Australian Federal Budget 2026-27: Every Tax Change for Sole Traders, SMBs and Accountants

In short: Australia's 2026-27 Federal Budget (12 May 2026) brought a permanent $20,000 instant asset write-off and a $1,000 flat deduction for wage earners from 1 July 2026. From 1 July 2027, CGT indexation replaces the 50% discount and negative gearing is limited for established residential property bought after Budget night. These four are now law; the proposed 30% discretionary trust minimum tax from 1 July 2028 is not.

The 2026-27 federal budget small business announcements landed in Canberra on 12 May 2026, and they reshape how sole traders, SMBs, and accountants will run their books from 1 July 2026 onwards. This guide walks through every tax measure published in Budget Paper No. 2: what changes, when it starts, who's affected and what to do about it. We've translated the Treasury press release into plain English so you can decide what matters for your business this week, this quarter, and over the next two financial years.

Disclaimer: This article provides general information only and does not constitute tax advice. Consult a registered tax agent for advice specific to your circumstances.

TL;DR: What Changed in the 2026-27 Budget

On Budget night most of these measures still needed legislation. Since then, the $1,000 deduction, WATO, and the CGT and negative gearing changes became law in the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Royal Assent 26 June 2026), and the permanent IAWO and loss carry-back in the Treasury Laws Amendment (Tax Reform No. 2) Act 2026 (Royal Assent 26 August 2026). The discretionary trust minimum tax is not yet law (exposure draft consultation ran from 3 to 18 September 2026). Payday super, the 15% rate cut and AML/CTF Tranche 2 were legislated before this Budget; they're included because they start in the same window.

Changes That Take Effect 1 July 2026

The bulk of the Budget's small-business measures kick in on the first day of the 2026-27 financial year. Here's what shifts on day one. Source: Budget.gov.au and Budget Paper No. 2.

Permanent $20,000 Instant Asset Write-Off

The instant asset write-off (IAWO) has been extended one financial year at a time since 2015. Every year, businesses and accountants have waited for the May Budget to find out whether they could deduct an asset purchase upfront or whether it would have to be depreciated over years. According to Budget Paper No. 2 (2026-27), that annual cliff-edge is gone: the $20,000 per-asset write-off for small businesses with aggregated annual turnover under $10 million is now permanent from 1 July 2026.

The mechanics don't change. Each eligible asset must cost less than $20,000 (GST-exclusive if you're registered for GST). The threshold is per asset, not per year, so you can write off multiple sub-$20,000 assets in the same year. The asset must be first used or installed ready for use from 1 July 2026 onwards. The Government estimates the permanent write-off will improve cash flow for small businesses by around $890 million over the next five years (Budget 2026-27: Tax reform).

For a deeper breakdown of how the permanent threshold interacts with the small business pool, mixed-use assets, and second-hand purchases, read our Permanent IAWO deep dive and IAWO recordkeeping checklist. To model a specific purchase, use our instant asset write-off calculator or the broader instant asset write-off guide.

Second-Bracket Tax Cut (16% to 15%)

This cut isn't a Budget night surprise: it was announced in the 2025-26 Budget and legislated in March 2025. From 1 July 2026, the second income bracket ($18,201 to $45,000) drops from 16% to 15%, and from 1 July 2027 it falls again to 14%. The maximum benefit in 2026-27, at the top of the bracket, is $268 a year (1% of $26,800), which flows through PAYG withholding and your 2026-27 tax return.

For sole traders and freelancers, the lower rate applies automatically when your 2026-27 return is assessed; there's nothing to claim or apply for. If you pay PAYG instalments, they're worked out from your latest assessment, and the ATO may, but doesn't have to, build in the new rate, so check that they still match what you expect to owe. Use our sole trader tax calculator to model the impact on your 2026-27 take-home, and read our audience guide for freelancers for the full picture of how the cut interacts with tax-free thresholds, the LITO, and the new $1,000 flat deduction.

