What the 2026 Federal Budget means for Australian agribusiness
What the 2026 Federal Budget means for Australian agribusiness
The tax changes announced in the 2026-27 Federal Budget are a mixed bag for Australian agribusiness. On the one hand, the permanent increase in the instant asset write-off threshold, and the reintroduction of a loss carry back for companies, are welcome measures.
On the other hand, the exclusion of primary production income from the 30 per cent tax on discretionary trusts places greater emphasis on how primary production income is defined, while changes to capital gains will expose pre-CGT assets realised after 1 July 2027 to a minimum of 30 per cent tax.
Increased instant asset write-off threshold
Whether or not the temporary higher instant asset write-off threshold would be extended for a further year has become something of an annual guessing game for farm businesses. The announcement to permanently increase the threshold to allow assets costing less than $20,000 brings an end to this.
Whilst the permanent increase in the instant asset write-off threshold to $20,000, for businesses earning under $10 million per year (i.e. Small Business Entities), is welcome the measure should have been expanded to entities eligible for the 25per cent Base Rate Entity tax rate – that is, those with turnover up to $50 million per year.
Nevertheless, a move away from the recent history of “temporary” increases to the instant asset write off threshold provide welcome certainty for farm businesses.
Loss carry back and tax averaging for primary producers
The reintroduction of the loss carry back is particularly relevant for farm businesses operated through companies. While individuals carrying on primary production businesses can take advantage of tax averaging, the same activity undertaken through a company has not had access to this benefit.
The ability to carry back a current-year tax loss up to two prior years permits a similar outcome to tax averaging, albeit over a shorter time period. With the most recent spike in fuel and fertilizer prices expected to lead to rolling higher input costs for the foreseeable future, losses, or larger than expected losses, may well eventuate for the year commencing on 1 July 2026.
Reform of ‘primary production income’ definition urgently required
The proposal to subject the income of discretionary trusts to 30per cent tax does not apply to a trust’s “primary production income”.
Farm businesses increasingly generate income from a broader range of activities that extend beyond the production and processing of agricultural commodities. For example, income streams from carbon abatement, ecosystem services, biodiversity credits, eco-tourism, renewable energy, and land access arrangements, all fall outside the current definition of primary production income. An exception applies to certain income relating to Australian Carbon Credit Units, which is considered to be primary production income for specific purposes.
Where a trust carrying on a farm business derives income from these activities undertaken on primary production land, the proposed changes would result in that income being subject to a 30 per cent tax in the hands of the trust.
Greater clarity is needed on how the definition of primary production income applies to contemporary land-based activities, and consideration should be given to expanding the definition.
A limited-time CGT rollover is proposed for the restructuring of certain trust assets into a company. While this rollover may be available for income and capital gains tax, state taxes and duties should be considered if land transfers are undertaken.
Pre-CGT assets subject to tax
One of the biggest stories in the Federal Budget is the proposal to subject all assets subject to a minimum of 30per cent tax, including gains on assets acquired before the commencement of the CGT regime.
Pre-CGT assets will still be exempt up until 1 July 2027, with gains accruing after that date proposed to be taxed. To support this approach, it is expected that assets will need to be valued as at 1 July 2027.
This represents a massive change in tax profile of pre-CGT assets, and farm businesses operating on pre-CGT land should urgently consider what these changes mean for them.
BDO comment
BDO considers the permanent $20,000 instant asset write‑off and the reintroduction of company loss carry back to be welcome measures for Australian agribusiness, particularly for farm businesses facing volatile input costs and seasonal variability, although the turnover threshold could have been extended to capture a broader range of eligible businesses.
BDO has long advocated for the reintroduction of loss carry back and notes its importance for companies operating primary production businesses, particularly given the absence of tax averaging for these entities.
The proposed changes to capital gains tax could have a significant impact on pre‑CGT holdings, particularly for long‑held farming assets, and should be carefully considered by affected taxpayers in advance of 1 July 2027.
BDO also observes that the exclusion of primary production income from the 30 per cent discretionary trust minimum tax increases the practical importance of how “primary production income” is defined and applied to contemporary land‑based income streams. Greater clarity is needed in this area, and consideration should be given to expanding the definition to better reflect the evolving nature of farm business income.
