While the headline Budget measures focused on CGT, negative gearing and trust reform, the business package offers a more targeted set of changes.
The reintroduction of loss carry-back, a permanent $20,000 instant asset write-off, and expanded R&D and venture capital incentives provide some relief but fall short of the structural support many middle market businesses were seeking. For most, the practical priority will be navigating the interaction between these measures and the broader tax reforms announced elsewhere in the Budget.
Company losses
The Government is providing cash flow relief to companies that make a tax loss, through the reintroduction of the loss carry-back measure, coupled with a new loss refundability measure targeted at start-ups, allowing the benefits of company losses being realised sooner.
Tax loss carry-back measure
The Government has reintroduced the tax loss carry‑back rules that applied temporarily during the COVID‑19 period. Under the new regime, eligible companies will be able to carry back tax losses and claim a refundable tax offset. The rules will apply to income years commencing on or after 1 July 2026 and will operate on a permanent basis.
The revised regime differs from the earlier iteration in several important respects. Eligibility is limited to companies with aggregated turnover of up to $1 billion, rather than $5 billion. Losses may only be carried back to profits made in the preceding two income years, and the rules are no longer temporary.
For example, a company that incurs a tax loss in the year ended 30 June 2027 will be able to carry that loss back against taxable income derived in either of the 2025 or 2026 income years.
Consistent with the earlier regime, the carry‑back will apply only to revenue losses and will be capped by the company’s franking account balance at the end of the loss year. While the measure provides certainty and timely cash‑flow support during periods of reduced profitability, its practical benefit may be limited where prior profits have been fully distributed or tax payments have not been maintained, resulting in a low franking account balance.
Loss refundability for start‑ups
The Budget also introduces a new refundable tax offset for companies that incur tax losses in their first two years of operation. This measure is intended to provide early cash‑flow support for start‑up companies, rather than requiring losses to be carried forward until taxable profits arise.
The offset will be available to companies with aggregated turnover of less than $10 million and will apply to income years commencing on or after 1 July 2028. Importantly, the amount of the refundable tax offset is capped by the company’s employment‑related tax remittances for the relevant income year. These remittances are limited to PAYG withholding amounts and fringe benefits tax paid by the company.
As a result, the measure is likely to be of greatest benefit to start‑ups that employ staff in their early stages. Founder‑led businesses with few or no employees may receive limited benefit until employment levels increase.
The measure applies only to companies and will not be available to businesses operated through trusts or other structures.
Small business tax measures
The Budget contains a limited number of measures affecting small and medium businesses. These include changes to the instant asset write‑off, temporary roll‑over relief for restructures, and reforms to PAYG instalment reporting and payment arrangements.
Instant asset write-off
Small business entities with aggregated turnover of up to $10 million will continue to be able to immediately deduct the cost of eligible depreciating assets costing less than $20,000. From 1 July 2026, the current temporary $20,000 instant asset write‑off will become a permanent feature of the simplified depreciation rules, providing greater certainty when making capital expenditure decisions.
Access to the write-off will remain limited to businesses using the simplified depreciation regime, and there is no indication the $20,000 threshold will be indexed. Assets costing $20,000 or more will continue to be depreciated through the simplified depreciation pool at 15% in the first year and 30% in subsequent years. Businesses that previously opted out of the simplified depreciation regime are generally prevented from opting back in for five years, although an exemption from this restriction will continue to apply until 30 June 2027.
Small business roll-over relief
As part of the announced changes to the taxation of discretionary trusts, the Government has confirmed that temporary roll‑over relief will be introduced to facilitate restructures into alternative ownership vehicles such as companies or fixed trusts. The relief is intended to apply for a limited three‑year period from 1 July 2027. A more detailed discussion of the scope of the roll‑over relief, eligibility issues and practical constraints is set out in our article ‘Minimum tax on discretionary trusts’.
The existing small business restructure roll‑over applies to entities with aggregated turnover of less than $10 million and can cover capital gains, trading stock, revenue assets, and depreciating assets. Additionally, the Government has confirmed that the small business CGT concessions will remain available.
Introducing dynamic monthly instalments
From 1 July 2027, eligible businesses that currently pay PAYG instalments quarterly will be able to opt into monthly reporting and payment cycles. Instalments will be calculated using ATO‑approved formulas embedded in accounting software and automatically adjusted to reflect the business’s current financial position. Businesses using the approved calculations will be protected from penalty interest where variations are unintentionally incorrect.
Participation will be optional for most businesses but mandatory for certain taxpayers with a history of non‑compliance.
R&D tax incentive changes
The Government has announced targeted reforms to the Research and Development Tax Incentive (R&DTI) aimed at improving the overall effectiveness of the program by supporting business investment in higher-value R&D activities.
From 1 July 2028, a number of changes are proposed to the R&DTI that will have broad ranging impact both in terms of access to the program, and the calculation of the incentive including:
- The R&D offset for core R&D activities will be increased by 4.5 percentage points, increasing the net benefit available to eligible claimants.
- Supporting R&D expenditure will no longer qualify for the R&DTI, tightening the definition of eligible R&D activities and thereby reducing the net benefit available to eligible claimants to “true” experimental activities.
- Firms below a $50 million turnover threshold will be able to qualify for the higher, refundable tax offset, provided the company is not more than 10 years old. Companies older than 10 years will still qualify for the higher R&D tax offset rate, but the offset would not be refundable.
- A lower R&D intensity threshold will be introduced, reducing from 2% to 1.5%, enabling more companies to access higher rates of R&D offset.
- The minimum R&D spend required to access the incentive will increase from $20,000 to $50,000, limiting access for lower-value claims to those undertaken with recognised research organisations.
- The annual expenditure limit on eligible R&D expenditure will increase from $150 million to $200 million, extending the benefit for larger-scale programs.
The changes broadly reflect a shift in policy toward targeting the R&DTI to higher-value and more intensive R&D activities, supporting the growth of middle market companies through the increased turnover threshold (from $20 million to $50 million) for the higher and refundable R&D offset rate.
Expansion of the venture capital tax incentives
The Government has announced an expansion of Australia’s venture capital tax incentive regime, increasing certain key thresholds that apply to Venture Capital Limited Partnerships (VCLPs) and Early Stage Venture Capital Limited Partnerships (ESVCLPs). The changes are intended to allow venture capital funds to raise more capital and invest in larger, more established businesses while maintaining access to concessional tax treatment. Under the announcement:
- The VCLP cap on the asset size of the investee business at the time of investment will be increased to $480 million (previously $250 million)
- The ESVCLP cap on the asset size of the investee business at the time of investment will be increased to $80 million (previously $50 million)
- The ESVCLP tax incentive cap on the asset size of the investee business will be increased to $420 million (previously $250 million)
- The maximum fund size of ESVCLPs will be increased to $270 million (previously $200 million).
Commencement and application
The increased thresholds will apply from 1 July 2027. The changes will apply to both existing and newly established VCLPs and ESVCLPs, but only in respect of new investments made from that date. This includes further investments made in businesses that are already held.
Ongoing compliance
ESVCLPs will continue to be required to comply with their approved investment plans. Where an existing plan does not accommodate the expanded thresholds, the fund will need to seek approval for a replacement investment plan.
In addition, the Eligible Venture Capital Limited Partnership (EVCLP) investor program will be closed to new applications from 7.30 pm (AEST) on 12 May 2026.
Future review
The Treasury and the Department of Industry, Science and Resources will jointly undertake a departmental impact assessment of the venture capital tax incentive programs in 2032–33, to evaluate the effectiveness of the expanded settings.