$1,000 Instant Tax Deduction + Working Australians Tax Offset

Two separate measures are often discussed together because they both reduce tax for workers. From 1 July 2026, around 6.2 million Australians are expected to benefit from a $1,000 flat work-related expenses deduction that needs no receipts. From 1 July 2027 (the 2027-28 income year), more than 13 million workers with labour income above the tax-free threshold also get a $250 Working Australians Tax Offset (WATO), applied when their return is assessed. Both became law in June 2026.

The flat deduction is automatic. If you're eligible, the ATO applies it, and any work-related expenses you claim reduce it dollar for dollar, so each year you end up with the larger of $1,000 and your itemised, substantiated work-related expenses. If your real work-related expenses are higher (common for tradespeople and home-office workers on wages), keep itemising. If they are lower (common for office workers with employer-supplied tools), the flat $1,000 is a free upgrade. Treasury estimates the average tax saving across eligible workers at roughly $205.

For sole traders, the flat deduction only applies if you also earn labour income such as wages: the ATO says it doesn't apply if you only earn business income. Your ABN business expenses (software, vehicle, home office, depreciation) are claimed as usual in the business section of your return and don't reduce the $1,000. We've published two companion guides to help you decide: How to claim the $1,000 flat deduction step-by-step and Flat $1,000 vs itemise: which deduction is better?. The WATO measure is covered separately in our $250 Working Australians Tax Offset deep dive and $1,000 instant tax deduction explainer.

Payday Super

Payday super is the biggest operational change for any business with employees. From 1 July 2026, employers must pay the super guarantee at the same time as wages (every pay run, weekly or fortnightly), and the contribution must be received by the employee's super fund within 7 business days of the pay date (20 business days for a new employee's first contribution). The current quarterly super guarantee charge (SGC) regime is replaced.

The change is law (passed in 2025), and the ATO has published a first-year compliance approach (PCG 2026/1). SGC penalties for missed quarterly payments still apply to 2025-26 obligations, but from the first pay run after 1 July 2026, the new clock starts. Late contributions trigger a redesigned SGC with shorter cure windows and tighter interest accrual. Most payroll providers, including Xero, MYOB and Employment Hero, have already announced product updates to handle the cadence shift, but you should confirm with your provider that your setup handles it.

Sole traders without employees are unaffected; personal concessional contributions for self-employed people still follow the annual cap and can be made any time before 30 June. Read the payday super start date breakdown for the full transition rules, and the payday super readiness checklist for accountants for the practitioner playbook.

Medicare Levy Threshold Uplift (2.9%)

A smaller but consequential change for low-income households: from 1 July 2025 (the 2025-26 income year), the Medicare levy low-income thresholds rise by 2.9%. This means roughly 1 million individuals, families and seniors who would have started paying the 2% levy at the previous threshold remain exempt or in the phase-in band. Budget Paper No. 2 sets the new figures: the singles threshold rises from $27,222 to $28,011, the family threshold from $45,907 to $47,238, and the single seniors and pensioners threshold from $43,020 to $44,268 (see the ATO's individual income tax information). There's nothing to apply for: the threshold is built into your tax assessment. Read more in our Medicare levy threshold deep dive.

AML/CTF Tranche 2 for Accountants

The long-anticipated Tranche 2 of Australia's anti-money-laundering and counter-terrorism financing regime takes effect for accountants, tax agents, BAS agents, and registered tax practitioners from 1 July 2026. Practitioners providing "designated services" (including assisting with the formation or restructuring of legal entities, managing client money, and helping clients buy or sell a business or real estate) will be classified as reporting entities under the AML/CTF Act.

Practical obligations include: customer due diligence (CDD) when onboarding a new client, ongoing monitoring of high-risk relationships, suspicious matter reporting (SMR) to AUSTRAC, and 7-year record retention for all CDD documentation and transaction records. AUSTRAC expected newly regulated firms to be enrolled, with an AML/CTF program, a compliance officer and trained staff, by 1 July 2026, and says that after that date it will prioritise enforcement against entities that wilfully ignore the obligation to enrol or are complicit in, or wilfully blind to, money laundering. Sole-practitioner accountants are captured too if they provide the designated services.

