Parliament Passes Permanent $20,000 Instant Asset Write-Off and Reintroduces Loss Carry Back Measures

In a welcome development for Australian businesses, Parliament has passed the Treasury Laws Amendment (Tax Reform No. 2) Bill 2026, delivering two significant tax measures announced in the 2026-27 Federal Budget:

• The $20,000 instant asset write-off has been made permanent for eligible small businesses.
  
  
• The tax loss carry back regime has been reintroduced for eligible companies.

These changes provide greater certainty for business investment decisions and may improve cash flow for businesses experiencing fluctuating profitability.

Permanent $20,000 Instant Asset Write-Off

From 1 July 2026, eligible small businesses using the simplified depreciation regime can continue to immediately deduct the cost of qualifying assets costing less than $20,000.

Who is eligible?

The measure applies to businesses that:

• Have an aggregated annual turnover of less than $10 million.
  
  
• Use the simplified depreciation rules.

What can be claimed?

Eligible businesses can claim an immediate deduction for:

• New assets costing less than $20,000.
  
  
• Second-hand assets costing less than $20,000.
  
  
• Certain improvement costs to assets previously written off, where the improvement itself costs less than $20,000.
  
  
• Importantly, the threshold applies per asset, meaning multiple assets can be written off in the same year.

For example, Sarah runs a landscaping business with turnover of $2 million. During 2026-27, she buys a trailer for $7,500, ride-on mower for $18,500 and office computer for $2,200. Each item costs less than $20,000, so Sarah can claim the full $28,200 straight away once the assets are ready to use.

What if an asset costs $20,000 or more?

Assets costing $20,000 or more cannot be claimed straight away. They must go into the small business depreciation pool. These assets are deducted over time:

• 15% in the first year.
  
  
• 30% each year after that.

For example, XYZ Pty Ltd has an aggregated turnover of $4 million and buys a delivery van for $18,000, office furniture for $3,000 and manufacturing equipment for $25,000.  The company can claim an immediate deduction of $21,000 for the van and furniture. However, the manufacturing equipment must be pooled and will generate a first-year deduction of $3,750 ($25,000 x 15%) under the small business depreciation pool. It then will receive a deduction of 30% for each year after that.

Opportunity to Rejoin the Simplified Depreciation Regime

Businesses that previously opted out of the simplified depreciation rules have historically been prevented from re-entering for five years. To ensure businesses can benefit from the permanent write-off measure, the Government has extended the suspension of the five-year lock-out rule until 30 June 2027. This creates an opportunity for businesses that are currently outside the regime to review whether re-entering may provide tax benefits.

Tax Loss Carry Back Returns

The legislation also brings back the tax loss carry back regime. This allows eligible companies to receive a cash tax refund by applying current year tax losses against taxable profits from earlier years. The measure applies to income years starting on or after 1 July 2026.

Who can access it?

The regime is available to:

• Corporate tax entities (companies only).
  
  
• Businesses with aggregated global turnover of less than $1 billion.

Trusts, sole traders and partnerships are not eligible.

How does it work?

Where an eligible company incurs a revenue tax loss, it may choose to offset that loss against taxable income from either or both of the previous two income years. This can result in a refundable tax offset that effectively returns tax paid in prior years.

For example, XYZ Pty Ltd paid tax of $300,000 in the 2024-25 income year and $150,000 in the 2025-26 income year. In the 2026-27 income year, the company incurs a tax loss of $1 million. Assuming a company tax rate of 30%, the tax value of that loss is $300,000 ($1,000,000 x 30%). Because the company paid $450,000 in tax over the previous 2 years, it potentially qualifies for a refund of up to $300,000.

Key Limitations

The loss carry back rules are subject to several important limitations, including the type of loss incurred, the amount of tax previously paid and the company’s franking account balance.

• Revenue Losses Only

           The rules apply only to revenue tax losses. Capital losses cannot be carried back and must continue to be carried forward under the existing capital gains tax rules.

           For example, a company makes a trading loss of $80,000 and a capital loss of $120,000. Only the $80,000 trading loss may qualify for carry back. The capital loss must be carried forward to offset future capital gains.

• Previous Tax Paid Limit

           A company cannot obtain a refund greater than the income tax paid in the years to which the loss is carried back.

           For example, a company incurs a 2027 loss with a tax value of $150,000 but paid only $90,000 tax across the prior two years. The maximum available carry back refund is $90,000.

• Franking Account Limitation

           The refund is also capped by the company’s franking account balance at year end.

           For example, a company has a tax value of eligible losses of $300,000, has paid $450,000 in tax prior and a franking account balance of $250,000. Although sufficient tax was paid previously, the company’s refund is limited to $250,000, being its available franking credits. The remaining loss is carried forward and may be used against future taxable income.

What Should Businesses Do?

These measures create valuable planning opportunities for both small businesses and companies.

Businesses may wish to:

• Review planned equipment and asset purchases for the 2026-27 year.
  
  
• Consider whether assets can be installed and ready for use before year end.
  
  
• Assess whether re-entering the simplified depreciation regime may be beneficial.
  
  
• Forecast year-end results to determine whether loss carry back may generate a tax refund.
  
  
• Review franking account balances before declaring dividends to avoid unintentionally limiting future loss carry back claims.

If you are planning significant asset purchases or expect your business may make a tax loss in the 2026-27 year, please contact our team so we can discuss how these measures may apply to your circumstances – HERE