Tax planning for small business in 2026 demands a practical, cash-sensitive approach. The rules that matter most this year include temporary depreciation concessions, the small-business tax offset, capital gains tax (CGT) concessions and a more active ATO compliance posture. Below are clear, actionable strategies to help proprietors, directors and sole traders keep cashflow healthy and the tax bill legitimate and manageable.
1. Time asset purchases to maximise deductions
From now until 30 June 2026 many eligible small businesses can claim an immediate deduction for assets below the instant-asset write-off threshold. That window creates an opportunity to accelerate purchases of plant, equipment and tools used in the business — effectively converting future tax deductions into present-year relief and improving after-tax returns on investment. However, the favourable threshold is temporary: it is scheduled to reduce substantially after 30 June 2026, so plan purchases you were already going to make and avoid buying items solely for tax reasons.
2. Understand the small business income tax offset
If you operate as a sole trader or partnership, you may be eligible for the small business income tax offset, which reduces tax on business income up to a legislated cap. While the offset is modest, it compounds with other measures to reduce net tax. Make sure your profit allocation and drawings are reconciled with your tax return so the offset is claimed correctly when eligible. Keep records of business income streams and consult your accountant to determine entitlement and the exact dollar impact for your situation.
3. Use simplified depreciation and pooling rules intelligently
Small business simplified depreciation rules allow immediate deductions for eligible low-cost assets and provide a small-business pool for other assets. Properly categorising assets between immediate write-off eligibility and pooled depreciation can smooth taxable income across years, which is especially useful when profits are volatile. Revisit depreciation schedules annually and ensure assets that no longer serve the business are written off or disposed of correctly to avoid overstatement of deductions.
4. Consider timing for capital gains and retirement planning
Small business CGT concessions (such as the 15-year exemption, retirement exemption and rollover relief) remain important for owners planning a sale or retirement. Effective use requires early planning: document active asset use, retain business records showing turnover and ownership history, and engage an adviser well before any disposal to meet qualifying tests. Where retirement is the goal, the retirement exemption can be paired with orderly succession planning to reduce the CGT burden.
5. Keep BAS and GST choices under review
Cash-basis accounting for GST and PAYG can help businesses preserve cashflow because GST is reported on amounts actually received and paid, rather than on invoices issued. For businesses with variable receivables, the cash method often aligns tax timing with cashflow. Likewise, check your BAS lodgement cycles and consider quarterly reporting where permitted — subject to turnover thresholds — to reduce administrative strain and smooth payments. Accurate BAS reporting also reduces the risk of ATO attention.
6. Strengthen recordkeeping — the foundation of good tax outcomes
Good records are the simplest way to avoid disputes and to substantiate claims. Keep contemporaneous invoices, digital receipts, logbooks for business use of vehicles, and clear separation between personal and business expenditure. Where multiple income streams exist, maintain separate ledgers or accounting codes so that business income and personal income are never mixed. Having robust accounts and tax records not only helps at lodgement time but reduces the risk of penalties from incorrect claims.
7. Be prepared for stronger compliance activity
The ATO has signalled stepped-up compliance work targeting on-hold debts and other enforcement activities. Small businesses have previously been the focus of targeted recovery programs, and the ATO’s renewed actions mean that undisclosed liabilities can surface. Regularly reconcile payroll, BAS and income tax positions and consider voluntarily disclosing historical errors early — the ATO’s administrative approach is generally more favourable to those who engage constructively.
8. Use trusted professional advice and cashflow modelling
Tax planning is primarily about timing and certainty. Work with an experienced bookkeeper and tax adviser to model the cash and tax implications of investment, wages, superannuation and profit extraction strategies. Small changes to the timing of purchases or the structure of drawings can materially change tax payable and cashflow. Make tax planning an ongoing part of boardroom or owner meetings rather than a once-a-year compliance exercise.
Practical checklist to act on this year
- Review planned capital purchases and, if eligible, accelerate them into 2025–26 to use the temporary instant-asset concession.
- Confirm eligibility for the small business income tax offset and ensure it is claimed correctly.
- Reconcile BAS and payroll at least monthly and keep clear, separate ledgers for personal and business transactions.
- Document active asset use and retention periods to preserve access to CGT concessions.
- Where uncertain, obtain written advice and use cashflow models to test proposed tax strategies before implementation.
Sound tax planning in 2026 balances prudent recordkeeping, timing of deductions and an awareness of the changing legislative environment. Establishing practical controls and seeking tailored advice will reduce risk and make the most of the concessions currently available to small business owners.
