Small and medium businesses
New minimum tax for discretionary trusts from 1 July 2028
From 1 July 2028, trustees will pay a minimum tax of 30% on the taxable income of discretionary trusts.
Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee. Corporate beneficiaries will be assessed on trust income but will be unable to claim a credit for the tax payable by the trustee.
The minimum tax will not apply to other types of trusts such as fixed and widely held trusts (including fixed testamentary trusts), complying superannuation funds, special disability trusts, deceased estates and charitable trusts.
Some types of income such as primary production income, certain income relating to vulnerable minors, amounts to which non-resident withholding tax applies, and income from assets of discretionary testamentary trusts existing at announcement will also be excluded.
The Government will provide expanded rollover relief for three years from 1 July 2027 to support small businesses and others that wish to restructure out of discretionary trusts into another entity type, such as a company or a fixed trust.
Loss carry-back for companies
For tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid up to two years earlier. Loss carry back will apply to revenue losses only and will be limited by a company’s franking account balance.
Refundability of losses for start-up companies
The Government will also introduce loss refundability for small start up companies. For tax years commencing 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 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.
Permanent extension to the small business asset write-off
From 1 July 2026, the Government will permanently extend the $20,000 instant asset write‑off for small businesses with turnover up to $10 million. Assets valued at $20,000 or more can 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 5 years after opting out will continue to be suspended until 30 June 2027.
Optional monthly Pay as You Go Instalments
From 1 July 2027, small and medium businesses will be able to opt in to reporting and paying PAYG instalments monthly and to using an ATO-approved calculation embedded in accounting software to calculate and vary their instalments. This is stated as supporting businesses by enabling tax instalments to better reflect real time business activity. Taxpayers with a demonstrated history of non‑compliance will be required to report and pay PAYG instalments monthly.
Electric Car FBT discount
From 1 April 2029, a permanent 25% discount on fringe benefits tax (FBT) will be available for all electric cars valued up to and including the fuel‑efficient luxury car tax threshold, implemented through a 15% rate in the FBT statutory formula. This will replace the current FBT exemption. As a transitional measure:
-
- all electric cars valued up to $75,000 provided before 1 April 2029 will retain their FBT exemption; and
-
- electric cars provided between 1 April 2027 and 1 April 2029 valued between $75,000 and the fuel efficient luxury car tax threshold will be eligible for the 25% discount on their FBT cost.
Large business and international
Large businesses and multinationals can breathe a sigh of relief as the focus has been overwhelmingly on domestic investor taxes (CGT discount, negative gearing and trusts). Large international businesses are more affected by ongoing integrity measures, compliance tightening and targeted foreign investor rules that were previously announced.
Strengthening Foreign Resident Capital Gains Tax (CGT) Regime
In the 2024-25 Budget, the Government had announced that it would strengthen the foreign resident CGT regime. Draft legislation (Foreign CGT Regime legislation) has now been released in respect of these announcements.
In particular, the draft legislation is designed to close loopholes so foreign residents pay CGT on a broader range of Australian assets (e.g. indirect interests in land-rich entities, mining and infrastructure assets beyond just direct land). These changes include retrospective elements and may impact past transactions particularly relating to infrastructure assets that taxpayers may have thought as not being subject to CGT.
Renewable Energy Asset Discount
The abovementioned Foreign CGT Regime legislation also introduces a temporary 50% CGT discount for in respect of foreign investment into certain investments in the Australian renewables energy sector.
The temporary CGT discount is targeted at foreign institutional investors and applies to CGT events that happen from commencement until 30 June 2030.
Pillar 2 Rules – Side by Side Package
The 2026-27 Federal Budget included only a minor update to the already enacted Pillar 2 rules with proposed amendments to Australia’s Pillar 2 legislation to align with the OECD’s “Side-by-Side” (SbS) package (agreed in January 2026) for consistency with other jurisdictions. This applies from 1 January 2026.
Broadly, the SbS package means US headed multinational groups can elect certain SbS safe harbours with reduced exposure to certain Australian top up taxes but with Pillar 2 filing obligations remaining unchanged.
ATO Counter Fraud Strategy
The Federal Government announced further funding and powers for the ATO to focus on strengthening tax system integrity, modernising fraud prevention and targeting non-compliance.
The funding will be $86.3m over four years from 1 July 2026 plus $9.7m per year ongoing 2030-31.
The Government will also strengthen the ATO’s ability to:
-
- combat fraud by tax agents and other intermediaries
-
- 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
-
- existing garnishee powers to be expanded to include jointly held assets in certain circumstances.
The ATO will undertake additional targeted compliance activities over the two years from 2026–27 to address fraud in the system further, including in relation to the Research and Development Tax Incentive.
The measures are projected to increase tax receipts by $218m with an emphasis on implementing modern technology for real-time prevention, victim support and stronger support against intermediaries and high-risk behaviours.
R&D, Innovation and Grants
Research and Development Tax Incentive
There are significant changes ahead for the R&D tax incentive that will create waves in the R&D community and present some interesting transitional challenges. The major changes are summarised below.
Summary of R&DTI offset changes from 1 July 2028 onwards:10132550100entries per pageSearch:
| Current | New | |
|---|---|---|
| SMEs | ||
| Turnover threshold: | Less than $20m | Less than $50m |
| Young SME offset (<10 years) | 18.5% refundable | 23% refundable |
| Older SMEs | 18.5% refundable | 23% non-refundable |
| Large business | ||
| Turnover threshold | Above $20m | Above $50m |
| Low R&D intensity | 8.5% non-refundable | 13% non-refundable |
| High R&D intensity | 16.5% non-refundable available to firms with intensity above 2% of expenditure | 21% non-refundable available to firms with R&D intensity above 1.5% of expenditure |
| Expenditure | ||
| Eligible expenditure | Core R&D and Supporting activities | Core R&D only |
| Minimum expenditure | $20,000 | $50,000 |
| Maximum expenditure | $150m | $200m |
Showing 1 to 12 of 12 entries‹1›
The most contentious change is the exclusion of supporting activities from eligibility. This will create challenges around defining the boundaries between core and supporting activities and increase the compliance burden on claimants.
Restricting the refundable R&D offset to companies younger than 10 years, no matter whether the company has previously claimed or not, will also create many losers.
Venture Capital Tax Incentives
The Government will expand the venture capital tax incentives to better facilitate venture capital investment and support early stage and growth businesses. From 1 July 2027:
-
- The venture capital limited partnership (VCLP) cap on the asset size of the investee business at the time of investment will be increased to $480 million, from $250 million
-
- The early stage venture capital limited partnership (ESVCLP) cap on the asset size of the investee business at the time of investment will be increased to $80 million, from $50 million
-
- The ESVCLP tax incentive cap on the asset size of the investee business, at which investment returns can be fully tax exempt, will be increased to $420 million, from $250 million
-
- The maximum fund size of ESVCLPs will be increased to $270 million, from $200 million.
The increases will apply to new and existing funds and to new investments they make, including where funds make further investments in businesses already held. ESVCLPs must remain in compliance with their existing investment plans or seek approval for a replacement plan.
The eligible venture capital investor program will be closed to new applications from 7.30PM (AEST) 12 May 2026.
Other relevant budget innovation provisions:
-
- Australia’s Economic Accelerator grant program that supported commercialisation of university research has been cut saving $759.9 over the next 5 years
-
- $508.5 million to increase disbursements for medical research from the Medical Research Future Fund
- $70 million for ‘AI Accelerator’ grants to boost AI development through the CRC and CRC-P programs.
Information provided by Bentley’s