Read the full breakdown of what's in scope, what records to keep, and how to update your engagement letters in our AML/CTF Tranche 2 for accountants explainer and the accountant Budget 2026 client comms template.

Changes That Take Effect 1 July 2027

Two of the most politically significant measures start in the second financial year. Both were proposals on Budget night, and both became law when the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026.

CGT Indexation + 30% Minimum on Real Gains

As set out in Budget Paper No. 2 (2026-27), the 50% capital gains tax discount for individuals, trusts and partnerships on assets held more than 12 months will be replaced with cost base indexation combined with a 30% minimum tax on net capital gains. The change applies from 1 July 2027 to gains arising on or after that date, on all CGT assets, including ones you already own; the 50% discount still applies to gains arising before 1 July 2027.

The mechanics: instead of halving your nominal capital gain and adding it to your assessable income at marginal rates, you index the cost base for inflation (using a CPI-linked factor), calculate the real gain, then apply your marginal rate to the full real gain, with a floor of 30% if your marginal rate is lower. Investors in new residential property can choose either the new indexation method with the minimum tax or the existing 50% discount, to keep the incentive for new housing supply. Income support recipients, including Age Pension recipients, are exempt from the minimum tax.

The reform is the largest structural change to the CGT regime since the 50% discount was introduced in 1999. Read the CGT indexation and 30% minimum deep dive for worked examples across share, property, and crypto disposals, and Budget.gov.au for the official summary.

Negative Gearing Limits on Established Residential Property

The Budget's partial wind-back of negative gearing, now law, applies only to established residential properties acquired from 7:30pm AEST on 12 May 2026 (Budget night). From 1 July 2027, losses on those properties can only be offset against:

• Residential rental income, and
• Capital gains from residential property.

Losses cannot be deducted against salary, wages, business income or other passive income; excess losses carry forward against future residential property income. This change affects investor purchases from Budget night onward, even though the rule itself starts 1 July 2027.

Grandfathering is broad: every property acquired before 7:30pm AEST on 12 May 2026 (including contracts signed but not yet settled) keeps full negative gearing until it is sold, and eligible new builds (off-the-plan or freshly constructed) purchased after Budget night also retain full negative gearing. The carve-out for new builds is intended to preserve the supply incentive that the existing regime provides. Existing investor portfolios are unaffected; you can hold a grandfathered property forever and continue to claim losses against your salary.

The full mechanics, including how the rule treats holiday lets, mixed-use property and refinancing of existing loans, are covered in our negative gearing changes deep dive.

Changes That Take Effect 1 July 2028

Discretionary Trust 30% Minimum Tax + Restructure Rollover

The Budget's longest-dated measure, and the one most likely to drive structural change in the SMB market, is the proposed 30% minimum tax on discretionary trusts. As proposed in Budget Paper No. 2, from 1 July 2028 trustees of discretionary trusts will pay a minimum tax of 30% on the trust's taxable income, and beneficiaries other than companies will receive non-refundable credits for the tax the trustee pays. It is not yet law: Treasury released exposure draft legislation for consultation from 3 to 18 September 2026.

Around 350,000 active small businesses operate through a discretionary trust, and the Government's Budget tax explainer expects 40% of them (140,000) not to pay extra tax or need to restructure in any given year. The minimum tax doesn't apply to fixed and widely held trusts, complying super funds, special disability trusts, deceased estates or charitable trusts, and some income is excluded, such as primary production income and income from assets of discretionary testamentary trusts that existed at announcement. The final boundaries will be set by the legislation.

Critically, the measure comes with a 3-year restructure rollover running from 1 July 2027 to 30 June 2030. During this window, businesses operating through a discretionary trust can move into another entity type, such as a company or a fixed trust, with rollover relief so the restructure doesn't trigger an immediate tax bill (state stamp duty is a separate question). It is described as expanded rollover relief, beyond the existing small business restructure roll-over, and is designed to give discretionary trust owners time to choose their post-2028 structure.

