Preparing your business for the new financial year

Every new financial year comes with a list of must-do tasks, but 2026-27 is bringing with it a range of fresh challenges for SMEs arising from the start of Payday Super and the major changes announced in the May Federal Budget.

Following the global trend, the Budget made it clear that tax integrity and transparency is now a key issue, so SMEs need to ensure their tax structures have genuine commercial purpose and are justifiable.

This was further emphasised by the additional $700 million in compliance funding the ATO received for increased audits, data matching and greater scrutiny.ⁱ

Practical implications of the Federal Budget

The Budget reforms mark a significant change to the way many businesses have been operating and will require careful reassessment of everything from business structures to the way income is distributed to owners.

The reform requiring the most urgent attention is replacement of the existing 50 per cent CGT discount with inflation-adjusted indexation and introduction of a 30 per cent minimum tax rate for real capital gains from 1 July 2027.ⁱⁱ

Assets purchased and sold before 1 July 2027 will still be taxed under the existing rules, with capital gains made prior to 30 June 2027 calculated under the old rules.

The new rules apply to individuals, trusts, partnerships and companies and affect all CGT assets (including property and shares), managed funds, business assets and private company interests.

A key point to note is the new CGT rules do not impact availability of the four special CGT concessions available when owners exit a SME.

And, following a storm of protest in the wake of the Budget, the government announced further CGT concessions for small businesses.ⁱⁱⁱ

The turnover threshold for the 50 per cent active asset CGT reduction has been increased from $2 million to $10 million from 1 July 2027.

Family trusts face tax changes

SMEs using discretionary (family) trusts for income splitting, asset protection and estate planning will need to review the new rules covering these structures, as the use of these structures may be less attractive than in the past.

From 1 July 2028, a new 30 per cent minimum rate on the taxable income of discretionary trusts will be introduced.

Trustees will pay the tax at trust level prior to distribution to beneficiaries, with non-corporate beneficiaries receiving non-refundable tax credits for the tax payments.

SMEs currently using these structures need to consider whether their trust remains appropriate and if not, begin planning how to restructure into a new vehicle. The government is providing a rollover relief window from 1 July 2027 to 30 June 2030 for trust users restructuring into a company or fixed unit trust.

Meanwhile, since the Budget, the government has announced a carve out for testamentary trusts, exempting them from the minimum tax requirements.^iv

The latest announcement by the Federal Government is to ban Self-Managed Superannuation Funds (SMSFs) from using Limited Recourse Borrowing Arrangements (LRBAs) to purchase residential property in the future. Existing LRBAs are not affected.

Change to negative gearing rules

Another major Budget change requiring attention relates to negative gearing for residential property investments, which will be limited to new builds from 1 July 2027. Arrangements remain unchanged for assets owned prior to 7.30pm on Budget night.^v

Under the new rules, losses from residential property investments can only be offset against residential rental income or capital gains from residential property, not wages or other income. Excess losses can be carried forward.

Although any residential property investments you hold will be impacted, commercial property, shares and non-residential assets can still be negatively geared.

Payday Super arrives

Although it’s been a long time coming, 2026-27 represents the first year SMEs will be dealing with the new Payday Super rules.

The key implication relates to business cash flow, particularly if your business has previously been making Super Guarantee contributions quarterly and holding these funds to boost the business’s cash position prior to payment.

SMEs also need to ensure they are meeting the new reporting requirements introduced as part of Payday Super to avoid compliance problems with the ATO.^vi

Instant asset write-off change

One of the good news stories from the Budget is the popular $20,000 instant asset write-off is permanent from 1 July 2026.^vii

Rather than the existing year-by-year proposition, SMEs can now be certain the concession is available and can plan business expenditure accordingly.

Small businesses with an aggregated turnover up to $10 million can immediately deduct eligible assets costing less than $20,000.

Top 10 SME mistakes in 2026-27

With continuing tough economic conditions and new legislative rules to deal with, SMEs need to ensure they don’t make these mistakes this year:

1. Cash flow complacency

Payday Super will put considerable strain of cash flow, so review your cash position regularly.

2. Tax payment obligations

Set aside funds for GST and PAYG withholding obligations.

3. Poor recordkeeping

The ATO expects good business records, embracing digital recordkeeping can streamline business processes.

4. Failing to report all income

Ensure all income is declared, as the ATO is checking on unreported business earnings, particularly from cash transactions.

5. Retaining ATO tax debts

With tax debts no longer tax deductible, Covid-era ATO debts or tax payment arrangements are now an expensive form of business debt, pay these as a priority.

6. Delaying reviewing the trust changes

Restructuring a trust is not a quick exercise, to don’t wait until June 2028 to start assessing your discretionary trust position.

7.  Late lodgment and payment

Failing to stay on top of lodgment deadlines and payment due dates will result in fines and penalties.

8. Relying on advice from friends or social media

Engage professional assistance to avoid costly mistakes.

9. Not preparing for rate changes

Ensure your payroll system is updated to deal with the 2026-27 income tax cut (16 per cent rate drops to 15 per cent).

10. Failing to identify CGT exposures

Model your CGT position and remember gains accruing from 1 July 2027 will be subject to the new rules when sold.

 If you have any questions, contact our office today.

i Federal Budget 2026 | Corrs Chambers Westgarth
ii Small business explainer | Treasury.gov.au
iii, ivTax reform implementation for small business and startups | Prime Minister of Australia
v Tax reform for workers, businesses and future generations | Prime Minister of Australia
vi Our compliance approach for Payday Super | Australian Taxation Office
vii Tax reform | Budget 2026–27