Category: Budget Update

What’s the difference between tax deductions and tax offsets?

admin.dlkadvisory Admin 26th May, 2026

With the 2026–2027 Federal Budget announcing both a new $1,000 standard work-related expenses deduction and a $250 working Australians tax offset (WATO) for future financial years, you might be wondering about the difference between these two types of tax benefits. While both deductions and offsets can reduce how much tax you pay, they work in quite different ways, and understanding this can help you make better decisions about your tax planning.

What are tax deductions?

Tax deductions reduce your taxable income before your tax is calculated. Think of them as amounts that our tax laws allow you or your tax agent to subtract from your income when working out how much tax you owe. Common deductions you might already claim include: work-related expenses like uniforms or tools; gifts and donations to registered charities; investment property expenses; and costs of managing your tax affairs, such as tax agent fees. For example, if you earn $60,000 and claim $2,000 in work-related deductions, your taxable income becomes $58,000, and you then pay tax on this reduced amount. The value of a deduction depends on your marginal tax rate—for example, a $1,000 deduction may save a resident taxpayer around $300 if their marginal tax rate is 30%, or $160 if their marginal tax rate is 16%, ignoring Medicare levy and other factors.

What are tax offsets?

Tax offsets work differently: they directly reduce the actual tax you owe, dollar for dollar, and are applied after your tax has been calculated on your taxable income. You might already receive offsets such as the low income tax offset (LITO) of up to $700 for those with taxable income under $66,667; seniors and pensioners tax offset (SAPTO) for eligible pensioners; private health insurance rebate (a rebate is the same as an offset); or spouse superannuation contribution offset. For example, if you have taxable income of $30,000 and owe $1,888 in tax, then receive a $700 LITO, your final tax bill becomes $1,188.

Why the difference matters

Understanding this distinction can help you prioritise your tax planning strategies. A $1,000 offset is always worth exactly $1,000 off your tax bill (if you have at least $1,000 of income to absorb it), while a $1,000 deduction might save you anywhere from $160 to $450 in income tax depending on your tax bracket. This is why the government’s Budget announcement of both types of measure is significant. The working Australians tax offset (WATO) provides an annual tax offset of up to $250 from the 2027–2028 income year for all eligible Australian workers, while the standard tax deduction of up to $1,000 from 2026–2027 allows workers to lower their taxable income from work by $1,000 without keeping receipts when they lodge their tax return. A $1,000 tax deduction could benefit some higher income earners more than lower income earners, while the (up to) $250 working Australians tax offset will provide the same dollar benefit to most of the 13 million Australian workers expected to receive the full $250 offset.

Most offsets aren’t refundable

There’s another important point to note: most tax offsets can only reduce your tax to zero, not below. If you don’t owe any tax, you typically won’t receive the offset as a cash payment, although some offsets like the private health insurance rebate are refundable.

Planning ahead

While the newly announced measures will not apply to 2025–2026 tax returns, it’s worth reviewing your current deductions and offsets—are you claiming all the deductions you’re entitled to, and are you receiving all available offsets? The ATO automatically calculates some offsets like LITO when you lodge, but others need to be claimed in the offsets section of your tax return.

Get professional advice

Tax planning involves balancing many moving parts, and the interaction between deductions, offsets and your overall financial situation can be complex. We can review your specific circumstances to help you understand your entitlements and make the most of the opportunities, so talk to us today.

2026 – 27 Federal Budget Update

admin.dlkadvisory Admin 15th May, 2026

The 2026 – 27 Federal Budget introduces a range of significant tax and policy measures impacting individuals, property investors, and private groups. The reforms are set against a backdrop of persistent cost of living pressures, elevated interest rates, global uncertainty, and a continued focus on fiscal sustainability.

Many measures are proposed to apply from 1 July 2027 or later and remain subject to consultation and legislative refinement. As such, further detail will be critical in assessing their full impact.

Key Tax Measures

  1. Capital Gains Tax (CGT) Reform

From 1 July 2027, the Government proposes to:

  • Replace the existing 50% CGT discount with an inflation-based indexation method
  • Introduce a 30% minimum tax on net capital gains

Practical implications:

  • Taxpayers may need to obtain market valuations of assets as at 1 July 2027
  • Existing accrued gains up to that date are expected to retain current CGT treatment under transitional rules
  • Investment strategies and asset allocation decisions may require reassessment
  • The application of the minimum tax to superannuation funds and managed investment vehicles remains unclear

Overall, these changes represent a fundamental shift in the taxation of capital and may reduce the attractiveness of long-term passive investment strategies relative to other asset classes.

  1. Negative Gearing – Residential Property

From 1 July 2027, negative gearing concessions for residential property will be limited.

  • Losses on established residential properties will be ring-fenced
  • These losses can only be offset against:
    • Rental income, or
    • Future capital gains from residential property
  • Losses will no longer offset salary or business income
  • Grandfathering applies to existing holdings (including contracts entered prior to Budget night)
  • Exclusions include:
    • New residential developments
    • Superannuation funds (including SMSFs)
    • Widely held trusts and build-to-rent projects
    • Certain government-supported housing investments

This measure is expected to influence investor behaviour, gearing strategies, and ownership structures, particularly in the residential property market.

