Backing Small Business — Budget 2026 IAWO, Loss Carry-Back and Start-Up Refundability

General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.

Budget 2026 packaged six business tax measures under the headline figure of over $3.5 billion in new business tax relief — but unlike the personal-tax package (which became law in June 2026), most of the business package is not yet law as at July 2026. The permanent $20,000 instant asset write-off and the permanent 2-year loss carry-back sit in the Treasury Laws Amendment (Tax Reform No. 2) Bill 2026, introduced 25 June 2026 and still before the House of Representatives, with a Senate committee report due 13 August 2026. The later-starting measures (start-up loss refundability, R&D reform, venture capital changes) await their own legislation. If enacted as introduced, three measures land in 2026-27, one in 2027-28, and two more in 2028-29 — together making the small-business depreciation rules permanent for the first time since 2015, restoring the COVID-era loss carry-back as a permanent feature for companies up to $1 billion turnover, and adding a new loss refundability mechanism for start-ups.

The Senate also added a measure that was not in the May Budget: the turnover threshold for the small business CGT 50% active-asset reduction rises from $2 million to $10 million aggregated turnover from 2027-28 (see section 7 below).

1. Permanent $20,000 instant asset write-off — from 1 July 2026 (bill before Parliament)

Under the Tax Reform No. 2 Bill, small businesses with aggregated turnover up to $10 million would be able to immediately deduct eligible depreciating assets costing less than $20,000, on a permanent basis from 1 July 2026. Until the bill passes, the legislated $20,000 threshold ends 30 June 2026 — the ATO’s instant asset write-off page still shows the 30 June 2026 cut-off. Assets costing $20,000 or more continue to be placed into the small business simplified depreciation pool. The provisions that prevent small businesses re-entering the simplified depreciation regime for 5 years after opting out remain suspended until 30 June 2027.

Treasury estimates the permanent extension saves small businesses around $32 million per year in compliance costs by removing the annual “will it be extended?” question that has shaped every Budget speech since 2015.

Worked example — Coffee Co generates a $3,750 refund

From the Treasury fact sheet:

• Daniel and Eloise run Coffee Co Pty Ltd. The café made $40,000 in taxable profits and paid $10,000 in tax in 2025-26 (at the 25% small business rate).
• In 2026-27 they buy a $19,000 coffee machine, $19,000 in tables and chairs, and $17,000 in outdoor heaters. Each item is under $20,000 → fully deductible under IAWO.
• Without these purchases: $40,000 taxable profit, $10,000 tax. With them: $55,000 in deductions → $15,000 tax loss for 2026-27.
• Under the proposed permanent 2-year loss carry-back (next section), Coffee Co would claim a refund of $15,000 × 25% = $3,750 against the prior year’s tax paid.

Net effect: a single year of asset investment converts directly into immediate cash flow.

Costing: -$815 million in receipts over 5 years from 2025-26 (this includes IAWO + the PAYG dynamic instalment changes bundled into the same measure).

2. Permanent 2-year loss carry-back — from 1 July 2026 (bill before Parliament)

Also in the Tax Reform No. 2 Bill: for tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover under $1 billion would be able to carry back a tax loss and offset it against tax paid up to two years earlier. Key details:

• Revenue losses only (not capital losses).
• Limited by the company’s franking account balance — you can only generate a refund up to the tax actually paid in the prior period that is still represented in the franking account.
• Around 85,000 companies benefit, the majority small businesses.
• Treasury describes this as “reintroducing” loss carry-back — a permanent version of the COVID-era measure (which expired in 2022).

Why this matters for risk-taking

Without loss carry-back, a company that pays tax in profitable years and then makes a loss can only carry that loss forward against future income. Loss carry-back converts the loss into an immediate cash refund, smoothing the cycle and making investment less penal for businesses that have a single bad year.

Costing: -$2.3 billion in receipts over 5 years from 2025-26.

3. Start-up loss refundability — from 1 July 2028

A separate, narrower mechanism for new companies. For tax years commencing 1 July 2028, companies with aggregated turnover under $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 refundable offset is capped at the value of:

• Fringe benefits tax paid in respect of Australian employees in the loss year, plus
• Withholding tax paid on wages to Australian employees in the loss year.

In effect: the government refunds you against the employment tax remittances you’ve already made, even if you have no income tax liability to refund against. This is targeted at start-ups that hire staff before they hit profitability.

Costing: payments +$410 million over 5 years from 2025-26 (in addition to receipts impact).

4. R&D Tax Incentive reform — from 1 July 2028

Three structural shifts:

Treasury estimates the reform delivers 20% more business R&D for each dollar of tax offset and an additional $400 million per year of R&D investment by young firms.

Costing: -$910 million in receipts and -$1.6 billion in payments over 5 years (i.e. the new core uplift is partly self-funded by tightening eligibility).

