Business

Key takeaways

Reintroduction of a company loss carry back regime for tax years commencing on or after 1 July 2026, allowing eligible companies with aggregated annual global turnover of less than $1b to offset a tax loss against tax paid up to two years earlier
Permanent increase to the small business instant asset write-off threshold for low-cost depreciating assets ($20,000)— from 1 July 2026
The Government is extending the FBT concession for electric vehicles, but in a reduced capacity.
A significant package of reforms to the Research and Development Tax Incentive (RDTI), with changes proposed to take effect from 1 July 2028.

Reintroduction of loss carry back for companies

The Government has announced in the 2026–27 Federal Budget that, for tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1b will be able to carry back a tax loss and offset it against tax paid up to two years earlier. The loss carry back will apply to revenue losses only and will be limited by a company's franking account balance.

This is a reintroduction, in modified form, of a mechanism that has previously featured in the Australian tax system—first from the 2012–13 income year (with a $1m loss cap) and then under a broader temporary regime that applied to losses for the 2019–20 to 2022–23 income years for corporate tax entities with aggregated turnover of less than $5b. Since that temporary regime ended, companies in a tax loss position have only been able to carry losses forward, subject to the usual loss recoupment tests.

The measure is expected to be most relevant for established eligible Australian corporate groups with a track record of paying Australian income tax, a meaningful franking account balance, that move into a revenue loss position from the 2026–27 income year onwards. Capital losses are not within scope. A separate measure has been announced for small start-up companies (see later below).

Based on the announcement, the new measure is expected to operate broadly along the lines of the previous regime, as a refundable tax offset claimed in the loss year and effectively limited to the lesser of income tax paid in the two earlier income years and the company’s franking account balance at the end of the claim year. The franking account cap is significant in practice—companies that have already distributed franked dividends, or otherwise reduced their franking account balance, may find the value of the offset materially reduced or eliminated, and a refund of tax under the measure should itself give rise to a franking debit. Care should be taken to ensure the debit to the franking account will not put the franking account into deficit which could result in franking deficit tax liability at year end.

As announced, the measure appears to be a permanent feature of the law rather than a temporary measure. The Government has stated that the measure is intended to “encourage investment and sensible risk‑taking and improve the resilience of firms through temporary shocks”.

The first eligible loss year will not arise until the 2026–27 income year, but the measure will need to be enacted in time for affected companies to factor it into their 2026–27 year-end and tax effect accounting positions.

Loss refundability for start-up companies

In addition to the introduction of a permanent loss-carry back tax offset for companies, the Government has announced that “loss refundability” will be introduced for small start-up businesses.

For tax years commencing on or after 1 July 2028, small start-up companies (defined as those with aggregated annual turnover of less than $10m) that generate a tax loss in their first two years of operation will be able to convert that loss into a refundable tax offset, limited to the value of fringe benefits tax and withholding tax on wages paid to Australian employees in the loss year.

This measure is designed to support new start-up businesses, and is expected to provide vital cash flow benefits to up to 25,000 companies each year, directly addressing one of the most persistent pressures faced by early-stage companies.

Small business Instant asset write-off threshold made permanent

The Government has announced in the 2026–27 Federal Budget that it will permanently increase the small business instant asset write-off threshold to $20,000. The threshold had previously been legislated on a temporary basis only and was due to expire on 30 June 2026, after which the threshold was scheduled to revert to $1,000. The $20,000 threshold has been a feature of the small business depreciation rules on a temporary basis, with successive extensions announced year-by-year.

The measure is targeted at small businesses with aggregated annual turnover of less than $10m. Eligible small businesses will be able to immediately deduct the full cost of eligible depreciating assets costing less than $20,000.

Assets that cost $20,000 or more (and are therefore not eligible for the immediate deduction) can continue to be placed into the small business simplified depreciation pool and depreciated under the existing rules.

The provisions that prevent small businesses from re‑entering the simplified depreciation regime for 5 years after opting out will continue to be suspended until 30 June 2027.

For small businesses, the practical implications are largely positive. The permanent threshold should support cash flow by accelerating deductions for lower-value asset purchases and reduce the compliance cost associated with tracking pooled assets where the cost is below $20,000. It should also relieve some of the angst around whether low-cost expenditure on a depreciating asset is properly characterised as an improvement (capital) or repair (revenue) in nature, given that the timing of the deduction will generally be the same either way. Small businesses considering capital expenditure between now and 30 June 2026 should still be able to rely on the existing temporary $20,000 threshold, but for purchases in later income years it will be prudent to confirm that the enabling legislation has been enacted before committing to a particular tax outcome.

“The instant asset write-off is no longer a moving target - as a permanent feature of the small business tax landscape, small businesses have a more stable basis on which to plan investment in productive assets.”

Samantha VidlerPartner

Phased changes to the FBT electric car exemption

As revealed in the lead up to the Federal Budget, the Government has confirmed in its Budget a significant recalibration of the fringe benefits tax (FBT) concession for eligible electric vehicles (EVs). The changes will amend the existing FBT exemption for EVs from 1 April 2029, by introducing a 25% FBT discount on EVs up to and including the fuel-efficient luxury car tax (LCT) threshold (given effect by a 15% statutory fraction).

Until then, transitional arrangements will preserve the FBT exemption for eligible EVs based on the rules in place when the commitment to the vehicle was made. Existing concessions will continue until 31 March 2027. From that point until 1 April 2029, EVs valued at up to $75,000 will remain exempt, while EVs valued above $75,000 and up to the fuel-efficient LCT threshold will qualify for the 25% FBT discount.

