2026–27 Federal Budget: What Changes for Small Businesses, SMEs and Individuals

Main Highlights:

• A new $250 Working Australians Tax Offset (WATO) for over 13 million workers for the 27-28 financial year. 
• A $1,000 instant tax deduction for work-related expenses from the 27-28 financial year, no receipts required. 
• The 16% marginal tax rate drops to 15% on 1 July 2026, then 14% on 1 July 2027. 
• Fuel excise more than halved (52.6c to 20.6c per litre) and heavy vehicle road user charge cut to zero for three months from 1 April 2026. 
• $20,000 instant asset write-off made permanent from 1 July 2026 for small businesses (turnover under $10 million). 
• Loss carry back permanently reintroduced for companies with turnover up to $1 billion. 
• Loss refundability introduced for new start-ups (from 2028–29). 
• Negative gearing limited to new builds, and the 50% CGT discount replaced with cost base indexation plus a 30% minimum tax on capital gains, both from 1 July 2027. 
• A 30% minimum tax on discretionary trusts from 1 July 2028. 
• $10.2 billion per year reduction in regulatory burden, including the abolition of 497 nuisance tariffs. 

2026–27 Federal Budget: For Individuals

This section covers the measures aimed at individuals and families, income tax, fuel relief, healthcare and household support. 

Income Tax Cuts (Five Rounds, Combined Benefit Up To $2,816) 

The Government is cutting taxes five times when combined with previously legislated changes. The new and confirmed measures include: 

• Working Australians Tax Offset (WATO): A new, permanent $250 tax offset from the 2027–28 income year, available to over 13 million workers, including around 1.5 million sole traders. 97% of eligible workers are expected to receive the full $250. 
• $1,000 Instant Tax Deduction: From 2027–28 financial year, employees can claim a flat $1,000 deduction for workrelated expenses without keeping receipts. Around 6.2 million workers (42% of taxpayers) will benefit, with
  an average tax saving of $205. You can still itemise instead if your actual expenses are higher.
• Marginal rate cuts: The 16% rate on income between $18,201 and $45,000 drops to 15% from 1 July 2026, then to 14% from 1 July 2027, worth up to $268 in 2026–27 and $536 every year from the 2027–28 financial year.

Currently legislated marginal tax rates (the bracket and rate path from the 2025–26 Budget — unchanged in this Budget):

What’s NEW in this Budget, combined annual tax benefit by income level (FY28 vs FY24):

Figures are derived from the Budget Overview worked examples (Dean the mechanic at $70,000 and the average worker at $81,245). The instant tax deduction benefit depends on your marginal rate; itemising actual deductions may produce a better result if your work-related expenses exceed $1,000.

Combined with the WATO and the $1,000 instant tax deduction, an Australian worker on average earnings ($81,245) could be up to $2,816 better off in 2027–28 compared to 2023–24 settings. 

Fuel Excise Relief

To soften the impact of the global oil shock: 

• Fuel excise on petrol and diesel has been more than halved from 52.6 to 20.6 cents per litre  for three months from 1 April 2026. 
• The heavy vehicle road user charge has been cut to zero for the same three-month period. 
• A typical driver filling a 40-litre tank weekly is expected to save around $14 per tank and roughly $170 over the three months. 
• The ACCC has been directed to publish weekly retail fuel price reports, and maximum penalties for major breaches of competition and consumer law have been doubled to $100 million. 

Cost-of-Living and Family Support

• Government-funded Paid Parental Leave increases to a full six months from July 2026. 
• The 3 Day Guarantee for the Child Care Subsidy makes 87,500+ additional families eligible for at least 72 hours of subsidised care. 
• $182.6 million to make the Child Support Scheme safer and more effective, including measures targeting financial abuse and non-compliance. 
• $59.4 million to help Community Housing Providers support over 4,000 young people aged 16–24 at risk of or experiencing homelessness. 
• The Government has backed wage growth at every recent Annual Wage Review — the National Minimum Wage has increased by over $9,120 per year across the last four reviews. 

2026–27 Federal Budget: Housing & Rental Support

Housing affordability remains a major focus, and this Budget introduces some of the most significant tax changes to investment housing in decades. 

Negative Gearing — Limited to New Builds from 1 July 2027

• From 1 July 2027, negative gearing for residential property investments will be limited to new builds. 
• Transitional rules for established residential properties: Properties purchased between the announcement (12 May 2026) and 30th June 2027 may be negatively geared but not from 1 July 2027. 
• Properties held at announcement date (12 May 2026) will be exempt from the changes until disposed of. 
• Properties purchased from 1 July 2027 will not be able to be negatively geared for established properties. 
• Properties purchased after 1 July 2027 will be treated wholly under the new arrangements except for new properties.  
• Important to note: Commercial property, shares and other asset classes are unaffected and can continue to be negatively geared. 

