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

The 2026-27 federal budget small business announcements landed in Canberra tonight, 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

Every measure beyond Stage 3+ Phase 2 (already legislated), the Medicare levy uplift, and ATO funding is described in Budget Paper No. 2 as subject to passage of enabling legislation. Treat the start dates as government intent, not law, until each Bill clears Parliament.

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 between 1 July 2026 and the indefinite future. Treasury estimates the permanent measure improves business cash flow by roughly $890 million over the forward estimates by removing the year-end timing distortion that the temporary version created.

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.

Stage 3+ Phase 2 Tax Cuts (16% → 15%)

Stage 3+ Phase 2 isn’t a Budget night surprise — it was legislated in 2025 — but Treasury has confirmed the start date and the dollar effect for the average wage. From 1 July 2026, the second income bracket ($18,201 to $45,000) drops from 16% to 15%. The ATO confirms that the maximum benefit at the top of the bracket is approximately $268 per year, accruing automatically through PAYG withholding tables and processed through your 2026-27 tax return.

For sole traders and freelancers who pay tax through PAYG instalments, the new rate flows through the next instalment notice issued after 1 July 2026. There’s nothing to claim or apply for. 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 the same group of workers. From 1 July 2026, around 6.2 million Australians — including roughly 1.5 million sole traders — can claim a $1,000 flat work-related expenses deduction without producing a single receipt. From 1 July 2027, those same workers receive an additional $250 Working Australians Tax Offset (WATO) automatically.

The flat deduction is opt-in. Each financial year, you choose either the $1,000 flat amount or the sum of your itemised, substantiated deductions. If your real deductions are higher (which is common for tradies, rideshare drivers, and home-office workers), keep itemising. If your real deductions 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 sits alongside (not instead of) deductions for ABN-related business expenses. You can still claim software, vehicle, home office, and depreciation on Schedule B as a sole trader and use the $1,000 flat amount for any non-business work-related expenses you can’t otherwise substantiate. 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. The current quarterly super guarantee charge (SGC) regime is replaced.

The change is being phased in operationally rather than legislatively (SGC penalties for missed quarterly payments still apply for any 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 — Xero, MYOB, Employment Hero — have already announced product updates to handle the cadence shift, but you should confirm with your provider this quarter so you’re not scrambling in June.

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 2026, the Medicare levy low-income thresholds rise by 2.9% in line with CPI. 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. The exact new threshold figures are set out in Budget Paper No. 2 and will be reflected in the ATO’s individual income tax tables before 1 July. There’s nothing to apply for — the threshold is built into your 2026-27 tax assessment automatically. 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 providing certain financial planning advice — 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 has indicated a 12-month “education-first” enforcement posture in the first year. Firms with more than ~5 staff are most exposed, but sole-practitioner accountants are also captured 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 are pushed to the second financial year, giving Parliament a full sitting calendar to work through the enabling legislation. Both are framed in Budget Paper No. 2 as proposals, not law, and subject to passage of enabling legislation.

CGT Indexation + 30% Minimum on Real Gains

As proposed in Budget Paper No. 2 (2026-27), the 50% capital gains tax discount for individuals on assets held more than 12 months will be replaced with an indexation-based discount combined with a minimum 30% effective tax rate on the real (post-indexation) gain. The change applies from 1 July 2027 to disposals of assets acquired after that date.

The mechanics: instead of halving your nominal capital gain and adding it to your assessable income at marginal rates, you would 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. For housing investors specifically, Treasury has flagged an election allowing investors to choose either the new indexation method or the existing 50% discount on disposal, providing a transition pathway for properties already in the system.

The proposed reform is the largest structural change to the CGT regime since the 50% discount was introduced in 1999. It’s also the measure most likely to be amended in the Senate. Read the CGT indexation and 30% minimum deep dive for worked examples across share, property, and crypto disposals. The Budget.gov.au website will host the exposure draft when Treasury releases it.

Negative Gearing Limits on Established Residential Property

The Budget proposes a partial wind-back of negative gearing, applying only to established residential properties purchased after 12 May 2026 (Budget night). For properties contracted from that date forward, rental losses can only be offset against:

• Rental income from other properties, and
• Future capital gains on disposal.

Losses cannot be deducted against salary, wages, business income, or other passive income. This is the change that will affect new investor purchases from Budget night onward — even though the rule itself starts 1 July 2027.

Grandfathering is broad: every property contracted on or before 12 May 2026 keeps full negative gearing indefinitely, and new builds (off-the-plan or freshly constructed) purchased after 12 May 2026 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 undistributed discretionary trust income. As proposed in Budget Paper No. 2, from 1 July 2028 trustees of discretionary trusts will pay a minimum effective tax rate of 30% on income that isn’t distributed to beneficiaries who pay tax at the full marginal rate.