It remains important to remember that the Reportable Fringe Benefit treatment of an EV assumes FBT-taxed benefit status, ignoring any EV concessional FBT treatment.

The import tariff exemption for eligible EVs (those with a customs value below the fuel-efficient LCT threshold) will continue on an ongoing basis.

Businesses with EV fleets or salary packaging programs must now assess the financial impact and prepare for a new landscape. Understanding the key dates and transitional rules is essential to managing employee expectations and making strategic decisions about future vehicle acquisitions. Read more about this proposed change in our Tax Alert.

“The FBT exemption for EVs has driven strong market demand, so employers and employees alike should be pleased to see concessions extended, even though it is at a reduced rate. Transitional arrangements also provide much needed reassurance on retention of the FBT exemption that applied at the time of committing to an EV.”

Greg KentPartner

Payroll tax harmonisation tax arrangements

The Government also announced that it will commence work with states and territories to harmonise payroll tax administrative arrangements with a view to further reduce the time spent on record keeping, systems and procedures.

Taxation of gas resources—no further changes flagged

The Government has not announced any changes to the taxation of Australia's gas resources and has recently indicated that the recent suite of reforms to the Petroleum Resource Rent Tax (PRRT) are already delivering an appropriate additional and earlier return to the Australian community. As at December 2025 MYEFO, Treasury forecasted that PRRT alone will raise approximately $5.4 billion in receipts over the four years to 2028–29, and this is now expected to increase due to current higher oil prices. Consistent with this position, the Government’s response to domestic gas market pressures has been through non-tax measures where on 7 May 2026, the Minister for Climate Change and Energy, the Minister for Resources and the Minister for Industry and Innovation jointly announced a domestic gas reservation scheme that will require gas exporters to supply the equivalent of 20% of their exports to the Australian market from 1 July 2027 (with export contracts entered into before 22 December 2025 grandfathered).

There is no immediate expectation that this tax position will shift in the near term following the report of the Senate Select Committee on the Taxation of Gas Resources, which was tabled on 7 May 2026. Among other things, the Committee examined alternative tax arrangements for oil and gas production and export adopted in other jurisdictions and considered proposals ranging from a 25% gas exports levy to further tightening of the PRRT, the introduction of a Commonwealth royalty and a “fair share” (Brown) tax. The Committee was unable to reach agreement on recommendations on Australia’s approach to the taxation of its gas resources and invited the Government to reconsider the issue once the current Middle East conflict has been resolved.

Notably, the Labor Senators recommended (among other things) that “Treasury or the Productivity Commission prepare a comprehensive report on the revenue earned from Australian petroleum resources and the taxes paid and forecast to be paid by companies involved in the exploration, development, and extraction of Australian petroleum resources”, including a benchmarking exercise against comparable jurisdictions and consideration of whether changes to revenue and tax reporting requirements are needed to improve transparency.

Reforms to the Research & Development Tax Incentive

The 2026-27 Federal Budget includes a substantial package of reforms to the Research & Development (R&D) Tax Incentive. These changes, to apply from 1 July 2028, are intended to make the incentive better targeted and easier to use, with the Government expecting it will incentivise an additional $400m in R&D spend by young businesses each year.

The key changes proposed are:

core R&D offset rates will increase by 4.5 percentage points (an uplift of around 25% to 50%), with the intensity threshold reduced from 2% to 1.5% so that more firms undertaking substantial core R&D qualify for the higher offset
eligibility for “supporting” R&D expenditure will be removed, concentrating the incentive on genuine core R&D activity
the turnover threshold for the higher, refundable offset will increase from $20m to $50m, broadening access for growing firms
refundability will be limited to firms less than 10 years old; firms below the $50m turnover threshold but older than 10 years will retain access to the higher offset rate on a non-refundable basis
the maximum R&D expenditure cap will increase from $150m to $200m, encouraging more R&D activity to be undertaken onshore, and
the minimum expenditure threshold will increase from $20,000 to $50,000, with R&D activities below this amount only eligible if undertaken through a registered Research Service Provider or Cooperative Research Centre.

The reform package has a clear lifecycle focus. It will reengineer the program to channel the most generous support, including the higher refundable offset, towards newer and fast-growing firms in their first 10 years, when access to cash is typically the binding constraint on innovation. As firms mature beyond that 10-year window, the cash refund tapers off and the benefit converts to a non-refundable offset, while substantial core R&D continues to be rewarded through higher offset rates and a larger expenditure cap for the largest claimants. The result is an incentive that 'leans in' early in a company's life and gradually steps back as the business establishes itself.

Some of the measures announced as part of this package have their genesis in the recently released Ambitious Australia—Strategic Examination of Research and Development final report. The report, prepared by an independent panel tasked with identifying the challenges and opportunities facing Australia’s R&D system, made a number of recommendations concerning the R&D Tax Incentive, including introducing a deemed rate for supporting R&D activities (the Government has now announced that supporting R&D activities will be removed from eligibility entirely), raising the minimum R&D project spend from $20,000 to $150,000 (the Government has now announced that the minimum spend will be increased to $50,000) and increasing the threshold for the refundable R&D tax offset from $20m to $50m (announced in this year’s Budget). There are other recommendations in the report that the Government has not yet responded to, signaling potential areas for future reform.