deductions, and cash-flow:
- Instant Asset Write-off of $20,000 permanently extended from 1 July 2026 for eligible small businesses to boost investment and cash flow. (budget.gov.au)
- Loss-refundability expanded. Companies with turnover up to $1 billion will be able to use current year tax losses to claim a refund for tax paid in the prior year—helping to smooth cash flow, especially for growing concerns. (budget.gov.au)
- Changes to R&D incentives from 1 July 2028: Increased refundable offsets for young firms, higher expenditure caps, stricter eligibility thresholds, and a focus on “core R&D”. (budget.gov.au)
Choosing Your Entity Structure with New Incentives
- Sole Trader vs Company: If you’re under the $1 billion turnover threshold, structuring as a company offers advantage because business losses can generate refunds and the instant write-off applies. However, liability and compliance burdens still need assessment.
- Trusts: With the introduction of a minimum 30% tax on discretionary trusts (from 2028-29), trusts lose some flexibility in distributing income to low-rate beneficiaries. Be sure to evaluate distributions vs individual income structures now.
- R&D Entities: If you’re an early-stage or fast-growing firm, the R&D changes provide benefits especially if you invest heavily and plan to scale. But core R&D must meet stricter expenditure and intensity thresholds; plan projects accordingly.
Practical Steps for New and Existing Businesses
- Asset purchasing: If you’re considering upgrades or equipment purchases, aim to stay under $20,000 to use write-off immediately. Bulk purchases may need splitting or reassessing component value.
- Tax loss management: Businesses with fluctuating profits should model loss refundability vs carry-forward losses. If eligible, a refund in the prior year could improve liquidity.
- Entity review timeline: With significant trust, CGT and negative gearing reforms coming, business owners should conduct entity structuring reviews before reforms take effect (from 1 July 2027 or 2028). Seek valuations where needed.
Example Scenario
Let’s say Alex runs a small tech firm with $20 million turnover and wants to buy new computers & machinery costing $50,000 in June 2026.
- He could pay $20,000 in that year under instant asset write-off and depreciate the rest under normal depreciation rules.
- If the business makes a loss in 2026-27 but had profits in 2025-26, it may be able to get a refund on taxes paid in 2025-26 (if eligible, under new loss-refundability rules). Planning is critical.
- If Alex uses a trust structure, the forthcoming minimum 30% tax should be considered, especially if income is distributed to family members at low rates.
Final Thoughts
The Budget opens up new structuring possibilities with incentives but also carries substantial regulatory reform.
- Make entity decisions early—well before 1 July 2027 or 1 July 2028 depending on measure.
- Sketch out cash-flow models that incorporate loss refunds and write-offs.
- Monitor legislative drafts and ATO rulings to stay compliant with new R&D requirements and trust tax provisions.