Approximately 350,000 SMBs use discretionary trusts as part of their structure today. Treasury has indicated that roughly 40% will be exempt from the new minimum, primarily through carve-outs for trusts whose distributions flow to beneficiaries already paying tax at 30% or higher (corporate beneficiaries, high-marginal-rate individuals), trusts with deceased estates in the chain, and certain testamentary trusts. The detailed exemption boundaries will be set in regulation alongside the Bill.

Critically, the measure comes with a 3-year tax-free restructure rollover running from 1 July 2027 to 30 June 2030. During this window, businesses operating through a discretionary trust can restructure to a different vehicle — sole trader, partnership, or company — without triggering CGT, stamp duty (subject to state agreement), or other rollover-blocking events. The window is wider than the Subdivision 122-A small business restructure relief and is specifically 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 — $231M Shadow Economy Package

The Budget funds the largest single boost to ATO compliance capability since the Tax Avoidance Taskforce was established in 2016. Three line items in Budget Paper No. 2 add up to roughly $281 million over the forward estimates:

• $155.5 million over 4 years for the Shadow Economy programme. The ATO will expand its data-matching across cash-economy industries, lifestyle assets (boats, aircraft, high-value vehicles), and undeclared income from short-stay accommodation, sharing-economy platforms, and second-hand goods marketplaces. Expect more pre-fill prompts in myTax for transactions the ATO already knows about.
• $75.7 million over 4 years for Personal Income Tax Compliance. The ATO will increase audit and review activity targeting work-related deductions, rental property deductions, and undisclosed foreign income. Sole traders claiming high vehicle, home office, or travel deductions are explicitly named as a focus area.
• $50 million over 3 years for the Tax Integrity Programme, focused on large business, multinational profit-shifting, and complex tax structures.

Treasury estimates the package will return roughly $1.2 billion in additional receipts over the forward estimates — about 4-to-1 on the spend. 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 67c/hr Method Unchanged

The ATO’s revised fixed-rate method for home office expenses, set at 67 cents per hour, 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 88c/km Unchanged

The cents-per-km rate for work-related vehicle deductions, set at 88 cents per kilometre for 2025-26, was not increased in the Budget. The 5,000km cap also 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 introduced in the 2024-25 Budget and extended in 2025-26 was not extended for 2026-27. State-based rebates (where they exist) continue independently, but the $300 federal household credit and $325 small business credit 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 gives 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.

For Sole Traders

• Start receipt-scanning every business expense now. With ATO compliance funding rising and audit thresholds dropping, a complete digital trail is the single biggest protection against denied deductions. The sole trader audience guide walks through which categories matter most.
• Decide flat $1,000 or itemised for 2026-27. Run the numbers on your 2025-26 itemised work-related deductions; if you’re under $1,000, the flat method is a free upgrade from 1 July 2026.
• 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.
• Set up PAYG instalment buffers for the 15% bracket cut. Your post-1-July instalment notices will reflect the lower rate. If you’ve been overpaying, you’ll see a refund position grow through the year.
• 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 payroll provider readiness for payday super by 1 May 2026. Xero, MYOB, Employment Hero, and other major providers have all announced compliance roadmaps — confirm your specific plan supports the new cadence and pay timing.
• Review your cash-flow buffer for weekly/fortnightly super payments. Quarterly SGC let businesses hold super contributions in working capital for up to 90 days. From 1 July 2026 that buffer is gone — 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 current-year losses can carry back against the prior 2 years’ tax paid from 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 by 1 May 2026 so you’re audit-ready by 1 July. 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 this week. 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 by EOFY. 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?

Roughly 6.2 million Australian workers earning assessable income from work, including approximately 1.5 million sole traders, can claim the $1,000 flat deduction from 1 July 2026. You don’t need receipts to claim it. You can choose either the flat $1,000 or your itemised work-related deductions in any given year — whichever produces the bigger refund.

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 contracted on or before 12 May 2026 (Budget night) are grandfathered under the existing negative gearing rules indefinitely. New builds purchased after Budget night also remain eligible for full negative gearing. Only established (existing) residential properties contracted after 12 May 2026 will be subject to the proposed limits from 1 July 2027, and only if the enabling legislation passes.

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 enabling legislation will be introduced in the Spring sittings of Parliament (August-November 2026). Measures requiring legislation — including the discretionary trust minimum tax, CGT indexation reform, and negative gearing limits — won’t be settled until the relevant Bills pass both chambers. Watch the Treasury and APH websites for exposure drafts and consultation periods.

What if I already lodged my 2025-26 return?

Nothing in the Budget changes 2025-26. The 2025-26 financial year ended on 30 June 2026, and existing rules (16% second bracket, $20,000 IAWO sunset, current super and CGT rules) still apply. 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 June 30 unless your turnover is between $10M and $50M and you’re worried about the threshold tightening for medium businesses. For most 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 captures every expense at the moment of purchase, categorises by ATO category, and exports a clean report for your accountant. Whatever 2026-27 ends up looking like after the Senate, your records will be ready. Download Taxr and start your budget-ready year today.