  1. Minimum Tax on Discretionary Trusts

From 1 July 2028, a 30% minimum tax is proposed on discretionary trust income.

  • Tax will apply at the trustee level, with beneficiaries generally receiving tax credits
  • Aimed at limiting income splitting and the use of bucket company structures
  • Exclusions include:
  • Fixed and widely held trusts
  • Complying superannuation funds
  • Deceased estates and charitable trusts
  • Special disability trusts

These changes are expected to significantly impact family groups and may necessitate review or restructuring of existing trust arrangements, subject to the availability of anticipated transitional relief.

  1. Business Tax Measures

Several measures are aimed at supporting business cashflow and investment:

  • Loss carry-back
    Companies (turnover under $1 billion) can offset current losses against profits from the previous two years (from 1 July 2026), subject to franking constraints
  • Instant asset write-off
    The $20,000 threshold will become permanent from 1 July 2026 for businesses with turnover up to $10 million
  • Start-up support
    Early-stage businesses may access refundable tax offsets for losses in initial years (from 1 July 2028, subject to limits)

These measures provide targeted relief, particularly for SMEs and growing businesses.

  1. Research & Development (R&D) Tax Incentive

From 1 July 2028, the R&D incentive will be re-focused:

  • Increased support for core R&D activities
  • Reduced benefits for supporting (non-core) expenditure
  • Introduction of tighter thresholds and limitations on refundability

Businesses undertaking R&D should review project eligibility, expenditure categorisation, and expected cashflow impacts.

  1. Venture Capital and Investment Incentives
  • Increased thresholds under VCLP and ESVCLP regimes to support larger investments
  • Measures aimed at encouraging innovation and growth-stage funding

These changes may enhance access to capital for emerging businesses.

  1. Personal Tax Measures
  • Working Australians Tax Offset (WATO)
    $250 annual offset from 1 July 2027
  • Standard deduction for work-related expenses
    $1,000 deduction from the 2026–27 income year without substantiation
  • Personal income tax cuts (previously legislated)
    The 16% rate reduces to:

    • 15% from 1 July 2026
    • 14% from 1 July 2027
  • Medicare levy thresholds to increase from 1 July 2025

These measures aim to provide modest cost-of-living relief and reduce compliance burden.

  1. Other Measures
  • Electric vehicle FBT concessions to be phased down, moving to a 25% concession from 1 April 2029
  • PAYG instalments expected to become more dynamic and software-driven from 1 July 2027
  • Foreign resident CGT changes expanding the definition of taxable Australian property (including retrospective elements)
  • Pillar Two global minimum tax alignment from 1 January 2026

Economic Context and Policy Direction

The Budget reflects a broader policy shift focused on:

  • Productivity and investment in innovation
  • Housing supply and generational equity
  • Energy security and economic resilience
  • Fiscal sustainability and revenue integrity

Key structural themes include:

  • Reduced reliance on tax concessions for asset-based wealth (property and trusts)
  • Increased focus on labour income support and business investment
  • Measures aimed at encouraging capital into productive economic activity

DLK Advisory Commentary

The 2026 – 27 Budget represents a material shift in Australia’s tax landscape, particularly in relation to capital taxation and private wealth structures.

While the measures are significant, they are largely targeted rather than forming part of a comprehensive tax reform framework. This raises the potential for increased complexity and unintended interactions between rules.

Importantly:

  • Many measures are not yet legislated
  • Transitional rules and detailed design will be critical
  • A backlog of announced but unenacted measures continues to create uncertainty

What This Means

Clients should consider:

  • Reviewing long-held investment positions, particularly in light of CGT reform
  • Assessing property investment strategies and gearing approaches
  • Re-evaluating trust structures and distribution strategies
  • Modelling the cashflow and tax impact of proposed changes ahead of implementation

Next Steps

DLK Advisory recommends:

  • Early engagement to model the impact of proposed reforms
  • Identifying opportunities for restructuring or repositioning ahead of commencement dates
  • Monitoring ongoing consultation and legislative developments closely

DLK Advisory will continue to provide updates as further detail becomes available.

 

$20,000 Instant Asset Write-Off due for extension to 30 June 2026

admin.dlkadvisory Admin 1st October, 2025

Are you a small business owner planning to invest in new equipment or technology?

The good news is that the government is planning to extend the $20,000 instant asset write-off by a further 12 months until 30 June 2026. This measure was announced by the Treasurer as an election commitment on 4 April 2025 and is contained in the recently introduced Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Bill 2025. The measure is not yet law.

What’s changing?
Once this Bill is passed, the $20,000 threshold will continue to apply until 30 June 2026. Without this amendment, the threshold would have dropped back to the ongoing legislated level of $1,000 from 1 July 2025.

The extension applies to: eligible depreciating assets costing less than $20,000 each; eligible amounts included in the second element of an asset’s cost (cost additions); and general small business pools (enabling full write-off where the pool balance is below $20,000 at year end).

