Along with tax reform, cashflow help and red tape relief, the 2026-27 federal budget introduces new layers of complexity that Australian small and medium employers cannot afford to ignore.
Australian SME owners will need to change the way they run their businesses, structure their finances and plan for retirement under a federal budget that delivers the most sweeping tax changes in more than 25 years.
Treasurer Jim Chalmers has made clear the reforms in his 2026-27 budget are an attempt to reward income earned from work over income earned from investments. For small business employers, the blueprint is being widely described as ‘a mixed bag.’ On one side are measures that should improve cash flow and reduce red tape. On the other are structural changes to trusts, capital gains tax and negative gearing that will demand careful planning and professional advice.
“Last night’s budget sends an important signal to Australian businesses that productivity and business confidence are back on the national agenda,” says Employment Hero Managing Director APAC James Keene. “But backing Australian innovation means making sure the full package of measures creates the right incentives to build, invest and stay.
Productivity Measures To Provide Cashflow Boost
Productivity is a key focus of the budget, with good reason: the decade to 2020 experienced the slowest productivity growth in 60 years and the Treasurer concedes recent efforts to stimulate growth have barely moved the needle. For small and medium businesses, the goal is to drive productivity through budget measures that give businesses cash and confidence.
Permanent instant asset write-off
Business lobby groups were united in calls to make the instant asset write-off permanent, after years of policy changes made it hard for SMEs to plan ahead. While the amount was not increased as hoped, the $20,000 instant asset write-off has been set in stone.
This means, any business that purchases a piece of equipment, tool or technology costing less than $20,000 can deduct the full amount immediately rather than depreciating it over several years. The measure will also save businesses an estimated 366,000 hours previously devoted to calculations and record keeping.
Loss carry-backs return permanently
Up to 85,000 businesses with aggregated turnover under $1 billion stand to benefit from the re-introduced loss carry-back measure, which was originally a temporary COVID-era policy. From July 1 this year, companies can receive a refund for tax paid up to two years earlier.
This could help employers who are navigating uneven trading conditions: a business that has a tough year can claim back tax it paid in a profitable year, improving cash flow when it’s needed most.
Startup loss refundability
Similarly, eligible start-ups that are less than two years old will be able to receive a cash refund for tax losses, capped at the value of employment taxes paid, including PAYG withholding and Fringe Benefits Tax.
This measure is an incentive to create jobs and directly rewards founders who take the risk of bringing on staff in their earliest and most vulnerable years. The more people a new business employs, the more it can recover.
“Measures that improve cash flow, reduce administrative burden and simplify regulation can make a meaningful difference, particularly for small and medium businesses operating with lean teams and tight margins,” says Keene. “Expanding the loss carry-back scheme, making the instant asset write-off permanent and reducing unnecessary compliance costs are all practical reforms that help businesses reinvest, hire and plan with greater certainty.”
Fallout From Tax Changes Will Reach SMEs
While the budget’s tax reforms are aimed at investors and homebuyers, there’s fallout for small and medium business owners. If their business doubles as their retirement plan, leaders may be forced to reassess personal wealth strategies if they hold assets across multiple structures.
Capital gains tax overhaul
The longstanding 50 per cent CGT discount is being replaced by an inflation-based model from July 1, with a new minimum 30 per cent tax rate on capital gains and hybrid rules applying to assets purchased before that date.
The government points out that an owner’s main residence will continue to be exempt for CGT purposes and the four existing small business CGT concessions will also be unchanged. But it acknowledges fears from the start-up community that the policy will deter innovation and has promised consultation.
James Keene shares concerns that the new policy may make Australia a less attractive place to build a business. “The reaction from the startup and investment community since last night reflects genuine uncertainty about how some of these tax changes will work in practice,” he says. “There isn’t enough detail yet to fully understand the implications, and getting the implementation right will matter as much as the policy intent. We support a fairer tax system and welcome further consultation, but Australia’s most promising companies need certainty that the settings won’t undermine the very incentives that drive people to build here rather than somewhere else.”
Trust tax reform
A minimum 30 per cent tax rate will apply to trustees of discretionary trusts from July 2028 in a move designed to level the playing field for workers who can’t split their income through trust arrangements.
Small businesses that currently operate through discretionary trusts will have access to rollover relief, allowing them to restructure into companies or fixed trusts without triggering immediate tax consequences. But the legal, tax and operational requirements of restructuring a business mean owners will need to factor lawyer and accountant fees into their budgets.
Red Tape And Regulation Get A Targeted Trim
The budget contains a raft of measures designed to reduce the $160 billion federal compliance burden currently borne by Australian businesses. This follows a campaign by industry groups for a 25 per cent reduction in red tape.
Legislation to cut reporting requirements
The government believes it can slash $780 million in annual compliance costs by pushing through 14 legislative reforms. These changes include raising the monetary thresholds for “large” companies, simplifying climate disclosures, and making electronic recordkeeping and ASIC communications much easier for small businesses and family enterprises.
