2026-27 Federal Budget - Business

Transitioning to a permanent 25% FBT discount for certain electric vehicles

Australia will transition to a permanent 25% discount on FBT for certain electric vehicles (EVs).
From 1 April 2029, a permanent 25% discount on FBT will be available for all electric cars valued up to and including the fuel‑efficient luxury car tax (LCT) threshold, implemented through a 15% rate in the FBT statutory formula.

The following transitional arrangements will be adopted:

• all eligible electric cars will retain the FBT discount rate that was in place when the arrangement commenced

• all electric cars valued up to and including $75,000 that are provided before 1 April 2029 will continue to be eligible for a 100% discount on FBT, implemented through a 0% rate in the FBT statutory formula; and

• electric cars valued above $75,000 and up to and including the fuel‑efficient LCT threshold that are provided between 1 April 2027 and 1 April 2029 will be eligible for a 25% discount on FBT, implemented through a 15% rate in the FBT statutory formula.

The existing 20% statutory rate will continue to apply for all other cars, including electric cars costing more than the fuel‑efficient LCT threshold.

Reportable fringe benefits will continue to be determined for eligible electric cars as if a 20% FBT statutory formula rate or cost basis method applied.

Source: Budget Paper No 2, p 11; Treasurer and Minister for Climate Change and Energy, Fairer tax treatment to encourage affordable EVs, press release, 5 May 2026.

Small business depreciation — instant asset write-off of $20,000 made permanent

The instant asset write-off threshold of $20,000 for small businesses applying the simplified depreciation rules has been extended permanently from 1 July 2026. 

Small businesses (aggregated annual turnover less than $10 million) may choose to calculate capital allowances for depreciating assets under a simplified regime in Subdiv 328-D of ITAA 1997. Under these simplified depreciation rules, an immediate write-off applies for low-cost depreciating assets. A $20,000 threshold currently applies for the immediate write-off, applicable to eligible assets costing less than $20,000. 

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter. The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt out will be suspended until 30 June 2027.

The measure follows a 2023–24 Budget measure to increase the instant asset write-off threshold to $20,000 for the 2023–24 income year. The measure was further extended until 30 June 2025 as part of the 2024–25 Budget. Legislation to extend the instant asset write-off for 12 months until 30 June 2026 was passed as part of the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Act 2025, which received Royal Assent on 4 December 2025.

Source: Budget Paper No 2, p 20; Treasurer and Minister for Small Business, Backing small businesses with tax relief [joint press release], 12 May 2026.

Permanent 2-year loss carry back rules introduced

From 1 July 2026 companies with aggregated annual global turnover of less than $1 billion will be able to use their current year tax losses to claim a refund for taxes paid in the prior 2 income years. 

The loss carry back tax offset, contained in Div 160 of ITAA 1997, was a temporary measure which applied from the 2019−20 to 2022−23 income years. Broadly, it allowed certain eligible companies to choose to carry back income tax losses incurred in those specific income years and apply them against their taxed profits in a previous income year. The benefit generated by this loss carry back was received in the form of a refundable tax offset (called the loss carry back tax offset). The offset effectively represented the tax that the company would have saved if it had been able to deduct that loss in the earlier year using the loss year tax rate. 

The measure essentially re-introduces the loss carry back offset permanently for eligible companies and allows them to carry back tax losses and offset them against taxes paid up to 2 years earlier.  The previous measure had been available to companies with an aggregated turnover of less than $5 billion.

As with the previous temporary measure, the loss carry back tax offset will apply to revenue losses only and will be limited to the company’s franking account balance.

The ATO will be responsible for implementing and administering this measure.

Source: Budget Paper No 2, pp 19-20; Prime Minister, Treasurer and Minister for Finance, Tax reform for workers, businesses and future generations, [joint press release], 12 May 2026; Australian Government Small Business Statement.

Loss refundability introduced for small start-ups

Small start-up companies that generate a tax loss in their first 2 years of operation will be able to utilise that loss to generate a refundable tax offset. The measure will apply for tax years commencing on or after 1 July 2028 to start-up companies with aggregated annual turnover of less than $10 million. 