Capital Gains Tax — Cost Base Indexation + 30% Minimum

From 1 July 2027, the 50% CGT discount will be replaced for individuals, trusts and partnerships with: 

• Cost base indexation (similar to the pre-1999 regime, using CPI) meaning tax is only paid on the real gain above inflation. 
• A 30% minimum tax rate on real capital gains. 
• Buyers of new builds can choose between the old 50% CGT discount or the new indexation arrangements. 
• The main residence exemption is preserved and unchanged. 
• The four small business CGT concessions are unchanged. 
• The 60% CGT discount for qualifying affordable housing is fully retained. 

Important: The transitional rules require TWO separate calculations for any asset owned before 1 July 2027 and sold after that date. The taxable gain is the sum of: 

• Gain accrued BEFORE 1 July 2027 — calculated using the asset’s original cost base and its market value at 1 July 2027. The existing 50% CGT discount continues to apply to this portion. 
• Gain accrued FROM 1 July 2027 — calculated using the market value at 1 July 2027 as the new cost base, and the eventual sale price. CPI indexation and the 30% minimum tax apply to this portion. 

Taxpayers will need to determine the asset’s value at 1 July 2027 when they realise the asset, either by formal valuation (or quoted price for listed shares), or via an ATO apportionment formula based on the asset’s growth rate over its holding period. The ATO will publish tools to support this. 

Pre-CGT assets (acquired before 20 September 1985)  important change. 

Pre-CGT assets have historically been fully exempt from CGT. Under the new rules: 

• Gains accrued BEFORE 1 July 2027 on pre-1985 assets remain exempt (consistent with the original regime). 

• Gains accrued FROM 1 July 2027 on pre-1985 assets may be taxable under the new indexation and 30% minimum tax arrangements. 

In practical terms, an asset bought before 20 September 1985 and sold after 1 July 2027 will move from fully exempt to partially taxable. If you hold legacy assets in this category, we’d recommend talking to your adviser about whether sale timing or any small business CGT concession opportunities apply before 1 July 2027. 

Treasury estimates these reforms will support around 75,000 additional owner-occupiers over the next decade. 

Worked example (drawn from the Budget tax explainer): 

Jane buys an asset on 1 July 2022 for $800,000 and sells on 1 July 2032 for $1,600,000 (a 7.2% annual return). Using ATO tools, she determines the asset was worth $1,131,371 on 1 July 2027. Her taxable capital gain is the sum of: 

• Pre-commencement gain: $331,371 gross, halved by the 50% CGT discount = $165,685 taxable. 
• Post-commencement gain: $468,629 gross, less cost base indexation = $319,958 taxable. 
• Total taxable capital gain: $485,643 (vs $400,000 if the old 50% discount applied to the whole gain). At a 47% marginal rate, that’s $228,252 in CGT (vs $188,000 under the old rules) — about $40,000 more. 

2026–27 Federal Budget: For Small Businesses & SMEs

Permanent $20,000 Instant Asset Write-Off 

After years of one-year extensions, the $20,000 instant asset write-off becomes permanent from 1 July 2026 for small businesses with aggregated turnover under $10 million. Eligible assets costing less than $20,000 each can be immediately deducted in the year they’re first used or installed ready for use. 

• Estimated to save small businesses around $32 million per year in compliance costs and improve cash flow by around $890 million over five years. 
• Removes the annual uncertainty around whether the threshold will be extended meaning you can plan capital purchases with confidence. 

Loss Carry Back — Permanently Reintroduced 

From 2026–27, companies with turnover up to $1 billion that make a tax loss in the current year can carry that loss back to claim a refund against tax paid in the prior two income years. 

• This will benefit up to 85,000 companies, most of them small businesses. 
• Particularly valuable for SMEs investing to grow, those impacted by fuel and supply chain disruption, or those navigating temporary downturns. 

Loss Refundability for Start-ups 

From 2028–29, small start-ups in their first two years of operation will be able to receive a refund for tax losses, capped at the value of FBT and PAYG withholding tax paid on employee wages. Around 25,000 young companies a year are expected to benefit. 