The Council of Financial Regulators will reduce costs by stopping the flood of redundant data requests which, for SMEs, means fewer hours wasted on duplicative or confusing paperwork when dealing with banks and financial institutions.
Nuisance tariffs cut
An additional 497 nuisance tariffs will be removed, on products including bitumen, wine glasses and air conditioners. The projected saving for businesses is $157 million per year in compliance costs, while the net effect for importers is less paperwork and lower costs at the border.
Productivity Commission inquiry into barriers facing young firms
Red tape will likely be high on the agenda when the Productivity Commission holds an inquiry into ‘business dynamism.’ The budget papers say dynamism describes the extent to which labour and capital are reallocated to their most productive uses. A slowdown in dynamism means fewer firms entering and exiting the market, lower rates of new job creation and reduced innovation.
The inquiry has been tasked with examining barriers facing young firms, noting that these businesses create six out of every 10 new jobs. This offers hope for SME owners who have experienced the friction of Australia’s regulatory environment first-hand.
“Australian businesses aren’t short on ambition,” says Keene. “What they’re short on is time, and too much of it is still being swallowed by disconnected systems, duplicated reporting and administrative overhead. This budget shows government is serious about productivity and we welcome the direction.
Compliance and admin changes affect day-to-day operations
Several measures in the budget target the administrative burden and operational challenges that small business employers face daily, from payroll obligations to navigating the Fair Work system.
Single national market
The budget papers promise to address the regulatory complexity that makes it difficult for businesses to operate across state borders, with a particular focus on moving goods. There’s also a pledge for what is referred to as ‘targeted harmonisation of payroll tax administrative arrangements’ across states and territories, although it does not mention unified payroll rates.
The government also wants to create a single national market for workers. This would involve a national approach to employee screening in the care sector and further work on a national licensing scheme, prioritising electricians and engineers.
Free access to industry standards
In a boost for building sector SMEs, businesses will no longer have to pay for mandatory standards covering construction, health and safety and product safety. The government estimates this will save them up to $1,600 per year.
It is a small but meaningful win for compliance-conscious employers who have been forced to pay for standards they are legally required to follow.
Small business support in Fair Work
Additional funding will go towards helping small businesses engage with the Fair Work Commission. The funding acknowledges that small employers often lack the resources to engage lawyers or HR consultants when dealing with the FWC.
Existing financial and mental wellbeing supports, including the Small Business Debt Helpline, have been extended for a further 12 months.
Expanded monthly business tax payments
A pilot program of ‘dynamic’ PAYG instalments will be expanded, allowing businesses to align tax payments with actual monthly income via automated software, instead of basing it on previous years’ returns. Currently, only 12 per cent of small business instalments accurately match final tax bills, often trapping vital capital through overpayment or causing debt through underpayment.
From July next year, small and medium firms can opt into this monthly cycle with safe harbour protection against interest charges for underestimation. The government estimates the shift away from manual reporting will save businesses an estimated 10,000 hours and $850,000 in compliance costs annually.
How The Bigger Picture Affects SMEs Going Forward
The budget is based on an assumption that oil prices will ease from mid-year and have stabilised by early next year. It factors in a June quarter inflation rate of 5 per cent but expects the CPI to have returned to the RBA’s target range, at 2.5 per cent, by mid-2027.
The Australian labour market is expected to remain resilient. The budget papers predict the unemployment rate will hold around 4.5 per cent, which is still lower than the pre-pandemic average. Employment growth is forecast to be at 1.5 per cent by mid-2027 before climbing back to 1.75 per cent in 2028. However, in the shorter term, there’s an acknowledgement that businesses facing lower consumer demand are likely to cut staff hours or delay hiring rather than jumping straight to layoffs.
Wage growth is also tipped to remain strong, with the Wage Price Index of 3.5 per cent expected through to 2028. This is the longest sustained increase in 15 years. If inflation cools as predicted, this may finally start to ease the cost-of-living pressures squeezing both households and small business margins.
Keene says Employment Hero customers need relief. Platform data shows 43 per cent of business leaders are worried about making it through the year, while 46 per cent say adapting to economic uncertainty is one of their biggest challenges. “In this environment, stability, simplicity and predictability matter just as much as direct financial support,” he says.
For small business owners already preparing for the shift to Payday Super on July 1, this budget further moves the goalposts for immediate and longer-term planning. While some changes can be managed internally, the deeper reforms, such as the overhaul of capital gains and trust taxation, may require a total rethink of how a business is structured.
“Some of our customers, particularly those who have taken on risk to build and grow, will be working through what some of the tax changes mean for them,” Keene says..” As we have done with major reforms affecting our customers and their employees, we look forward to engaging with government on the detail and making sure the implementation works for Australian businesses.”