Anyone running a business through a trust should start the structuring conversation with their accountant in 2026-27, not 2027-28. Read the discretionary trust 30% minimum tax deep dive, the trust restructure rollover window guidance for accountants, and our existing sole trader vs company in Australia comparison if you're weighing alternative structures. The accompanying loss carry-back deep dive and loss carry-back records guide cover the corporate side of the transition.

ATO Compliance & Enforcement: The Shadow Economy Funding in Context

The ATO compliance funding often quoted alongside this Budget was actually set in the previous Budget (2025-26, delivered in March 2025) under the measure "Strengthening Tax Integrity", which also extended the Tax Avoidance Taskforce set up in 2016. Three of its line items add up to roughly $281 million:

• $155.5 million over 4 years from 1 July 2025 to extend and expand the Shadow Economy Compliance Program, targeting worker exploitation, under-reporting of taxable income, illicit tobacco and other activity that lets non-compliant businesses undercut competitors. The ATO already data-matches lifestyle assets (boats, aircraft, high-value vehicles), sharing-economy platforms and short-stay accommodation, so expect it to compare those records with the income you declare.
• $75.7 million over 4 years from 1 July 2025 to extend and expand the Personal Income Tax Compliance Program: proactive, preventative and corrective work in key areas of non-compliance, such as work-related and rental property deductions.
• $50 million over 3 years from 1 July 2026 to extend the Tax Integrity Program, which makes sure medium and large businesses and wealthy groups pay their tax and super on time.

The whole 2025-26 measure, including $717.8 million for the Tax Avoidance Taskforce, was estimated to raise $3.2 billion in receipts over five years. The 2026-27 Budget's own ATO measure is smaller and aimed at fraud: $86.3 million over four years from 1 July 2026 for phase 2 of the ATO's Counter Fraud Strategy, plus targeted compliance work over two years. For sole traders and SMBs, the practical effect is that the documentation standard for deductions is rising. If you're claiming a 90% business-use percentage on a vehicle, the ATO is increasingly likely to ask for a logbook. If you're claiming home office hours under the actual cost method, expect to show the diary entries. The ATO's shadow economy enforcement deep dive covers the data-matching mechanics and what records you should keep going forward.

What Didn't Change (and Why That Matters)

Budget night announcements are often as important for what they leave alone as for what they alter. A few items that were widely rumoured but did not appear in Budget Paper No. 2:

GST Registration Threshold ($75k Unchanged)

The $75,000 GST registration threshold for businesses (and the $150,000 threshold for non-profits) did not change. There was speculation in the lead-up that the threshold might be raised to $85,000 or $100,000 to match indexation since the threshold was last set in 2007, but the Budget held the line. Sole traders crossing $75,000 in projected annual turnover during 2026-27 must still register for GST within 21 days. Read more in our GST registration guide.

Working-from-Home 70c/hr Method Unchanged

The ATO's revised fixed-rate method for home office expenses, set at 70 cents per hour for 2024-25 and 2025-26, was not changed in the Budget. The actual cost method is also retained. Sole traders and employees claiming home office should continue to use the same approach as 2025-26: keep your hours diary and your supporting evidence (utility bills, internet plans, depreciation schedule for office furniture). The home office deduction calculator and our home office calculator deep dive walk through both methods.

Vehicle Cents-per-Kilometre Rate: Set by the ATO, Not the Budget

The cents-per-km rate for work-related vehicle deductions was 88 cents per kilometre for 2024-25 and 2025-26. The Budget didn't change it, but the ATO has since set it at 91 cents for 2026-27. The 5,000km cap remains. For higher business-use percentages, the logbook method continues to produce a larger deduction. Tradies, rideshare drivers, and any sole trader using their car for business should pick the method that produces the bigger result, and document accordingly.

