With tax time approaching, businesses may need to assess the impacts of the Federal Budget and RBA interest rate rises on their operation and business loans. There is no understating the upheaval and disruption that the Australian economy has faced recently. High fuel prices and other flow-on effects of the US-Iran war as well as rising inflation and consecutive RBA rate rises have created challenging conditions for business operators. On top of all that, operators now need to navigate how any policy changes announced in the Federal Budget may impact their business. All as 30 June, tax time, nears.
There is a lot to unpack, and it is early days for the Federal Budget. The Treasurer’s speech is just the first stage in the process. The Budget needs to be enacted into law with legislation passing both houses of Parliament. Depending on how those holding the balance of power in the Senate view the Budget Bill, the Government may need to negotiate on some issues. Stay tuned.
In the meantime, we outline some of the considerations for businesses as they approach the important end of financial year period.
Federal Budget and Business
The release of the annual Federal Budget is a major event as the policy inclusions can have varying impacts for Australians. Treasurer Chalmers focussed on housing, there were several important inclusions for businesses to consider in relation to their own operation.
Businesses undertaking research and development may be in for a break – a tax break. The cap on investments which are subject to tax was raised to $200m from $150m. This is seen as a benefit for large organisations as well as start-up operations, especially those in the tech area.
Construction businesses may benefit from the $2b over 4 years to be spent on supporting key suppliers to build infrastructure. Under the proposal, zoning and planning regulations are set to be overhauled to allow faster construction methods.
A significant win for small businesses is the $20k instant asset write-off which is being made permanent. Also being made permanent is loss carry back for 2 years for businesses with turnover below $1b.
Businesses that operate under a trust structure may need to consult with their accountant on the Budget inclusion to introduce a minimum tax rate of 30% on discretionary trust distributions. This would be effective from 2028. There are exclusions including income from farming and inheritance and for many small businesses.
A big change was included for those with a novated car lease subject to FBT. The FBT discount on luxury EVs in a certain threshold price range is being reduced from 100% to 25%.
These points are only some of the major announcements. Operators may find opportunities and issues affecting their specific sector. For example, if changes to home ownership policies with negative gearing would have a positive effect on housing construction. Full details on the Federal Budget 2026/27 are available online.
Business Loan Interest Rates
What is happening with interest rates? The big question for many Australian business operators at the moment. At its May meeting, the Reserve Bank Board once again decided to lift the cash rate by 0.25% to 4.35%.
In announcing the decision, RBA Governor Michele Bullock said that there were heightened uncertainties around inflation and the domestic economy, especially in regard to the Middle East conflict. Flow through effects from the conflict and high fuel prices are likely on prices for goods and services.
With the rate of inflation likely to stay above the Bank’s target, and with risks tending to upside, the Board determined a rate increase was appropriate. Eight board members were favour of the increase and one voted to hold the rate steady.
The RBA Board next meets to discuss interest rates on 15-16 June.
As a result of recent Reserve Bank decisions to lift the cash rate at three meetings consecutively, commercial finance rates have been impacted. But rates do vary with lenders, and we remain well positioned to secure competitive rates across our portfolio.
Only loans with a variable interest rate such as Overdrafts, Lines of Credit and Unsecured Business Loans would see their rate change with RBA decisions. Finance which is has a fixed interest rate such as Lease, Chattel Mortgage, Commercial Hire Purchase and Rent-to-Own, would not see their rate change.
The outlook for further rate increases is unclear as it will very much depend on how inflation tracks and how long the Middle East conflict continues. What seems to be clear is that the RBA sees inflation as remaining above target for some time. For interest rates, that means a cut is highly unlikely in coming months.
Tax Deductions on Business Loans
The structure, features, benefits and tax deductions applying to commercial credit facilities are not directly impacted by any Federal Budget policies and RBA decisions. The exception being changes as announced to EV Novated Leasing and deductions through IAWO.
The change to IAWO may present opportunities for small businesses to invest in new assets. Acquire and finance new assets to the value of $20,000 with the right credit facility before 30 June to potentially fully expend, write-off, in this financial year. This may present a significant improvement to tax payable to ease cash flow and support the business.
To secure business loans at competitive rates, connect with Business.Finance brokers on 1300 000 033.
DISCLAIMER: THE SPECIFIC PURPOSE IN PROVIDING THIS ARTICLE IS FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED AS THE SOLE SOURCE OF FINANCIAL INFORMATION ON WHICH TO MAKE BUSINESS FINANCE DECISIONS. BUSINESS OWNERS WHO REQUIRE ADVICE OR GUIDANCE AROUND THEIR SPECIFIC FINANCIAL CIRCUMSTANCES ARE RECOMMENDED TO CONSULT WITH AN ADVISOR OR ACCOUNTANT. NO LIABILITY IS ACCEPTED IN REGARD TO ANY MISREPRESENTATIONS OR ANY ERRORS RE ANY DATA, SPECIFICS, POLICIES AND OTHER INFORMATION AS SOURCED FROM OTHERS.
