R&D Reforms and Small Business Wins: What the Budget Delivers for Operators and Innovators
Australian Federal Budget 2026-27 — Tax Reform Series | Article 4 of 4
Not everything in this Budget was a takeaway. The small business and innovation package includes several genuinely useful measures — a permanent instant write-off, reintroduced loss carry-back, a new start-up cash refund mechanism, and a meaningful overhaul of R&D incentives. Here is what changed and who benefits.
R&D Tax Incentive: Overhauled from 1 July 2028
The R&D Tax Incentive (R&DTI) is being reformed to better target genuine, high-intensity research. Seven key changes apply from the 2028-29 income year:
What improves:
Higher offset rates for core R&D — offset rates increase by 4.5 percentage points, a boost of around 25-50% to the existing benefit.
Lower intensity threshold — the R&D-to-total-expenditure threshold to access the higher premium rate drops from 2% to 1.5%, meaning more companies qualify for the higher rate.
Expanded refundability — the turnover threshold for the refundable (cash) offset rises from $20 million to $50 million. Companies in the $20M-$50M range that previously lost the cash refund feature when they grew past $20M will now retain it — a significant improvement.
Higher expenditure cap — maximum eligible R&D expenditure rises from $150 million to $200 million.
What is restricted:
Supporting R&D expenditure removed — activities that support core R&D but are not themselves experimental will no longer be eligible. This narrows the claim base for companies that have historically included a broad mix of supporting activities alongside core R&D. Worth modelling the impact before 2028.
Refundability limited to firms under 10 years old — for companies below $50M turnover, only those under 10 years of age can access the cash refund. Older established firms still access the higher offset rate, but it becomes non-refundable.
Minimum expenditure rises to $50,000 — companies with R&D spend below this amount can still participate, but only if the research is conducted with a registered Research Service Provider or Cooperative Research Centre.
Companies currently claiming a significant proportion of supporting R&D expenditure should review their claim structure now. The 2028 start date gives time to adjust, but the analysis is worth doing early.
Loss Carry-Back: Back on the Table (from 1 July 2026)
For tax years from 1 July 2026, companies with aggregated annual global turnover under $1 billion can carry a revenue tax loss back and offset it against tax paid in the preceding two years, generating a cash refund.
The refund is capped at the company's franking account balance — so a company can only receive back tax it has genuinely paid. Revenue losses only (not capital losses).
Example: A small business pays $12,500 in company tax in 2025-26. In 2026-27, it invests in new equipment under the instant asset write-off and records a $15,000 loss. It can carry that loss back against the prior year's tax and receive a $3,750 cash refund — real money back at a time when the business is investing in growth.
Loss carry-back was last available in Australia for pandemic-era years (2019-20 to 2022-23). This Budget makes it a permanent feature for companies under the turnover threshold.
Loss Refundability for Small Start-Ups (from 1 July 2028)
From 1 July 2028, start-up companies with turnover under $10 million that record a tax loss in their first two years of operation can convert that loss into a refundable tax offset.
The refund is capped at the value of FBT and withholding tax on wages paid to Australian employees in the loss year. In practice: if a start-up is already paying payroll-related taxes but not yet profitable, those taxes can be partially refunded.
This is a targeted but genuinely useful measure for early-stage companies with employees. It's not widely understood yet and is worth raising proactively with clients launching new ventures from 2028.
Permanent $20,000 Instant Asset Write-Off (from 1 July 2026)
The $20,000 instant asset write-off for small businesses (turnover under $10 million) is now permanent. Previously extended annually on a temporary basis, making it permanent removes the planning uncertainty that has frustrated small business operators for years.
Assets under $20,000 can be deducted in full in the year of purchase. Assets $20,000 or above go into the small business depreciation pool. The rule preventing re-entry into the simplified depreciation regime for five years after opting out remains suspended until 30 June 2027.
Dynamic PAYG Instalments (from 1 July 2027)
Small and medium businesses will be able to opt in to paying PAYG instalments monthly, using ATO-approved calculations embedded directly in accounting software. Instalments update in real time to reflect actual business activity rather than prior-year figures.
The result: less overpayment, better cash flow alignment, and fewer large catch-up refunds after annual lodgement. Businesses with a history of non-compliance will be required to use monthly reporting.
Small Business Support Programs Extended
The Government is extending two programs until 30 June 2027:
Small Business Debt Helpline — free, confidential financial counselling for businesses under cash flow or debt pressure.
NewAccess for Small Business Owners (NASBO) — free mental health coaching from coaches with small business experience.
Both are free and worth knowing about for clients under pressure.
Key Dates
Measure Date $20,000 instant asset write-off made permanent 1 July 2026 Loss carry-back reintroduced Tax years from 1 July 2026 Dynamic PAYG instalments (opt-in) 1 July 2027 Loss refundability for small start-ups Tax years from 1 July 2028 R&D Tax Incentive reforms 1 July 2028
All proposed measures are subject to legislation and may change. This article is general information only and does not constitute tax or financial advice.