Venture Capital & R&D Incentives 

To better support innovative, high-growth businesses: 

• Venture capital incentives expanded from 1 July 2027. The VCLP cap on eligible investee business assets rises from $250M to $480M; the ESVCLP cap rises from $50M to $80M; the ESVCLP tax-exempt cap rises from $250M to $420M; and the ESVCLP maximum fund size rises from $200M to $270M. 
• R&D Tax Incentive reform — the regime is being meaningfully overhauled. From 1 July 2028: 
• 4.5 percentage point increase to R&D offset rates across each category — meaningfully positive news for Australian innovators. 
• Premium offset rates rise from 8.5% to 13% (low intensity) and from 18.5% to 23% (high intensity). 
• Supporting activity R&D expenditure will be excluded from the regime — only core R&D activities will qualify going forward. 
• Turnover threshold for the refundable offset increases to $50 million. 
• Refundable offset eligibility now limited to companies less than 10 years old. 
• Minimum R&D spend increased from $20,000 to $50,000 (below this, R&D must be done with a Research Service Provider or Cooperative Research Centre). 
• Maximum R&D spend threshold increased to $200 million. 
• Intensity threshold reduced to 1.5%. 
• The Government estimates these changes will unlock around $400 million more in R&D by young firms each year. 

Cash Flow, Compliance & Tax Simplification 

• From 1 July 2027, small businesses will be able to opt in to monthly PAYG instalment reporting and payment. 
• Expanded access to the ATO’s dynamic PAYG instalments pilot, using business software to calculate instalments more accurately in real time. 
• The ATO will remove interest charges where businesses accidentally get an instalment variation wrong using ATO-approved calculators. 
• A White Tape Review (led by ASBFEO) and a Board of Taxation Red Tape Reduction Review are underway. 
• Sole traders are eligible for the $250 WATO and the $1,000 instant tax deduction alongside the other personal income tax cuts. 

Fuel and Supply Chain Relief 

For SMEs hit hardest by the global oil shock: 

• $1 billion in interest-free loans through the National Reconstruction Fund’s Economic Resilience Program for affected manufacturing and logistics businesses. 
• The ATO is streamlining temporary relief until 30 June 2026 — more generous payment plans, remission of interest and penalties, support for varying PAYG instalments and a dedicated channel for businesses to access help. 
• Some compliance and debt collection actions will be paused for the worst-affected industries. 
• $8.2 million in cost recovery relief for agricultural exporters. 

Trade, Tariffs & Regulatory Reform 

• 497 more nuisance tariffs abolished from 1 July 2026, bringing the total abolished to around 1,000 and saving businesses ~$157 million a year in compliance costs. 
• Free access to all standards referenced in Australian legislation — saving small businesses and tradies up to $1,600 a year. 
• The Australian Trusted Trader program is being expanded with $7.6 million to make exporting faster and easier. 
• The Australia–EU Free Trade Agreement is being implemented to lower trade barriers. 
• The ‘tell-us-once’ approach across government and $654.3 million to expand Digital ID will reduce duplicated reporting. 

For Businesses to Keep in Mind

30% Minimum Tax on Discretionary Trusts (From 1 July 2028) 

This is one of the most significant structural changes for SMEs that operate through a trust. From 1 July 2028, the trustee of a discretionary trust will pay a 30% minimum tax on the trust’s taxable income. 

• Beneficiaries (other than corporate beneficiaries) will receive non-refundable credits for the tax paid by the trustee. 
• Corporate beneficiaries will not receive credits (closing the ‘bucket company’ pathway). 
• Around half of all discretionary trusts are not expected to be affected in any given year; if a trust is already distributing to non-corporate beneficiaries on the 30% rate or higher, there will be no additional tax. 
• The Government estimates more than 90% of small businesses won’t be affected in any given year. 
• Exclusions include fixed and widely held trusts, complying super funds, special disability trusts, deceased estates, charitable trusts, primary production income (e.g. agriculture), certain income relating to vulnerable minors and amounts subject to non-resident withholding tax. 
• Three-year rollover relief from 1 July 2027 will be available to support small businesses that wish to restructure (e.g. into a company or fixed trust) without triggering income tax or CGT consequences. 
• The ASBFEO will be available from 1 January 2027 to help small businesses understand their options. 

For many family businesses currently distributing significant profits to adult beneficiaries on lower marginal rates, this is a fundamental change. If you operate through a discretionary trust, now is the time to start mapping out your structure options — there is time before the 2028 commencement, but restructuring decisions are not trivial. 

What The Budget Didn’t Address 

While the Budget is wide-ranging, several areas remain unresolved: 

• No clarity on the Bendel case and its broader implications for Division 7A. 
• No further reform of payroll tax beyond a commitment to work with the states on administration, harmonisation remains elusive. 
• No reduction to the 30% non-arm’s length income (NALI) penalty rate for SMSFs. 
• No new specific measures for franchisees beyond existing protections. 
• No deferral or reconsideration of the upcoming Division 296 super tax on balances above $3 million. 
• Limited new support for retail and hospitality outside the general business measures, despite continued cost pressures in those sectors. 

