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After the federal budget for 2026–27 was handed down on Tuesday evening (12 May), members of the business finance arena have been digesting what the new initiatives mean for small businesses.
The main budget measure that has been met with widespread applause is the permanent enshrining of the $20,000 instant asset write-off (IAWO) into legislation and loss carry back provisions.
The decision to make the $20,000 IAWO permanent was broadly welcomed as a victory for business certainty, providing a direct cash flow injection for millions of small firms.
Sian Fenner, Westpac Group’s head of business and industry, said: “The $20,000 instant asset write off will also now be permanent for businesses with a turnover below $10 million and that starts in the coming financial year. Now this is set to impact about 2.7 million SMEs and it also impacts 1.5 million sole traders. So overall, this means that SMEs that have been experiencing any temporary losses, including when they’re investing to grow AI adoption or improved cost management processes, will have additional cash flows to fund operation, wages, and investment.
“So, for example, an SME company at a 25 per cent tax rate, so that equates to about $5,000 of the $20,000 asset. For a sole trader at the top marginal rate, that could equate to up to $9,000. Moreover, there are no caps on the number of assets.”
Small business lenders have also welcomed the IAWO move. Roberto Sanz, general manager sales & partnerships at SME lender Prospa, said: “The $20,000 instant asset write-off isn’t new, but making it permanent is a major shift. Small business owners have spent years planning around temporary extensions and last-minute renewals. Now they finally have the certainty they need to make confident investment decisions.
“That said, the $20,000 threshold still falls short of what most small and medium businesses actually spend on equipment, vehicles and technology, so there’s more work to do.”
Similarly, Guy Callaghan, CEO of SME lender Banjo Loans, commented: “The permanent inclusion of the $20,000 instant asset write-off is really good. That will help lending...
“I’m glass-half-full on this budget based on where we’re at in the economic cycle. For the SMEs out there, the Budget measures include things that will help for now and into the future... But none of this is a silver bullet that’s going to fix what’s happening at the moment. We’re in really tough times, so we’re not going to see a spike in lending or anything like that because of what the budget announced this week.”
Meanwhile, the Commercial & Asset Finance Brokers Association of Australia (CAFBA) lamented that the IAWO was limited to $20,000, rather than covering “serious income-producing business assets” (typically over $100,000). It also decried that its eligibility was capped at $10 million turnover, saying it wanted to see it increase to $50 million.
CAFBA CEO David Bushby added: “In the current uncertain economic environment, businesses need certainty from government and greater tax support to invest in vehicles, equipment and productive assets that drive expansion and employment. However, if the deductible threshold and turnover limits are not increased, the announced decision will fail to achieve its full economic benefit potential.”
Nevertheless, the association did welcome the loss carry back for small businesses, whereby companies with turnovers over $1 billion can offset revenue losses against tax paid up to two years, limited by franking.
CAFBA said this was a welcome initiative that would assist profitable businesses in times of profit downturn.
The spectre of tax changes on SMEs
However, the industry is warning of “unintended consequences” and “rising complexity” arising from the introduction of a 30 per cent minimum tax on discretionary trusts and the end of the 50 per cent CGT discount. These, they said, represent a foundational shift. Analysts warn this reform will trigger a costly wave of restructuring for family-run operations.
The budget’s move to ban negative gearing on established residential properties purchased after 12 May 2026 from 1 July 2027 is expected to alter the wealth-building strategies of SME owners significantly.
Prospa’s Sanz commented: “The changes to CGT, trust distributions and negative gearing need close attention. Clients are seeing the news, but they need help connecting those broad changes to their own structures.
“Brokers who get on the front foot now, whether that involves funding an equipment upgrade or prompting a review alongside an accountant, are going to be the ones clients turn to first as the SME lending space grows.”
Talking on behalf of Westpac, Fenner commented: “For SMEs, the direct impact is through property holding structures and the personal wealth of business owners. Now SME owners who have used negative-geared residential properties as part of their broader financial strategy will face a somewhat less favourable tax treatment on future acquisitions of established property. As such, while we see a broad range of steps supporting SMEs – such as reducing that red tape, and improving cash flows for SMEs – we do also see that there is some tension of rising complexity for some SMEs ahead.”
Liam Telford, national tax technical partner at RSM Australia, added: “This is the most significant structural change to how investment income, capital gains and family-owned businesses are taxed since the introduction of the 50 per cent CGT discount in 1999. Three of the foundations of how Australian families and businesses have organised their affairs for the past quarter-century are being rewritten at once.
“The interactions between the measures are as important as the measures themselves. Discretionary trusts have been the workhorse structure of Australian family business and family investment for half a century. There are over 840,000 discretionary trusts in Australia, distributing more than $142 billion of income annually. The 30 per cent minimum tax recalibrates the economics of every one of them.”
CAFBA’s Bushby said: “We are deeply concerned that these complex new rules and valuation requirements will adversely impact our members and their commercial clients, leading to unintended consequences and possibly encouraging avoidance behaviour in the market.
“Moving to tax discretionary trust distributions at a rate of 30 per cent, regardless of tax category of trust beneficiaries, is effectively a tax increase on low-income trust beneficiaries and business profit distributions, which will hurt family businesses.”
[Related: Subprime SMEs increasingly ‘credit shopping’ to multiple lenders]
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