Who can benefit?
Small businesses that use the simplified depreciation rules and have an aggregated turnover of less than $10 million can continue to immediately deduct the business portion of the cost of eligible assets first used or installed ready for use by 30 June 2026. The write-off can apply to multiple assets, provided each individual asset is under the $20,000 limit.

How it works
You claim the deduction in the income year the asset is first used or installed ready for use. There’s no cap on the number of assets; the limit applies per asset. Both new and second-hand assets can qualify, provided they’re eligible under simplified depreciation.

If you previously wrote off an asset under simplified depreciation, the first deductible “second element” cost you incur in a later year can also be immediately deducted if it’s under $20,000 and is the first such addition after the original write-off.

You must reduce the deduction for any private use portion; importantly, the entire asset cost must still be below $20,000, regardless of your business-use percentage. If you’re registered for GST and can claim full credits, assess the cost net of GST; if not registered, use the GST-inclusive cost.

What can you claim?
The instant asset write-off covers a wide range of business assets, including: office equipment and computers; tools and machinery; vehicles (subject to car limits); furniture and fittings; and new and second-hand assets. However, there are some exclusions and special rules. For passenger vehicles, a car limit applies, and certain assets like those used primarily for research and development may not qualify.

When the limit is exceeded
If an asset’s total cost is $20,000 or more, it isn’t eligible for the instant write-off under the simplified rules. Instead, small businesses must allocate the business-use portion to the small business pool, where it depreciates at 15% in the first year and 30% thereafter. Similarly, if your general small business pool balance is below $20,000 at year end, you can deduct it in full.

Key points
You must be eligible for and apply the simplified depreciation rules. Some assets are excluded from simplified depreciation (for example, certain leased assets and assets allocated to low-value pools). The car limit can cap claims on passenger vehicles. Private use must be excluded from your deduction, and research and development use may affect eligibility.

Planning ahead
If you’re considering making asset purchases for your business, this extension, once passed, will provide an opportunity to bring forward investments while maximising your tax benefits. Always consult with your tax adviser to ensure you’re making the most of this concession.

ATO launches its small business focus areas for 2025

admin.dlkadvisory Admin 16th January, 2025

Understanding the ATO’s focus areas for 2025 is essential to ensuring your business remains compliant and successful. The ATO has outlined specific areas of concern to help you avoid common pitfalls and manage your tax obligations effectively. Here’s what you need to know to keep your business on the right track.

Click here to read our article

Victorian State Budget News 2023/2024

admin.dlkadvisory Admin 24th May, 2023

The 2023-24 Victorian State Budget, delivered on 23 May, 2023, has been described as a budget for challenging times by the State Government. Net debt is projected to rise to $135 billion in FY2023-24, reaching a peak of $171.4 billion (24.5% of GSP) over the forward estimates. It contains a number of proposed changes to Victoria’s tax regime, the most significant of which for business relate to payroll tax, land tax and stamp duty reform for commercial and industrial properties and more.

Click to read our article: Victorian State Budget News 2023/2024 (0.70 MB PDF)

Budget 2023 What’s in it for small business and households

admin.dlkadvisory Admin 16th May, 2023

Amid the cost-of-living crunch and global uncertainty, Treasurer Jim Chalmers has handed down his second Budget. A Budget surplus of $4.2bn is forecast in 2022-23, but an underlying cash deficit of $13.9bn is expected in 2023-24 and a $35.1bn deficit for 2024-25. In addition to the cost-of-living and welfare measures such as energy bill relief which is expected to reduce power bills by up to $500 for five million households, the government also released new measures relating to businesses. These include temporarily increasing the instant asset write-off threshold for the 2023-24 income year.

Click to read our article: Budget 2023 What’s in it for small business and households (1.30 MB PDF)

Federal Budget News 2023

admin.dlkadvisory Admin 11th May, 2023

On Tuesday, 9 May 2023, Treasurer Jim Chalmers handed down the 2023-24 Federal Budget, his 2nd Budget, which follows the October 2022 Budget.

Click to read our article: Federal Budget News 2023 (1.10 MB PDF)

Proposed new method for calculating WFH expenses

admin.dlkadvisory Admin 17th November, 2022

Taxpayers could soon be dealing with more paperwork at tax time or face the prospect of a lower deduction for work from home expenses if the ATO gets its way. The ATO has recently released a proposed new revised fixed rate method of calculating work from home expenses of 67c per hour. This will replace the previous shortcut method of 80c per hour which most taxpayers have been using during the pandemic as well as the previous fixed rate method from 1 July 2022. This proposal is still in draft stage and open to submissions from interested parties.

Click to read our article: Proposed new method for calculating WFH expenses (1.0 MB PDF)

Tax implications of deferred rent

admin.dlkadvisory Admin 15th November, 2022

As inflationary pressures start to bite, many businesses may be seeking rental deferrals or variations from their landlords to help them through this tough period. However, businesses that are lucky enough to receive a waiver, deferral or variation of rent need to be aware that there may be income tax, GST and perhaps even CGT consequences depending on a number of factors. These include the period of occupancy, whether the rent has been paid and otherwise refunded, how the business accounts for GST, and whether consideration has been provided or a new agreement formed.

Click to read our article: Tax implications of deferred rent (0.70 MB PDF)