Tax Reform No. 2 Has Passed: What It Means for Business Owners
The passage of the Treasury Laws Amendment (Tax Reform No. 2) Bill 2026 brings welcome certainty for Australian businesses, with two important tax measures becoming available from the current 2026-27 financial year:
✅ A permanent company loss carry-back regime
✅ A permanent $20,000 instant asset write-off for eligible small businesses
While these measures may not seem revolutionary, there is real value in certainty, cash flow and planning. Businesses that understand how the rules operate can potentially accelerate deductions, improve cash flow and make more informed investment decisions.
Turning Business Losses into Cash Flow
Many businesses experience fluctuations in profitability. A company that paid tax in recent years may face challenging trading conditions, invest heavily in growth, or experience a temporary downturn.
Having last made an appearance during the COVID-19 years, the re-introduced loss carry-back rules is now permanent, and eligible companies can carry back tax losses incurred from the 2026-27 financial year and offset those losses against taxable profits from either of the previous two years, generating a refundable tax offset.
Who can access the concession?
The measure broadly applies to corporate tax entities with annual global turnover below $1 billion. The refundable offset is also subject to the company's franking account balance and other integrity provisions.
Why it matters
Historically, tax losses could generally only be carried forward and utilised against future profits. That meant businesses often needed to wait years before receiving any benefit from a downturn.
The now permanent rules allow eligible companies to potentially recover tax already paid, improving cash flow at a time when it may be needed most.
For business owners investing in expansion, entering new markets or dealing with economic uncertainty, the ability to receive a tax refund sooner rather than later can make a meaningful difference.
The $20,000 Instant Asset Write-Off Is Here to Stay
The second major change is the permanent extension of the $20,000 instant asset write-off from 1 July 2026.
Who is eligible?
Businesses with aggregated turnover below $10 million can immediately deduct eligible depreciating assets costing less than $20,000. This is the same rule that was applicable for year ended 30 June 2026, however with this law the $20,000 threshold is now permanent going forward.
The threshold applies on an ex-GST and per-asset basis, meaning multiple assets can qualify, except where the assets form part of a "set" that together is more than the threshold. For assets costing $20,000 or more, these continue to be depreciated through the simplified depreciation rules.
Why it matters
The instant asset write-off itself is not new. What is new is the certainty.
For years, businesses have been waiting to see whether the concession would be extended as part of each Budget cycle. The permanent extension allows businesses to make investment decisions based on operational needs rather than legislative uncertainty.
Whether you're replacing equipment, upgrading technology, investing in productivity improvements or fitting out new premises, the permanent write-off provides a straightforward way to bring forward tax deductions.
Practical Strategy for Small Businesses
The real benefit of these changes lies in the opportunities they create for small business owners over the next few years.
Eligible small businesses can take advantage of the $20,000 instant asset write-off on multiple assets, including assets that are financed, generating significant tax deductions in the year of purchase. If those deductions then result in a tax loss, the company may also be able to utilise the loss carry-back rules to obtain a refund of tax paid in prior years.
By combining these measures as part of a broader tax planning strategy, small business owners can invest in new assets while minimising the cash flow impact on their business over the next year or two.
The Tax Reform Landscape Continues to Evolve
While the permanent loss carry-back rules and the $20,000 instant asset write-off have now become law, they are only part of a much broader package of tax reforms currently moving through the legislative process.
A number of other significant measures announced as part of the 2026 Federal Budget have also been enacted, including the proposed changes to the capital gains tax regime, negative gearing rules and a change to small business CGT concessions. These changes will have important implications for investment decisions, asset ownership structures, business succession planning and long-term wealth creation from 1 July 2027.
At the same time, several of the most significant reforms remain in consultation and are yet to be legislated. These include the proposed 30% minimum tax on discretionary trust distributions, restructuring relief measures for discretionary trusts, the new Innovative Business CGT Concession, proposed concessions for testamentary trusts and a number of key design features surrounding the new CGT and negative gearing regimes.
Why This Matters
For many business owners, investors and family groups, the decisions being made today around acquisitions, investments, restructures, succession planning and financing arrangements may be affected by legislation that is still being developed.
While consultation is ongoing, the final form of these measures remains uncertain. The eventual legislation, together with amendments the Government has promised to address unintended consequences identified by industry, may differ materially from the proposals announced in the Budget, and the practical opportunities and risks will only become clear once the legislation is released and detailed analysis can be undertaken.
Our Advice: Don't Make Major Decisions Based on Headlines
We understand many clients are asking whether they should accelerate or defer acquisitions, restructure existing arrangements, alter trust distributions or change their investment strategy in anticipation of the proposed reforms.
The reality is that every situation is different. Acting too early, or relying solely on media commentary, can create unintended tax consequences and result in missed opportunities once the final legislation is known.
Our team is actively monitoring the progress of all proposed tax reforms, participating in industry discussions and analysing draft legislation as it becomes available. As further detail emerges, we will provide practical guidance, strategic recommendations and planning opportunities tailored to our clients' circumstances.
If you are considering acquiring or disposing of assets, undertaking a restructure, establishing a new entity, implementing a succession plan or making a significant investment decision, we strongly encourage you to contact your Prosperity adviser before proceeding.
The most effective outcomes are typically achieved when decisions are made with a clear understanding of both the current law and the likely direction of future legislative change.
What Should Businesses Be Doing Now?
As part of your FY2026-27 planning process, businesses should consider:
- Confirm eligibility for available concessions, including aggregated turnover thresholds and the loss carry-back rules.
- Review projected profits, losses and prior-year tax paid to identify opportunities to generate cash refunds through loss carry-back claims.
- Monitor franking account balances and assess the impact of any loss carry-back claims on future dividend strategies.
- Evaluate planned capital expenditure, including financed assets, to maximise access to the $20,000 instant asset write-off.
- Prioritise business investments that improve operational efficiency, productivity and long-term growth while delivering tax benefits.
- Model the cash flow impact of available concessions, including the timing of deductions, refunds and funding requirements.
- Incorporate these measures into a broader tax and business planning strategy to optimise cash flow, support future investment and strengthen the business’s financial position.
The businesses that benefit most from these measures are often those that plan ahead rather than simply considering tax outcomes at year end.
How Prosperity Can Help
Tax planning should not be viewed as a once-a-year exercise. Understanding how these new concessions interact with your broader business objectives can help improve cash flow, support investment decisions and avoid missed opportunities.
If you would like to understand how the new loss carry-back rules or permanent instant asset write-off may apply to your business, please contact your Prosperity adviser. Our team can help assess eligibility, model the potential benefits and ensure these opportunities are incorporated into your broader business strategy.
