On Tuesday 12 May 2026 the Treasurer Jim Chalmers handed down the 2026-27 Federal Budget, framing some of the more significant announcements as part of a broader plan to help young Australians access the property market.
While acknowledging that the key to housing affordability is supply, the Government clearly sees changes to negative gearing and the capital gains tax (CGT) discount as being important pieces in the housing affordability puzzle.
The Government has called this its most ambitious budget and if the proposed measures are implemented, the impact will be felt directly by a wide cross-section of Australian society, including individual taxpayers, investors, businesses, employers and those suffering from a disability.
The year’s budget has been released against a backdrop of significant economic challenges, including global fuel price shocks, persistent inflation, rising interest rates and growing concerns around housing affordability. These themes are reflected in the measures that have been announced by the Treasurer.
While the Government has announced some significant changes to the tax system, the superannuation system looks to have been left alone this year.
Key initiatives include:
Instant asset write-off
Start date: 1 July 2026
The Government has announced that the cost threshold for the purpose of applying the instant asset write-off for small business entities will be permanently increased to $20,000 from 1 July 2026.
The instant asset write-off allows eligible small business entities with aggregated turnover of less than $10 million to claim an immediate deduction for the full cost of depreciating assets which cost less than a specified dollar threshold. While the default threshold is $1,000, higher temporary thresholds have been implemented on a year-to year basis since 2015, often leading to confusion and uncertainty.
A permanent increase in the cost threshold to $20,000 should be welcome news to small business taxpayers who will have a greater level of confidence when it comes to investing in new plant or equipment or upgrading business assets. If you’re unsure whether an asset qualifies or how to structure the purchase, our SME accounting services can help you plan asset acquisitions to make the most of the instant write-off from 1 July 2026.
In order to qualify for the immediate deduction, the cost of the asset must be less than $20,000, after subtracting any GST credits that can be claimed.
The cost threshold applies on an asset-by-asset basis, so an immediate deduction could potentially apply to multiple assets that are purchased for less than $20,000 in a particular income year, even if the aggregated cost of those assets is $20,000 or more.
Assets that cost $20,000 or more can continue to be added to a small business pool.
Just a quick reminder, the threshold for the current income year that ends on 30 June 2026 had already been increased to $20,000.
Resources
Backing small businesses to grow, compete and build resilience
FBT on electric cars
Start date: 1 April 2027
On 5 May 2026 the Government announced that the FBT exemption for electric cars would be gradually scaled back over the next few years.
The FBT exemption for electric cars was introduced in the 2022-23 income year as part of a broader initiative to reduce the cost of electric vehicles and increase uptake.
While the exemption has been phased out for plug-in hybrid electric vehicles from 1 April 2025 (with pre-existing arrangements still qualifying for the exemption in some cases), a full FBT exemption still applies to battery electric vehicles and hydrogen fuel cell electric vehicles that are provided as fringe benefits to employees if certain conditions can be satisfied.
However, the Government is planning to progressively reduce the scope of the FBT exemption on the following basis: The FBT exemption will continue to operate in its current form until 31 March 2027. From 1 April 2027 to 31 March 2029 the full FBT exemption will only be available if the car costs $75,000 or less. Electric cars above this threshold but costing less than the luxury car tax (LCT) threshold for fuel-efficient cars will receive a 25% FBT discount. From 1 April 2029 all electric cars costing less than the LCT threshold will receive a 25% FBT discount.
The Government indicates that existing lease arrangements won’t be impacted by these changes.
When an electric car is provided to an employee and it qualifies for concessional FBT treatment under these measures it will still be necessary for employers to calculate the reportable fringe benefits amount, ignoring the application of the FBT exemption or discount. This can impact on other areas of the tax and social security systems.
Resources
Fairer tax treatment to encourage affordable EVs
Loss carry back for companies
Start date: 1 July 2026
For income years commencing on or after 1 July 2026 the Government will allow companies with aggregated annual global turnover of less than $1 billion to carry back a tax loss and offset it against tax paid up to two years earlier.
The ability to carry back a loss will only apply to tax losses (not capital losses) and will be limited by the company’s franking account balance.
Loss refunds for small start-up companies
Start date: 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 utilise the loss to generate a refundable tax offset.
The offset will be limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year.
PAYG installments
Start date: 1 July 2027
The Government will provide funding to the ATO to expand its pilot of dynamic PAYG instalment calculations.
From 1 July 2027, small and medium businesses will be able to opt in to reporting and paying PAYG instalments monthly and will be able to use an ATO-approved calculation that is embedded in accounting software to calculate and vary instalments.
R&D tax incentive
Start date: 1 July 2028
The Government will reform the Research and Development (R&D) Tax Incentive which provides a tax offset for eligible companies that undertake R&D activities.
While the Government is planning to increase the tax offset rate for core R&D expenditure, supporting R&D expenditure will no longer qualify and the minimum amount of expenditure that must be incurred in an income year to qualify for the offset will be increased from $20,000 to $50,000 (with some limited exceptions).
Minimum tax for multinationals
Start date: 1 January 2026
The Government will amend Australia’s global and domestic minimum tax legislation as part of broader reforms to the international corporate tax system.
Government and regulators
Protecting the tax system against fraud
Start date: 1 July 2026
The Government will provide $86.3 million over four years to help detect and prevent fraud in the tax system.