Energy Bill Rebates Expired

The federal energy bill rebate, expanded in the 2024-25 Budget and extended in the 2025-26 Budget at $75 a quarter until 31 December 2025, was not extended for 2026-27. State-based rebates (where they exist) continue independently, but the federal household and small business credits ($300 and $325 in 2024-25) do not appear in the new Budget. Factor that into your 2026-27 cash-flow forecast if you've been receiving the credits as a quarterly bill reduction.

Action Checklist by Audience

The Budget gave you about seven weeks before 1 July 2026 to get organised. Here's what to do, depending on who you are. Read our tax planning new year expenses guide for the broader pre-year-end playbook. Our 2026-27 Federal Budget hub groups every guide in this series by audience.

For Sole Traders

• Start receipt-scanning every business expense now. With ATO compliance funding extended, a complete digital trail is the single biggest protection against denied deductions. The sole trader audience guide walks through which categories matter most.
• Check whether the $1,000 standard deduction applies to you. It only applies to labour income such as wages, so it matters if you also have a job; if your work-related expenses from that job are under $1,000, the ATO applies the flat $1,000 automatically from 2026-27. Business expenses are claimed as usual either way.
• Plan major asset purchases around the permanent IAWO. With the $20,000 threshold now permanent, there's no rush to bring forward purchases before 30 June 2026. Buy when you actually need the asset.
• Check your PAYG instalments against the 15% bracket cut. Instalments are worked out from your latest assessment, and the ATO isn't required to build in the lower rate. If they look too high for what you now expect to owe, you can vary them.
• Update your home office and vehicle records. With ATO scrutiny rising, every deduction needs substantiation. Use the home office calculator and keep a logbook for vehicle claims.
• Review your structure. If you operate through a discretionary trust, start the conversation with your accountant about the 2027-30 restructure rollover window. See sole trader vs company in Australia.
• Industry-specific guides: tradies and sole traders, rideshare drivers, IT contractors, content creators, real estate agents, personal trainers and cleaners.

For SMBs with Employees

• Confirm your payroll provider is ready for payday super, which started on 1 July 2026. Xero, MYOB, Employment Hero and other major providers have all announced compliance roadmaps, so confirm your specific plan supports the new cadence and pay timing.
• Review your cash-flow buffer for weekly/fortnightly super payments. Quarterly super let businesses hold contributions in working capital for up to about four months (a full quarter plus the 28 days before the due date). From 1 July 2026 that buffer is gone, so model the working capital impact now.
• Use the BAS quarterly calculator to project your 2026-27 GST and PAYG positions under the new tax rates.
• Plan permanent IAWO purchases across the small business pool. Multiple sub-$20k assets per year remain fully deductible.
• Decide on company vs trust structure now if planning a restructure. The 3-year rollover window from 1 July 2027 is generous, but advisors will book up early.
• Audit your employee classification. With payday super and ATO compliance funding both rising, the sham contracting and employee-vs-contractor distinction will see more scrutiny. The gig worker audience guide covers the contractor side.
• Review your loss position. Companies with aggregated turnover under $1 billion and current-year losses can carry them back against the prior 2 years' tax paid, for income years starting on or after 1 July 2026: a refundable benefit worth modelling now.

For Accountants

• Audit AML/CTF Tranche 2 readiness. Identify which clients trigger "designated services" (entity formation, trust restructures, client money handling). Implement a CDD workflow: the obligations started on 1 July 2026. See the AML/CTF Tranche 2 for accountants explainer for the full obligation map.
• Update engagement letters. Add Tranche 2 disclosures, record retention notices, and CDD requirements before reissuing for the new financial year.
• Plan client trust structure conversations now. The 2027-30 restructure rollover is a major advisory opportunity but only if you start the modelling in 2026-27. The trust restructure rollover guidance walks through the conversation framework.
• Send a Budget client comms email within a week of Budget night. The longer you leave it, the more clients will read incorrect summaries elsewhere. Use the Budget 2026 client comms template.
• Ramp up payday super training. Every employer client needs the readiness conversation: payday super started on 1 July 2026. The payday super readiness checklist for accountants gives you a one-page client-facing handout.
• Capture loss carry-back records for company clients. From 1 July 2026, companies under $1B turnover need clean prior-year records to claim the carry-back. See loss carry-back records clients need.
• Review your tooling. A receipt-capture workflow integrated into your client onboarding, like the one described in how accountants use Taxr, substantially reduces the substantiation burden on both sides. Visit the accountants audience page for the full firm playbook.

