SME TAX MATTERS
The Government announced a number of measures to aid business cash flows during turbulent periods or “shocks” to the economy. Some of the major measures include:
Loss Carry Back
The Government has announced that it will reintroduce a corporate tax loss carry-back regime from the 2026/27 income year. If enacted, eligible companies that generate an income tax loss for an income year would be able to carry that loss back for up to two preceding income years.
This would be delivered via a refundable tax offset, calculated by reference to company income tax paid in those earlier years. This provides an alternative to utilisation solely via carry-forward under Division 36.
The measure is expected to apply to eligible companies only, including (where applicable) entities within income tax consolidated groups. Eligibility is expected to be limited to companies with aggregated annual global turnover of less than A$1 billion. The measure is expected to apply to revenue losses only (excluding capital losses). The refund amount will be subject to statutory limitations and integrity settings. This includes a cap linked to the company’s franking account balance.
Instant Asset Write Off
The Budget extends the temporary $20,000 instant asset write off for eligible small businesses, allowing an immediate deduction for the business-use portion of each eligible depreciating asset that costs less than $20,000 and is first used or installed ready for use during the relevant income year. To access the concession, the business must generally have aggregated turnover of less than $10 million and apply the simplified depreciation rules; the $20,000 threshold applies on a per asset basis (so multiple assets can be written off), while assets costing $20,000 or more are generally allocated to the small business pool and depreciated under the pooling rates.
Timing is critical, merely ordering or paying for an asset is not enough the asset must be ready for use by year end and special rules can also allow immediate deductions for qualifying cost additions under $20,000 and for pool balances below $20,000 at year end.
Loss Refundability for small start-up companies
The Budget announces a new “loss refundability” measure aimed at improving early-stage cash flow for eligible start-up companies. From income years starting on or after 1 July 2028 (and subject to legislation), a new company with aggregated turnover of less than $10 million that makes a revenue tax loss in its first two years of operation will be able to convert that loss into a refundable tax offset, rather than waiting to use the loss only against future taxable income.
The refundable offset will be capped by reference to the PAYG withholding and fringe benefits tax (FBT) amounts the company has paid in the loss year in respect of Australian employees, meaning the benefit is intended to support start-ups that are hiring and paying wages in their early years.
Example: Subject to the final law, potentially eligible startups include:
1. newly incorporated software-as-a-service (SaaS) company that has not yet reached profitability, has aggregated turnover under $10 million, and employs developers in Australia (PAYG withholding paid);
2. a new manufacturing or hardware start-up that purchases raw materials and prototypes products, incurs a revenue loss in its first or second year, and has Australian production staff;
3. a new allied health or professional services practice that is ramping up its client base, is loss-making in year 1 or 2 due to staffing and fit-out costs, and pays wages to Australian employees; and
4. a new logistics or trades business that hires drivers or technicians early, incurs start-up operating losses, and remains below the turnover threshold.
FBT exemption for Full EV’s
The Budget confirms a phased wind-back of the fringe benefits tax (FBT) concession for employer-provided electric cars (including through novated lease arrangements).
The current full FBT exemption continues until 31 March 2027. From 1 April 2027 to 31 March 2029, the full exemption will be limited to eligible EVs costing $75,000 or less, while eligible EVs priced above $75,000 but at or below the fuel efficient luxury car tax (LCT) threshold will instead receive a 25% FBT discount (with no concession for EVs above the LCT threshold).
From 1 April 2029, the full exemption will cease and be replaced with a permanent 25% FBT discount for eligible EVs below the fuel efficient LCT threshold, and the Government has indicated existing arrangements will be grandfathered so they retain the rate that applied when the arrangement commenced.
Examples of affected vehicles:
The $75,000 price point means some common entry-level EV variants may continue to receive the full exemption (e.g. certain configurations of a Tesla Model 3, BYD Atto 3, MG4 or Hyundai Kona Electric), whereas variants that are priced above $75,000 but still at or below the fuel efficient LCT threshold may move to the 25% FBT discount.
Premium EVs that are priced above the fuel efficient LCT threshold would not receive the concession under the Budget settings.
Final treatment will depend on the vehicle’s taxable value and eligibility under the ATO rules (including that plug in hybrid EVs have been excluded from the exemption from 1 April 2025).
MKT Comment:
The measures around ability for business to access cash amounts for losses and early-stage expenditure will be very welcome relief for business especially with escalating costs expected to place a lot of stress on businesses with fixed contracts. The ability to therefore carry back losses and access cash during a period of lower cashflows from business will hopefully allow many more businesses to ride out the storm.
The extension of the Instant Asset write off to now be a permanent measure was not really a surprise and a measure that has been extended for almost 8 years continuously only broken by a period of temporary full expensing. This will hopefully put to bed this particular matter and give business certainty around a measure that has been around so long making it permanent was almost a certainty.
If you would like to discuss any of these proposed Budget Changes please contact our MKT Federal Budget team of Ross Prosper, Mimi Ngo, Chris Schoeman or Sean Pearce.