09 April 2025
On Tuesday 25 March, Treasurer Jim Chalmers handed down the 2025-26 Australian Federal Budget. The main thrust of this year’s budget was offering rebates that ease short-term cost-of-living pressures, which will lead to increased household consumption and potentially stall disinflation. The government also focused on strengthening Medicare, making it easier for Australians to buy a first home, and providing more opportunity and increasing equality for women, First Nations people, and people with disabilities.
Tax cuts were also announced. From 1 July 2026 the lowest tax rate will be reduced from 16% to 15%, and 14% from 1 July 2027, saving taxpayers up to $268 in the 2026-7 year and $536 in the 2027-28 financial year.
However, the focus is very much on individuals, rather than businesses.
“Set in an election year, the Government has played it safe,” states AR & B Advisors Director, Ryan Brown. “It’s a very underwhelming budget for SMEs, and there are some key things people were hoping for that have been missed out.”
What was expected from this year’s Federal Budget
While the Budget can be applauded for tackling cost of living pressures for individuals, there are tax issues that have been lingering throughout the current Government which, while being discussed in detail, still don’t have a resolution.
The proposed Division 296 tax legislation, which would introduce an additional 15% tax on the earnings of superannuation balances exceeding $3 million, is now void. If a re-elected Labour government wants to move forward with it, they will need to reintroduce the legislation and start the parliamentary process again.
Nor did the uncertainty around the Division 7A tax act, which is designed to prevent private companies from making tax-free distributions of profits to shareholders in the form of payments, loans or forgiven debts.
Without certainty on these issues that have previously been discussed, it leaves many businesses feeling somewhat in limbo.
The small business instant asset write off is the major change
The biggest thing that impacts small and medium businesses this year is the change to the instant asset write off. From 1 July 2025, the current $20,000 level will revert to $1,000.
Now, rather than instantly claiming the instant asset write off 2024’s Budget set as $20,000, the purchase goes into the small business depreciation pool. In the small business deduction pool, businesses can claim a 15% deduction in the first year, then a 30% deduction in each subsequent year. Where businesses used to get the tax deduction benefits in one year, it can now take five or six years to be fully realised.
This doesn’t leave much incentive to make big purchases.
“We recognise that this isn’t ideal for SMEs,” notes Ryan. “However, the small business instant asset write off gave companies something of an artificial tax holiday. The positive side of this is that businesses will start dealing with their taxes sooner.”
During the COVID years, small businesses were in a position to take advantage of an unlimited instant asset write off. However, spending this money was something of an artificial tax boost—one that’s now gone.
What this means for businesses
What this means is that in the coming financial year, there’s no particular tax benefit to buying a car, or undertaking upgrades. Previously, businesses focused on what they could buy to bring their tax bill down.
Now, it’s a matter of seeing what’s a critical purchase, and what can be delayed. After all, why would they bring a purchase forward if they only get a $1,000 benefit that year?
It’s likely that many businesses may consider holding off on big purchases, and waiting out the election results to see if anything changes. So in the meantime it doesn’t provide much comfort for businesses still dealing with cashflow stress.
“It’s a very working class budget. It’s focused on people, focused on workers, leaving little to benefit SMEs,” Ryan states. “It’s a budget that’s going to leave a lot of people sitting on their hands and waiting.”
The takeaway? Focus on your tax planning
As it stands, the 2025-26 Federal Budget means business as usual for SMEs, with one exception. The small business instant asset write off incentives that companies have been enjoying just aren’t there anymore. And now that the instant asset write off is almost negligible, businesses instead must ensure they have the money available to pay their increased tax bill.
In the coming financial year clever tax planning will be more important than ever – and it’s vital to begin planning for the next financial year as soon as possible.
AR & B Advisors are here to ensure that you stay on the right side of the ATO, particularly in light of the new changes. We can help you maximise the deductions you’re able to make, while empowering you to manage your cash flow in a smarter way. Contact our expert tax accountants today to discuss how changes to the small business asset write off might impact your business.