Frequently Asked Questions

When does the permanent instant asset write-off start?

The permanent $20,000 instant asset write-off applies to eligible assets first used or installed ready for use from 1 July 2026. Each asset must cost less than $20,000 (GST-exclusive if you're registered for GST) and be used by a small business with aggregated annual turnover under $10 million. The threshold is per-asset, so you can write off multiple sub-$20,000 assets in the same year.

Who qualifies for the new $1,000 flat work-related deduction?

Australian residents with assessable labour income, such as salary and wages, director fees or parental leave pay, from the 2026-27 income year; Treasury expects about 6.2 million workers to benefit. A sole trader with only business income isn't eligible. The ATO applies it automatically and you don't need receipts. Any work-related expenses you claim reduce it dollar for dollar, so you get whichever is bigger.

Does payday super apply to sole traders?

Payday super applies to employers paying super guarantee for employees, not to sole traders paying super for themselves. If you're a sole trader with no employees, your personal concessional contributions still follow the existing concessional cap rules and can be made any time before 30 June. If you employ even one person, payday super applies to you from 1 July 2026.

Will negative gearing changes be retrospective?

No. Properties acquired before 7:30pm AEST on 12 May 2026 (Budget night), including contracts signed but not yet settled, keep the existing negative gearing rules until they are sold. Eligible new builds purchased after Budget night also remain eligible for full negative gearing. Only established (existing) residential properties acquired after that time are subject to the limits from 1 July 2027, which became law in June 2026.

Where can I find the official Budget Papers?

All four Budget Papers, ministerial statements, and the Treasurer's speech are published at budget.gov.au. Budget Paper No. 2: Budget Measures contains the full revenue and expense measures with start dates and fiscal estimates. Budget Paper No. 1 covers the macroeconomic outlook and Budget Paper No. 3 covers federal financial relations.

When will Senate amendments be known?

Most are already known. The CGT and negative gearing changes, the $1,000 deduction and the Working Australians Tax Offset became law in June 2026 in the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, and the permanent IAWO and loss carry-back are also law. The discretionary trust minimum tax is still to come: Treasury consulted on exposure draft legislation from 3 to 18 September 2026. Watch the Treasury and APH websites for the Bill.

What if I already lodged my 2025-26 return?

Almost nothing in the Budget changes 2025-26. The exception is the Medicare levy low-income thresholds, which rise 2.9% for 2025-26 (singles: $28,011); if your income is near the threshold, ask your tax agent whether it affects you. Otherwise the 2025-26 financial year ended on 30 June 2026 under the existing rules (16% second bracket, the temporary $20,000 IAWO, current super and CGT rules). Almost every Budget measure starts from 1 July 2026 onwards. If you've already lodged, you don't need to amend anything based on Budget night announcements. Use our EOFY checklist for the 2025-26 lodgement window.

Should I bring forward a major asset purchase before 1 July 2026?

Generally no. The current $20,000 instant asset write-off was already extended to 30 June 2026, and from 1 July 2026 it becomes permanent at the same threshold. There is no advantage to rushing a purchase across 30 June (businesses with turnover of $10 million or more can't use the $20,000 write-off in either year). For small businesses, timing the purchase to when you actually need the asset is the right call.

The Budget rewards businesses that document early and often. Taxr's AI receipt scanner reads each receipt when you scan it, suggests an ATO-aligned category, and exports a clean Excel or PDF report for your accountant. Whatever the final rules look like for the measures not yet law, your records will be ready. Download Taxr and start your budget-ready year today.