The Government will also strengthen the ATO’s ability to combat fraud by tax agents and other intermediaries. The ATO will be given powers to pause the recovery of tax debts of taxpayers who are victims of fraud by tax intermediaries, and waive those debts in appropriate circumstances, and to recover the debts from the tax intermediaries.
The ATO will undertake additional targeted compliance activities to further address fraud in the system, including in relation to the R&D Tax Incentive.
The economy
Global tensions
The conflict in the Middle East has triggered substantial economic and energy disruptions across the world, driving global inflation higher, global growth lower, and compounding uncertainty and volatility. The impacts on the Australian economy will be felt for some time.
Growth
Higher inflation is expected to impact on growth in real incomes and household consumption.
As a result, growth in the Australian economy is forecast to slow from 2.25% in 2025-26 to 1.75% in 2026-27. Growth in the Australian economy is expected to increase to 2.25% in 2027-28.
More deficits to come
The budget deficit for 2026–27 is forecast to be $31.5 billion, which represents an improvement of $2.8 billion compared to the Mid-Year Economic and Fiscal Outlook (MYEFO).
The budget is projected to return to balance in 2034–35 and a surplus of 0.8% of GDP in 2036–37.
Debt
Gross debt is estimated to reach $1,051 billion (that’s over $1 trillion) at 30 June 2027. This represents 34% of GDP. This figure is expected to increase to $1,249 billion (35.6% of GDP) at 30 June 2030. Net debt in 2026–27 is expected to be 19.9% of GDP. Interest payments on Australian Government Securities are estimated to be $27.7 billion in 2026–27, increasing to $40.4 billion by 2029–30.
Employment
The unemployment rate has been broadly stable over the last year and is expected to remain relatively low by historical standards. The unemployment rate is expected to rise gradually from 4.25% in the June quarter 2026 to 4.5% in the June quarter 2027. Employment is forecast to grow by 1.5% through the year to the June quarter 2026 and the June quarter 2027 and 1.75% through the year to the June quarter 2028.
Wages
The Wage Price Index is forecast to grow by 3.25% through the year to the June quarter 2026, before increasing to 3.5% through the year to the June quarter 2027 and the June quarter 2028.
The recent increase in inflation is expected to result in a decline in real wages over 2025–26. Real wages are forecast to grow again in 2026–27 and 2027–28 as inflationary pressures ease.
Inflation
Headline inflation is forecast to be 5% through the year to the June quarter 2026.
Headline inflation is forecast to decline to 2.5% by the June quarter 2027, but this is based on the assumption that global oil prices will ease over 2026-27, which remains to be seen.
Click 2026 Federal Budget for more information.
Frequently asked questions
What is the most significant small business measure in the 2026-27 Federal Budget?
The permanent increase of the instant asset write-off threshold to $20,000 from 1 July 2026 is the standout measure for small business. Previously, higher thresholds had only ever been set on a year-by-year basis, creating uncertainty for business owners planning purchases. The permanent change gives small businesses with aggregated turnover under $10 million greater confidence when investing in new equipment or upgrading existing assets.
Does the $20,000 instant asset write-off threshold apply per asset or in total?
Per asset. The threshold applies on an asset-by-asset basis, which means a business could claim an immediate deduction on multiple assets in the same income year, each costing under $20,000, even if the combined cost exceeds that amount. Assets costing $20,000 or more can still be added to a small business pool.
What is changing with the FBT exemption for electric vehicles?
The full FBT exemption for battery electric vehicles and hydrogen fuel cell electric vehicles currently remains in place, but will be progressively wound back from 1 April 2027. Between 1 April 2027 and 31 March 2029, the full exemption will only apply to electric cars costing $75,000 or less, with a 25% FBT discount available for more expensive models below the luxury car tax threshold. From 1 April 2029, all qualifying electric cars will receive the 25% discount only. Existing lease arrangements are expected to be unaffected by these changes.
What is the company loss carry-back measure and who does it apply to?
From 1 July 2026, companies with aggregated annual global turnover under $1 billion will be able to carry back a tax loss and offset it against tax paid in either of the two preceding income years. The carry-back applies to tax losses only, not capital losses, and is capped by the company’s franking account balance.
Is there any support for start-up companies making losses?
Yes, from 1 July 2028. Start-up companies with aggregated annual turnover under $10 million that generate a tax loss in their first two years of operation will be able to convert that loss into a refundable tax offset. The offset is limited to the value of fringe benefits tax and withholding tax on wages paid to Australian employees in the loss year.
What is changing with the R&D Tax Incentive?
From 1 July 2028, the offset rate for core R&D expenditure will increase, but supporting R&D expenditure will no longer qualify. The minimum annual expenditure required to access the incentive will also rise from $20,000 to $50,000, with some limited exceptions. Businesses currently claiming the R&D Tax Incentive should review whether their arrangements remain eligible under the new rules.
What are the changes to PAYG instalments for small and medium businesses?
From 1 July 2027, small and medium businesses will be able to opt in to paying PAYG instalments monthly rather than quarterly, using an ATO-approved calculation embedded in accounting software. The Government will fund an expansion of the ATO’s pilot of dynamic instalment calculations to support this.
What measures are in place to protect businesses from tax fraud?
The Government has committed $86.3 million over four years to strengthen fraud detection and prevention in the tax system. The ATO will gain new powers to pause debt recovery for taxpayers who have been defrauded by a tax intermediary, waive those debts where appropriate, and recover them directly from the intermediary responsible.
