The 2026–27 Federal Budget has delivered a set of measures that directly affect how small and medium businesses manage tax and cash flow.
Some of these changes are already legislated. Others are proposed and subject to the parliamentary process. All of them are worth understanding now, because decisions made before a deadline have a different outcome than decisions made after one.
This blog covers three key measures for SME owners: the permanent instant asset write-off, the return of loss carry-back for eligible companies, and proposed changes to PAYG instalments. If you employ staff or run a vehicle through the business, read our companion blog on EV FBT and employer compliance for changes that may also affect your payroll and benefits obligations.
$20,000 Instant Asset Write-Off Is Staying, But Buying for the Deduction Is Not a Strategy
One of the clearest wins in the Budget for small business is the proposed permanent extension of the $20,000 instant asset write-off from 1 July 2026.
This means eligible small businesses with aggregated annual turnover up to $10 million can immediately deduct eligible assets costing less than $20,000 in the year they are used or installed, ready for use. Assets costing $20,000 or more can continue to be placed into the simplified depreciation pool.
What this actually means for your cash flow
A deduction reduces taxable income. It is not a reimbursement. If your business is in a 25% tax bracket and purchases a $15,000 piece of equipment, the deduction saves approximately $3,750 in tax; the business still funds the remaining $11,250 from its own cash. That is a useful saving. It is not a reason to buy something the business does not need.
Key points to know
Key Points to Remember
- The threshold applies per asset, not as an annual cap.
- The asset must be used, or installed ready for use, in the business during the income year.
- Private-use portions must be excluded.
- The write-off applies to eligible small businesses with aggregated turnover up to $10 million.
- Assets of $20,000 or more can go into the small business simplified depreciation pool.
Before making an asset purchase, ask:
Before Making an Asset Purchase, Ask:
- Does the business genuinely need this asset?
- Will it improve productivity, efficiency or revenue?
- Can the business fund the purchase without putting pressure on cash flow?
- Is there a private-use portion that needs to be excluded?
- Does it make more commercial sense to lease, finance or delay the purchase?
Smart asset planning is about spending money where it helps the business grow — not chasing a deduction.
Loss Carry-Back Is Returning – A Cash-Flow Measure for Eligible Companies
Not every year is profitable. Revenue drops. Markets shift. Businesses invest in growth before the results show up in the numbers.
The Budget proposes to reintroduce loss carry-back for eligible companies from income years after 1 July 2026. This may allow a company that has paid tax in earlier profitable years to offset a future tax loss against that prior tax, and potentially receive a refund.
Who may benefit
Eligibility Points to Note
- Companies with aggregated turnover up to $1 billion.
- Businesses that have paid tax in prior years but expect a loss in a future year.
- Companies that have purchased assets eligible for the instant asset write-off, which may contribute to a tax loss in that year.
The carry-back can apply for up to two income years.
For early-stage companies, a separate measure from 2028
From 1 July 2028, a separate proposal introduces loss refundability for small start-up companies in their first two years. The refund will be capped by employment-related taxes paid, including PAYG withholding on employee wages and FBT. This is designed to help early-stage companies access part of the value of their losses sooner, rather than waiting until they return to profit.
What companies should review
What Your Accountant Will Review
- Whether the company has paid income tax in recent years.
- Whether a tax loss may arise in a future year.
- Whether that loss reflects temporary cash-flow pressure, genuine investment in growth, or a deeper business issue.
- Whether the company has employees and PAYG withholding obligations.
- Whether the current business structure is appropriate.
A tax loss is not automatically a business problem. But it needs to be understood in context. Loss carry-back may provide useful tax relief, but it should be considered as part of broader cash-flow planning, not in isolation.
PAYG Instalments: Cash Flow and Real-Time Flexibility from 2027
PAYG instalments are the ATO’s mechanism for collecting income tax progressively throughout the year, rather than in one payment at lodgement time.
When they work well, they prevent a large tax bill from landing unexpectedly. When they are based on outdated income figures, they can quietly drain cash flow throughout the year.
The Budget proposes to give small and medium businesses more flexibility with PAYG instalments from 1 July 2027. Eligible businesses will be able to opt in to monthly instalment reporting and payments, and access a dynamic ATO-approved calculation embedded in business accounting software. The intention is to make instalments more responsive to what is actually happening in the business.
Where PAYG instalments become a cash-flow risk
Common Signs Your PAYG Instalments May Need Review
- The business had a strong prior year, but current revenue has dropped.
- A seasonal business pays instalments during its slow period based on its busy period.
- A growing business needs to preserve cash for wages, stock and operating costs.
- Profit margins have compressed, but instalments have not adjusted.
- There is no regular review process for whether the current instalment rate is appropriate.
Should you opt in to monthly payments?
Monthly PAYG instalments may suit businesses that closely manage cash flow and have reliable bookkeeping data in place. For others, more frequent payments may simply mean more regular cash going out — without a clear benefit. Before opting in, businesses should consider:
What to Check Before Reviewing PAYG Instalments
- Whether accounting software is properly set up and reconciled.
- Whether BAS and income tax lodgements reflect current business activity.
- Whether instalments should be varied because income has changed.
- Whether the business has the bookkeeping discipline to benefit from dynamic calculations.
- Whether monthly payments would create unnecessary admin pressure.
PAYG instalments are not just an ATO compliance obligation. They are part of managing the timing of tax payments and protecting working capital. Getting the instalment rate right throughout the year reduces surprises at lodgement.
The Broader Picture
These three Budget measures, the instant asset write-off, loss carry-back and PAYG instalment changes, all address a common issue: the timing and management of tax in the context of real business cash flow.
None of them should be treated as a standalone decision. Asset purchases affect taxable income. A tax loss in one year may interact with carry-back rules. Instalments affect monthly cash flow. These areas connect.
If your business employs staff, provides vehicles or salary packages, employee benefits, there are also Budget changes to FBT and employer compliance worth reviewing — see our blog on EV FBT changes and employer obligations. If your business is held through a trust or company, or if you hold investment assets alongside the business, see our blog on structures, CGT and property investment changes from the same Budget.
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