What Does The Budget Mean For Me? 

Whether you’re a small business owner, family with a discretionary trust, sole trader, employee, first-home buyer or property investor, this Budget will reshape some part of your financial picture between now and 2028–29. 

A few priority planning conversations to have soon: 

• If you run a small business, review your capital expenditure plans against the permanent $20,000 instant asset write-off, and revisit how loss carry back could support investment decisions. 
• If you operate through a discretionary trust, start scoping the impact of the 30% minimum tax and whether restructuring (using the three-year rollover relief) makes sense. 
• If you’re a property investor, understand the grandfathering rules — properties held before 7:30pm on 12 May 2026 are protected, but post-announcement decisions need careful thought. 
• If you’re a first-home buyer, the combination of CGT and negative gearing reform, the Help to Buy scheme, and the new Local Infrastructure Fund are designed to shift the balance in your favour. 
• If you’re an employee or sole trader, the WATO and the $1,000 instant tax deduction are automatic — but worth modelling against your usual deductions to see which approach delivers the better outcome each year. 

Want to know how the 2026–27 Budget affects your specific industry or business? Our accountants, bookkeepers, including financial advisers can help you assess how the changes may affect you and work through some possible strategies on how to accumalte wealth. 

Get in touch with Carbon to discuss your next steps. 

What The Budget Didn’t Address

While the Budget is wide-ranging, several areas remain unresolved:

• No clarity on the Bendel case and its broader implications for Division 7A.
• No further reform of payroll tax beyond a commitment to work with the states on administration — harmonisation remains elusive.
• No reduction to the 30% non-arm’s length income (NALI) penalty rate for SMSFs.
• No new specific measures for franchisees beyond existing protections.
• No deferral or reconsideration of the upcoming Division 296 super tax on balances above $3 million.
• Limited new support for retail and hospitality outside the general business measures, despite continued cost pressures in those sectors.

What Does The Budget Mean For Me?

Whether you’re a small business owner, family with a discretionary trust, sole trader, employee, first-home buyer or property investor, this Budget will reshape some part of your financial picture between now and 2028–29.

A few priority planning conversations to have soon:

• If you run a small business, review your capital expenditure plans against the permanent $20,000 instant asset write-off, and revisit how loss carry back could support investment decisions.
• If you operate through a discretionary trust, start scoping the impact of the 30% minimum tax and whether restructuring (using the three-year rollover relief) makes sense.
• If you’re a property investor, understand the grandfathering rules — properties held before 7:30pm on 12 May 2026 are protected, but post-announcement decisions need careful thought.
• If you’re a first-home buyer, the combination of CGT and negative gearing reform, the Help to Buy scheme, and the new Local Infrastructure Fund are designed to shift the balance in your favour.
• If you’re an employee or sole trader, the WATO and the $1,000 instant tax deduction are automatic — but worth modelling against your usual deductions to see which approach delivers the better outcome each year.

Want to know how the 2026–27 Budget affects your specific industry or business? Our accountants, bookkeepers, including financial advisers can help you assess how the changes may affect you and work through some possible strategies on how to accumalte wealth.

Get in touch with Carbon to discuss your next steps.

Author’s Note

The longer-tail reforms particularly the 30% minimum tax on discretionary trusts, the negative gearing and CGT changes, and the R&D Tax Incentive overhaul (with offset rates rising 4.5 percentage points and the exclusion of supporting activity expenditure) deserve careful thought. None of them take effect immediately, but each of them changes the calculus on structuring, investing, and long-term planning. We’d rather our clients have the conversation now, with time to plan, than be caught short in 2027 or 2028.

There is also a range of changes that may affect individuals and businesses with trusts or capital gains exposure, meaning forward‑looking tax planning will be increasingly important. For many of our small business clients, these measures are expected to deliver tangible cash‑flow benefits from 1 July 2026, and we encourage discussing appropriate strategies with your accountant to ensure the right structures and planning are in place.

The Budget also leaves some open questions. Division 296, the Bendel case, NALI and payroll tax harmonisation are all still unresolved. Implementation detail on the trust minimum tax, the CGT indexation arrangements, and the new venture capital settings will be released through consultation in the coming months and the practical impact will depend heavily on how the legislation lands.

As always, our role at Carbon is to translate the policy noise into practical, balanced advice. If you have questions, get in touch.

SOURCES: 2026-27 Federal Budget

DISCLAIMER: Information in this wrap-up blog was sourced directly from the Government’s Federal Budget website here.

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