Federal Budget 2026: What it means for retailers and eCommerce brands

The 2026 Federal Budget marks a clear pivot from short‑term cost‑of‑living relief towards longer-term economic and tax reform. For retailers and eCommerce brands dealing with subdued consumer confidence, tight margins and higher operating costs, the impact will be gradual rather than immediate.

While the Budget did not introduce measures specifically targeted at retail, several announcements will influence consumer spending patterns, cash flow management, compliance obligations and investment decisions over the coming years. This article outlines the changes most relevant to retailers and some missed opportunities.

Consumer demand and the outlook for retail spending

The Budget confirms further personal income tax cuts, including:

• A new permanent $250 Working Australian Tax Offset, payable annually from the 2027-28 income year
• A reduction in the 16 per cent marginal tax rate to 15 per cent for the 2026-27 income year, and to 14 per cent from 2027-28 onwards, as previously legislated
• A $1,000 instant tax deduction for the 2026-27 income year, announced before the Budget

These measures are designed to boost disposable income over time, particularly for lower and middle‑income earners. While the cash benefit is modest and staged to avoid fuelling inflation, any flow-through to retail demand is likely to emerge over time as the measures take effect.

Inflation growth and margin pressure

The Budget is deliberately cautious in the short term, with key savings measures and the deferral or limitation of tax relief to avoid adding to inflationary pressures.

Treasury highlighted ongoing inflation risks linked to global fuel supply and geopolitical instability. Headline inflation is forecast to be 5 per cent through the year to the June quarter 2026, before declining to 2.5 per cent by the June 2027 quarter.

Inflation remains a double‑edged sword for retailers, with supply chain costs eating away at margins, while consumers remain price‑sensitive.

The Government’s decision to delay some relief is a signal that inflation management remains the priority. Economic growth is expected to slow from 2.25 per cent in 2025-2026 to 1.75 per cent in 2026-27, before picking up again in 2027-28 to 2.25 per cent.

For retailers, this reinforces the need for disciplined inventory management, targeted pricing strategies and rigorous cost control, rather than relying on short-term improvement in trading conditions.

Supply chain measures aimed at stability

The Budget includes measures aimed at easing fuel supply constraints, supporting logistics and lifting productivity. These include:

• $7.5 billion Fuel and Fertiliser Security Facility
• Expansion of the Minimum Stockholding Obligation (MSO) for mandatory fuel reserves
• $3.2 billion Australian Fuel Security Reserve to protect against future supply disruptions
• Support for expanding domestic fuel refining
• A temporary fuel excise reduction and removal of the heavy vehicle road user charge
• $1 billion in interest‑free loans for manufacturing, freight and logistics businesses critical to supply chains
• $55 million Transport Resilience and Capacity Kickstart pilot, incentivising greater use of rail and maritime freight
• $8.6 billion to accelerate nationally significant road and rail projects to ease bottlenecks and improve supply-chain reliability.

While these measures may help improve supply-chain resilience over time, labour shortages, wage growth and fuel costs remain important considerations for retailers, particularly those reliant on national distribution networks and imported inventory.

Business deductions supporting retail investment and cash flow

From 1 July 2026, the instant asset write-off will be permanently extended. Small businesses with a turnover of up to $10 million will be able to immediately deduct the cost of eligible depreciating assets costing up to $20,000 per asset, rather than depreciating them over time.

The loss carry back regime will also be reintroduced. For income years commencing on or after 1 July 2026, companies with an aggregated annual global turnover of less than $1 billion will be able to carry back tax losses and offset them against tax paid in the previous two years. This will be capped by the company’s franking account balance. 

In addition, from 1 July 2028, start-ups with an aggregated annual turnover of less than $10 million will be able to convert tax losses from their first two years of operation into a refundable tax offset. The refundable amount will be capped by fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year.

For retailers, these measures are powerful levers to support investment in stores, fit‑outs, warehousing, automation and technology platforms, delivering cash flow benefits that may be particularly valuable for newer or growing brands.

Compliance changes and implications for retail reporting

While positioned as simplification, several measures may make cash flow forecasting more difficult in practice. This includes:

• Expanding dynamic PAYG instalment calculations
• Allowing small and medium businesses to opt in to monthly PAYG instalment reporting and payments from 1 July 2027
• Making monthly reporting and payment of PAYG instalments mandatory for brands with a history of non-compliance.

For retailers, particularly those with seasonal sale cycles, these changes may require closer attention to short-term cash flow management and reporting processes.

The R&D incentive is also changing from 1 July 2028. Although the R&D tax offset will be calculated at a higher rate, there will be a significant narrowing in what qualifies as R&D.

In addition, for large retailers expanding into Australia, the regulatory environment can be complex. Australia has been an early and comprehensive adopter of global tax and investment integrity frameworks, layering OECD‑driven rules on top of an already robust and complex domestic regulatory regime.

The Government will continue this approach, amending the Pillar Two rules to legislate the side-by-side package announced by the OECD. This includes new safe harbours and administrative simplifications for in-scope multinational groups. These changes represent a significant concession by the OECD to accommodate US interests, effectively creating a workaround to ensure Pillar Two does not impact US-parented multinational groups once the measure takes effect.

Founder-led retail brand and upcoming tax changes

From 1 July 2028, a new 30 per cent minimum tax will apply to discretionary trusts. Beneficiaries, other than corporate beneficiaries, will receive a non-refundable tax offset for the tax paid by the trustee.

The minimum tax will not apply to other types of trusts, including:

• Fixed and widely held trusts (such as testamentary trusts)
• Complying superannuation funds
• Special disability trusts
• Deceased estates and charitable trusts.

Certain types of income will also be excluded, but dividend income will not.

Roll over relief will also be expanded from 1 July 2027 to support restructures out of discretionary trusts.

Many founder-led retail and eCommerce brands use discretionary trusts as part over their ownership structures. While these arrangements may continue to offer asset protection benefits, the changes are likely to reduce the effectiveness of distributing income to bucket companies. Founders should consider whether their current structure remains fit for purpose once the draft legislation is released.

In addition, the 50 per cent CGT discount for assets held for more than 12 months will be replaced by indexation, with a 30 per cent minimum tax on net capital gains. While indexation may provide some relief for long‑held assets during periods of high inflation, many founders (particularly those expecting a liquidity event) are likely to face a higher effective tax rate on exit compared to the current rules.

What the Budget didn’t address

Despite the reform package for individuals and trusts, several measures were notably not included in this year’s Budget:

• No GST reform
• No company tax cuts
• No changes to the central management and control test to determine the Australian tax residency of foreign incorporated companies
• No targeted digital economy package.

For retailers, this suggests that while the Budget included elements of structural reform, it largely stopped short of delivering measures to reduce operating costs, improve competitiveness or simplify the tax system.

How BDO can help

The 2026 Federal Budget introduces changes that will shape retail operating conditions over the coming years. For a broader view of the Budget measures announced, explore BDO’s Federal Budget 2026 overview.

BDO’s retail team works with retailers and eCommerce brands across tax, audit and advisory. We advise on cash flow, workforce and PAYG obligations, business structures, and international expansion as businesses assess the tax and compliance changes announced in the 2026 Federal Budget.