Importantly, 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. 

The ATO will be responsible for implementing and administering this measure.

Source: Budget Paper No 2, pp 19-20; Prime Minister, Treasurer and Minister for Finance, Tax reform for workers, businesses and future generations [joint press release], 12 May 2026; Australian Government Small Business Statement.

Reforms to R&D tax incentive announced

The Research and Development (R&D) Tax Incentive will be reformed to make it easier to use, increasing the incentive for new businesses to invest in R&D activities. 

From 1 July 2028, the measure proposes to: 

• increase the offset for experimental “core” R&D expenditure from 25% to 50% through a 4.5 percentage point increase in core R&D offset rates

• remove the eligibility of supporting R&D expenditure for the R&D tax incentive
• reduce the intensity threshold from 2% to 1.5%, enabling more firms to qualify for higher offset rates
• allow greater access to the highest refundable tax offset for businesses younger than 10 years by increasing the turnover threshold from $20 million to $50 million, with an equivalent non-refundable offset available for eligible businesses older than 10 years
• lift the maximum R&D tax incentive expenditure threshold from $150 million to $200 million, and
• lift the minimum expenditure threshold from $20,000 to $50,000, with smaller R&D projects valued below $50,000 required to be undertaken with a recognised research organisation to support quality research outcomes. 

The ATO will be responsible for implementing and administering this measure. 

The measure forms part of the first stage of the government’s response to the Ambitious Australia: Strategic Examination of Research and Development Final Report (Report). The Report, which was released on 17 March 2026 by an independent panel and commissioned by the government as part of the 2024–25 Budget, provides 20 recommendations to reform Australia’s R&D system and strengthen national capability.

Source: Budget Paper No 2, p 17-18; Treasurer and Minister for Industry and Innovation, A budget that backs innovation and investment [joint press release], 12 May 2026.

Venture capital tax incentives to be expanded

The venture capital limited partnership (VCLP) and early stage venture capital limited partnership (ESVCLP) tax incentives will be expanded from 1 July 2027. The eligible venture capital investor program will be closed to new applications from 12 May 2026 7:30pm (AEST). 

From 1 July 2027:

• the VCLP cap on the asset size of the investee business at the time of investment will be increased from $250 million to $480 million 

• the ESVCLP cap on the asset size of the investee business at the time of investment will be increased from $50 million to $80 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 from $250 million to $420 million; and
• the maximum fund size of ESVCLPs will be increased from $200 million to $270 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.

This measure forms part of the first stage of the government’s response to the Ambitious Australia: Strategic Examination of Research and Development Final Report.

Source: Budget Paper No 2, p 18–19.

OECD Pillar 2 side-by-side package to be implemented

The global and domestic minimum tax legislation will be amended from 1 January 2026 to implement the side-by-side package agreed by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting on 5 January 2026. 

The global and domestic minimum tax law was implemented in Australia by the Taxation (Multinational — Global and Domestic Minimum Tax) Act 2024, in line with Pillar Two of the Two-Pillar Solution of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) (the Inclusive Framework) to address tax challenges arising from the digitalisation of the economy.

The Inclusive Framework agreed to a side-by-side package on 5 January 2026 that included the following 5 key components:  

• a series of simplification measures to reduce compliance burdens for multinational enterprises (MNEs) and tax authorities in calculating and reporting under the global minimum tax rules

• introduction of a new targeted substance-based tax incentive safe harbour to align the treatment of tax incentives globally
• new safe harbours for MNE groups having an ultimate parent entity located in an eligible jurisdiction that meets minimum taxation requirements
• an evidence-based stocktake process to ensure a level playing field is maintained for all Inclusive Framework members; and
• reinforcement of the objective that qualified domestic minimum top-up tax regimes remain a primary mechanism in the global minimum tax framework for ensuring the protection of local tax bases, particularly in developing countries.

Australian legislation will be amended to implement the side-by-side package from 1 January 2026 to ensure Australia’s global minimum tax rules are consistent with those of other implementing jurisdictions.

Source: Budget Paper No 2, p 12.