Budget 2026 – Small and Medium Business

For small business owners and entrepreneurs, this is a paradoxical budget; encouraging risk-taking and business endeavours through various tax incentives, only to tax long-term gains at a much higher level. On balance it leans positive, but the sting is meaningful and the need for structural planning is real.

• Small businesses owned in a discretionary trust will effectively be taxed as if they were ASX200 listed companies, paying 30% on profits.

• Despite this, there is enough to be excited about if you are a small or medium business operator.

• Incentives for investment and innovation abound, including the reintroduction of the instant asset write off and loss carry back schemes, and expansion of the R&D incentive scheme.

• Start-ups get some cash flow relief through refunds of taxes paid on employees in the first two years.

• Tax incentives are expanded for venture capital investors.

30% tax on trust distributions, what if your business is in there?

Trusts are a common ownership structure for small and medium business operators, providing tax flexibility, asset protection and succession planning benefits.

The target of the minimum tax on trust distributions is high net worth individuals and families; the collateral damage will be small business owners who own their business within a trust. The proposed minimum 30% tax on discretionary trust distributions takes effect from 1 July 2028, though there are carve-outs for primary production and fixed trusts.

Case Study – Proposed Changes
Michael and Mia run a manufacturing business. It is owned in their family trust and has grown into a successful operation generating approximately $200,000 annual net profit. They do not take a salary from the business, preferring to distribute profit to themselves at the end of each financial year. This then funds their lifestyle expenses for the following 12 months.

Before the changes, business profit is distributed from the trust and taxed at their marginal tax rates, including the tax-free threshold. From FY2029 the flat 30% tax rate on distributions apply.

Michael and Mia’s same business structure would have net profit distributions reduced by $15,496 under the proposed distribution tax changes.

Rollover relief

In conjunction with the above, the budget proposes a three-year period of ‘rollover relief’ from 1 July 2027 to allow businesses owned by trusts to transition the ownership structure to a company, partnership or individual ownership. This is designed to allow taxpayers to restructure their affairs towards a more tax effective structure.

Case Study – A Planned Alternative
Michael and Mia want to retain the asset protection benefits but remove the impact of the 30% tax on trust distributions. They rollover the business asset into a company structure. By changing to a company structure, Michael and Mia are $15,496 better off than the trust structure under the new regime, and no different to their current arrangements.

For Significant Wealth Owners and successful business owners, this structural shift in tax on wealth is an opportunity to revisit structures, governance and planning. Cameron Harrison’s Significant Wealth Owners Division works with established business owners and wealthy families to help navigate the increasingly complex financial and taxation environments.

Write off, right back

After years of annual extensions and the uncertainty that came with them, the $20,000 instant asset write-off is now permanently legislated for businesses with turnover under $10 million. Rather than depreciating the asset over its useful life, the asset can be expensed in the financial year it is purchased.

The significance is less about the deduction itself, and more about certainty. Capex programs can now be planned with confidence that the rules won’t change next financial year.

Loss carry back (again)

The loss carry back policy returns in FY2027 after lapsing in 2023. Business turning over less than $1 billion can ‘carry back’ a tax loss and offset it against tax paid up to two years earlier, meaning that a refund of prior year taxes can be realised in the year of the loss.

The two policies work in tandem resulting in a smoother cash outflow profile for small business as losses can generate tax refunds. In Table 4, a $300,000 asset purchase in FY2029 is fully expensed under the instant asset write-off, creating a $200,000 loss for the business. That loss is then carried back against prior years' tax, generating a $50,000 refund – turning a capital outlay into a partially government-subsidised investment.

Start-up loss refundability

From FY2029 onwards, start-ups with less than $10 million can generate a refundable tax offset from losses incurred in their first two years, though limited to the value of fringe benefits tax and tax paid on wages in those loss years. It is effectively a refund of employment taxes paid in connection with that business.

Research and development tax incentive (RDTI)

Innovation was the catchcry of Malcolm Turnbull during his short reign as PM; he’d be ecstatic that ‘innovation’ received nearly 60 mentions in the budget papers. Central to this is the expansion of the R&D incentive regime in expanding the tax offsets for true R&D, rather than allowing ‘supporting’ activities to also be offset. Importantly, the business turnover threshold for full refundable offset increases from $20 million to $50 million.

The key practical change is the removal of 'supporting activities' from eligible R&D, such as literature reviews and equipment maintenance, in favour of concentrating the offset on genuine experimental work. Firms doing real R&D get more; firms claiming the periphery of it get less.

Venture Capital Tax Incentives

The budget expands the tax-exempt investment caps for venture capital and early stage limited partnerships. The threshold for eligible investment at the time of entry rises from $50 million to $80 million in business assets, while the cap at which returns remain fully tax-exempt rises from $250 million to $420 million. Venture capital funds themselves can also grow larger before the tax exemption falls away, with the maximum fund size lifted from $200 million to $270 million.

Combined, it creates more incentive for investment in Australian start-ups.

As partners in your investment journey, we monitor, examine, and navigate change. The Federal Budget is one such factor in our highly considered investment strategy and wealth management process.

This article is one part of our 2026 Budget series. To read more of our Budget commentary, click the links below:

• Federal Budget 2026-27 Summary 

• Economic and Fiscal Implications

• Individuals and Families

For more information on our approach to wealth strategy and investment management, please contact us on +613 9655 5000 or contact our experts here.