For Australia’s 2.7 million small and medium businesses, the 2026–27 Federal Budget delivered something rare: certainty. After years of being extended one year at a time, the $20,000 instant asset write-off is finally being made permanent. Loss carry-back is back. Monthly PAYG instalments are coming. And sole traders join employees in getting a new $1,000 instant tax deduction.
This article walks through the five small business measures most likely to affect your cash flow over the next 12 to 24 months, with dates, thresholds and eligibility from the Budget Paper and the Government’s Tax Reform statement.
What did the 2026–27 Federal Budget change for small business?
The Government framed its small business measures as a $3.5 billion package designed to lift productivity, improve cash flow and reward investment. Five changes stand out: a permanent instant asset write-off, the return of loss carry-back, a new loss refundability concession for start-ups, monthly PAYG instalments, and the new $1,000 instant tax deduction (which sole traders qualify for).
According to the Government, the package will reduce compliance costs for businesses and individuals by around $540 million per year. For owners who’ve spent the last decade riding annual extensions of the write-off, the certainty alone is a meaningful change.
Is the $20,000 instant asset write-off really permanent now?
Yes. From 1 July 2026, the $20,000 instant asset write-off is being permanently extended for small businesses with aggregated annual turnover of less than $10 million. Any depreciating asset costing less than $20,000 (excluding GST if you’re registered) can be immediately deducted in the year it is first used or installed ready for use.
Assets costing $20,000 or more continue to be placed into the small business simplified depreciation pool. The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years after opting out continue to be suspended until 30 June 2027.
A worked example from the Government illustrates the cash flow impact. “Dining Co” — a local restaurant with $1 million turnover — spends $65,000 on equipment in 2026–27, with each item under $20,000. Instead of depreciating those assets over several years, the business immediately deducts the full $65,000, converting a $50,000 expected profit into a $15,000 tax loss.
For full ATO eligibility rules and how to apply the write-off, see the ATO Instant asset write-off page.
How does the new loss carry-back work for small companies?
For tax years starting on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion can carry a tax loss back and offset it against tax paid in either of the two preceding income years. The offset is limited by the company’s franking account balance, and applies to revenue losses only (capital losses are excluded).
Returning to the Dining Co example: the $15,000 tax loss generated by the instant asset write-off can be carried back against the previous year’s tax paid, generating a $3,750 refund at the 25 per cent base rate ($15,000 × 25%). That refund hits the bank when the company files its return — timely cash flow exactly when it’s reinvesting.
The Government expects up to 85,000 companies, mostly small businesses, to benefit from loss carry-back in any given year.
Can my start-up get a refund on its tax losses?
A new measure is being introduced specifically for young companies. For tax years starting on or after 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 can use that loss to generate a refundable tax offset.
The offset is capped at the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year. The intent is to support start-ups that are hiring locally and investing in early growth, but haven’t yet turned a profit.
The Government estimates this will benefit up to 25,000 young companies each year and provide meaningful cash flow support exactly when start-ups need it most.
When can I switch to monthly PAYG instalments?
From 1 July 2027, small and medium businesses can opt in to reporting and paying PAYG instalments monthly, and to using an ATO-approved calculation embedded in accounting software to vary their instalments based on real-time business activity.
For businesses with seasonal or volatile revenue, this is a useful cash flow tool: instalments better reflect what you’re actually earning, instead of locking you into projections based on the prior year. Taxpayers with a demonstrated history of non-compliance will be required to report and pay PAYG instalments monthly rather than choosing to.
The Government is providing $10.9 million to the ATO to expand its dynamic pay-as-you-go pilot. If you’re already using cloud accounting software like Xero, MYOB or QuickBooks, this is the path to a more responsive PAYG cycle. Our bookkeeping and accounting service can help you assess whether monthly PAYG suits your business model before opt-in opens.
Do sole traders benefit from the new tax cuts?
Yes. Two new measures explicitly include income earned by sole traders:
- The $1,000 instant tax deduction — from the 2026–27 income year, Australian tax residents who earn income from work, including sole trader business income, are eligible. If your work-related deductions total less than $1,000, you don’t need to itemise them.
- The $250 Working Australians Tax Offset (WATO) — from the 2027–28 income year, a permanent annual offset of up to $250 on income derived from work, which includes sole trader business income.
Sole traders can still claim charitable donations, union and professional association fees, and other non-work-related deductions on top of the $1,000 instant deduction.
How should small business owners prepare for 1 July 2026?
A short pre-EOFY checklist:
- Identify equipment, tools or technology purchases you can bring forward to use the $20,000 instant asset write-off from 1 July 2026 (each asset must be under $20,000).
- If you’re a company expecting a loss in 2026–27, check your franking account balance now — that’s the cap on how much loss carry-back you can use.
- If your business is volatile and you currently pay quarterly PAYG instalments based on prior-year income, plan for the 1 July 2027 monthly opt-in option.
- Sole traders: review your work-related deductions for 2026–27. If you typically claim under $1,000, the instant deduction will save you the receipt-keeping.
A 30-minute review with our team usually surfaces 2–3 specific savings before year-end. Get in touch via our business advisory service to book a session.
