FY26 Tax Planning and Strategies for Small Business & Sole Trader

For small business entities with an aggregated turnover of less than $10 million, the instant asset write-off threshold for FY26 allows eligible assets costing less than $20,000 to be immediately deducted in the year the asset is first used or installed ready for use.

The $20,000 threshold applies on a per-asset basis — meaning multiple assets can each qualify for immediate write-off.

Documentary Evidence Required

•  Tax invoice for the asset purchase

•  Evidence that the asset was first used or installed ready for use before 30 June 2026

•  For vehicles: note that the $20,000 limit applies to the total cost of the asset, not just the business-use portion. A vehicle costing more than $20,000 cannot be claimed under instant asset write-off regardless of your business-use percentage. A separate car limit also applies to passenger vehicles — speak to us before purchasing a vehicle with this concession in mind.

From 1 July 2026, the way employers pay superannuation will change significantly. Under the new Payday Super legislation, employers will be required to pay Superannuation Guarantee contributions at the same time as salary and wages. This replaces the current system of quarterly payments.

This is one of the most significant changes to payroll obligations in recent years and will affect every business with employees. If your payroll processes are not updated ahead of the commencement date, you may find yourself non-compliant from day one.

We recommend speaking with us to ensure your systems and processes are ready before 1 July 2026.

From 1 July 2025, the Superannuation Guarantee (SG) rate increased to 12%. This is now the compulsory rate for all employer superannuation contributions in FY26.

Ensure your payroll settings have been updated accordingly. Underpayment of super can attract significant ATO penalties.

Pay June Quarter Super Before 30 June

To claim a superannuation deduction in your FY26 tax return, the June quarter super contributions must be paid to and received by the super fund before 30 June 2026.

Contributions paid after this date will only be deductible in FY27. This is a common planning opportunity — don't leave it until the last day.

If your business operates through a trust, trustee resolutions must be made before 30 June 2026 to give rise to present entitlements for the FY26 income year. Some trust deeds may require resolutions to be made even earlier — check your deed.

Failure to make a valid resolution before the deadline can result in trust income being taxed at the highest marginal rate (currently 47% including Medicare levy). This is one of the most time-critical actions of the financial year.

Documentary Evidence Required

• Signed trustee resolution document dated on or before 30 June 2026

• Minutes of any trustee meeting at which the resolution was made

• Review your trust deed for any earlier internal deadlines

One of the most common issues we see in business accounts is personal or entertainment expenses being recorded as business deductions. It is worth reviewing how your transactions are coded before your return is prepared. Incorrect coding can result in disallowed deductions or trigger a Fringe Benefits Tax (FBT) obligation, which is a separate and additional tax process to your income tax return.

Entertainment expenses

As a general rule, entertainment expenses are not deductible — even where there is a clear business purpose. This includes client lunches and dinners, Christmas parties, and corporate events or functions where the primary purpose is enjoyment. However, some food and drink costs are not considered entertainment and are deductible, such as meals while travelling for business overnight, light refreshments provided on business premises on a working day, and food incidental to an eligible seminar of at least four hours. The rules in this area are nuanced. If you are unsure whether a particular expense qualifies, speak to us for further assistance.

Gifts

Non-entertainment gifts to clients such as hampers or promotional items, are generally deductible where they are made with the intention of generating business income. Entertainment gifts, such as event tickets, are not deductible. Note that face-value gift vouchers do not include GST, meaning no GST credit can be claimed on the purchase.

Personal transactions in your accounts

Any personal spending recorded as a business expense should be recoded to a drawings or loan account (BAS excluded) before lodgement. We review transaction coding as part of our return preparation process and will flag anything that needs attention.

For sole traders specifically

Because your business and personal income are reported in the same tax return, the line between personal and business expenses requires particular care. Only the business-use portion of any expense is deductible and must be supported by records. Additional areas to consider include motor vehicle expenses (logbook or cents per kilometre), home office occupancy costs, and Personal Services Income rules. Speak to us to find out more information.

Documentary Evidence Required

For any expense claimed as a business deduction, you must hold a valid tax invoice. A bank or credit card statement is not sufficient on its own.

One of the most common reasons tax deductions are disallowed is the absence of proper records. The ATO requires written evidence for the vast majority of business expenses — and a bank statement alone is generally not sufficient. What counts as valid documentary evidence:

• Tax invoices (showing supplier ABN, description of goods or services, and GST amount)

• Receipts for cash purchases

• Logbooks for motor vehicle claims

• Written contracts or agreements

• Bank or credit card statements (as a supporting document, not a standalone record)

Our strong recommendation: collect and store your records throughout the year, not at tax time. If you cannot locate a receipt, contact your supplier for a copy before lodgement. Digital copies are accepted by the ATO — apps like Hubdoc or Dext can make this straightforward.

If you are ever audited, the burden of proof is on you.