KEY TAX CHANGES FOR SMALL BUSINESSES AND INDIVIDUALS IN THE 2026 FINANCIAL YEAR

The 2026 financial year, spanning from 1 July 2025 to 30 June 2026, brings several significant tax changes impacting both small businesses and individual taxpayers in Australia. These reforms, introduced in the 2025–26 Federal Budget, aim to provide cost-of-living relief, enhance economic productivity, and ensure a fairer tax system.

PERSONAL INCOME TAX CUTS

Starting from 1 July 2026, Australian taxpayers will benefit from a reduction in personal income tax rates in the $18,201–$45,000 income bracket from 16% to 15%. This change is part of a broader plan to reduce the rate further to 14% from 1 July 2027.

These adjustments are designed to alleviate bracket creep and provide modest tax savings, with individuals expected to save up to $268 in the 2026–27 financial year and up to $536 annually from 2027–28 onwards.

SUPERANNUATION TAX REFORMS

A significant change in the superannuation landscape is the introduction of the Division 296 tax, effective from 1 July 2025, with revenue implications from 1 July 2026. This reform imposes an additional 15% tax on earnings for superannuation balances exceeding $3 million, effectively increasing the tax rate from 15% to 30% for affected individuals.

Notably, the tax calculation includes unrealized capital gains and refunds from franking credits, a move that has sparked controversy. Critics argue that taxing unrealized gains and franking credit refunds could impact retirees and self-managed super fund (SMSF) holders, potentially affecting investment strategies and retirement planning.

PROPOSED SMALL BUSINESS TAX RATE REDUCTION

Advocacy groups and economic modelling have proposed reducing the small business tax rate from 25% to 20%. According to modelling by Tulipwood Economics, such a reduction could boost Australia’s GDP by between $5.2 billion and $11.4 billion over five years. While this proposal has garnered support from former ministers and economists, it remains under consideration and has not been legislated.

ENHANCED COMPLIANCE MEASURES

The Australian Taxation Office (ATO) is intensifying efforts to address tax compliance, particularly targeting unpaid small business taxes, which totalled over $18 billion. The government plans to expand the Shadow Economy Compliance Program, allocating approximately $155 million to tackle businesses operating outside the formal economy.

ADDITIONAL BUDGET MEASURES

• Alcohol Excise Relief: From 1 July 2026, the excise remission cap for alcohol manufacturers will increase from $350,000 to $400,000, supporting brewers, distillers, and wineries.
• Energy Bill Relief: Eligible Australian households and small businesses will receive an additional $150 off their energy bills in 2025, with $75 applied per quarter until 31 December 2025.

CONCLUSION

The 2026 financial year introduces several tax changes aimed at providing relief to individuals and stimulating economic growth through support for small businesses. While personal income tax cuts offer modest savings for low to middle income earners, the proposed superannuation tax reforms have generated debate regarding their impact on retirees and investors. Small businesses may benefit from proposed tax rate reductions and increased support measures, although these proposals await legislative approval.

As these changes unfold, individuals and business owners should stay informed and consult with their qualified Tax Agent to navigate the evolving tax landscape effectively.

Disclaimer: This document should not be interpreted as tax advice. All information is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.