5. Venture capital expansion — from 1 July 2027

The investee-size caps that limit which businesses can receive concessionally-taxed VC investment are lifted:

The existing Eligible Venture Capital Investor (EVCI) program is closed to new applications from 7:30 PM AEST 12 May 2026 — existing participants are unaffected, but the program no longer accepts new entrants.

6. $250 Working Australians Tax Offset — from 2027-28

The $250 WATO is a separate Budget measure (covered in its own insight) but is relevant here because sole traders running their own business are explicitly eligible for the offset against their business income. The offset is applied to “income derived from work” — wages, salaries, and the business income of sole traders.

Together with the legislated 15% → 14% drop in the second marginal bracket from 1 July 2027 (Treasury’s “five tax cuts” framing), this lifts the effective tax-free threshold for working sole traders to $19,985, or up to $24,985 for low-income earners eligible for LITO. WATO + the 14% rate both commence in 2027-28.

7. Small business CGT: 50% active-asset reduction threshold rises to $10 million — from 2027-28

This one was not in the May Budget — and unlike the depreciation and loss measures above, it is already law. Announced on 18 June 2026 and enacted via Senate amendment to the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026, royal assent 26 June 2026), the aggregated turnover threshold for the 50% active-asset reduction (Subdivision 152-C) rises from $2 million to $10 million from the income year that includes 1 July 2027 (2027-28) and later years.

• Only the 50% active-asset reduction gets the higher threshold. The other three Division 152 concessions — the 15-year exemption, the retirement exemption and the small business rollover — keep the existing $2 million turnover / $6 million maximum net asset value tests.
• At $10 million aggregated turnover, roughly 98% of actively trading businesses are covered by the reduction.
• The 50% reduction continues to stack with the CGT discount (where retained) or the new cost-base indexation when a business owner sells an active asset.

For business owners weighing an exit, this materially widens who can halve an active-asset capital gain from 2027-28 — particularly businesses in the $2m–$10m turnover band that previously failed the basic conditions on turnover and net assets alike.

Wider operating-environment changes

Outside the tax measures themselves, several adjacent reforms compound the cash-flow benefit:

• Permanent extension of dynamic PAYG instalments and monthly opt-in from 1 July 2027. ATO will not charge interest where businesses get an instalment variation wrong using an ATO-approved calculator.
• 497 nuisance tariffs abolished from 1 July 2026 (bringing the two-year total to ~1,000 abolished tariffs) — saving businesses $157 million per year in compliance costs and streamlining ~$23 billion of trade.
• ACCC penalties doubled from $50M to $100M for anti-competitive conduct.
• Free mandatory Australian Standards across construction, OHS and product safety — saves some small firms up to $1,600/year.
• Mental health and financial wellbeing — additional $8 million from 1 July 2026 for NewAccess for Small Business Owners and the Small Business Debt Helpline.

Eligibility quick reference

What’s NOT changing

• 25% small business company tax rate — retained.
• Small business CGT concessions — all four Division 152 concessions survive the CGT reform. The 50% active-asset reduction gains a higher $10M turnover threshold from 2027-28 (section 7); the 15-year exemption, retirement exemption and rollover keep their existing $2M turnover / $6M net asset tests.
• Simplified depreciation pool rate (15% first year, 30% thereafter) — retained for assets ≥$20,000.
• Existing PAYG instalment frequency — unchanged unless you opt in or have a demonstrated history of non-compliance.

Calculators

• Depreciation Calculator — model IAWO immediate deduction vs simplified pool for assets above/below $20,000.
• Company Tax Calculator — model 25% small business rate, retained earnings, franking accounts.
• Income Tax Calculator — sole-trader cash flow including legislated 2026-27 bracket changes plus the $1,000 instant deduction and $250 WATO.

Sources

• Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026) — royal assent 26 June 2026 (CGT active-asset reduction threshold; personal-tax measures)
• Treasury Laws Amendment (Tax Reform No. 2) Bill 2026 — introduced 25 June 2026, before Parliament as at July 2026 (permanent IAWO; loss carry-back)
• Treasury Budget Paper No. 2, Tax Reform – making tax simpler for businesses (12 May 2026), p20
• Treasury Budget Paper No. 2, Tax Reform – loss refundability reforms for businesses and start-ups (12 May 2026), p19
• Treasury Budget Paper No. 2, Tax Reform – better targeting the Research and Development Tax Incentive (12 May 2026), p17
• Treasury Budget Paper No. 2, Tax Reform – expanding venture capital tax incentives (12 May 2026), p18
• Treasury fact sheet: Backing small businesses to grow, compete and build resilience (12 May 2026)
• Treasury fact sheet: Productivity Package (12 May 2026)

Related reading

• $1,000 Instant Tax Deduction — Budget 2026
• $250 Working Australians Tax Offset
• 30% Minimum Tax on Discretionary Trusts
• Federal Budget 2026 Summary
• Budget 2026 Explained: Winners and Losers