If you’re running a small or medium enterprise (SME) in Australia, you’ve probably felt the squeeze of uncertainty lately. With an election looming in less than two months—around mid-May 2025, based on today’s date of March 20, 2025—there’s a lot hanging in the air.
The Federal Budget, due next week, could be a game-changer for your business. Today, an pile of tax and superannuation legislation, known as “announced but unenacted measures” (ABUMs), is leaving SMEs like yours guessing what’s around the corner.
The Tax Institute, a vocal supporter of tax professionals, believes the Government needs to clear the fog and give you the clarity you need to plan. Let’s address two big ABUMs that are causing you distress—Division 7A and instant asset write-off (IAWO)—and understand why they’re causing you so much stress. Then we’ll examine what the Budget can do to make your life easier, from better funding to more intelligent decision-making.
Division 7A: A taxation conundrum
What is Division 7A?
Let’s say you’ve got a small family business or a trust—not unusual in SMEs. Division 7A is a section of the Income Tax Assessment Act 1936 that stops people from avoiding tax by transferring money through privately owned companies in sneaky ways. For example, if your company lends you or a family member money interest-free, Division 7A steps in to treat that as assessable income. It’s intended to make it equitable, but this is the thing: it’s been on the books since 1997, and it remains an enigma to many business operators.
Why it’s a problem
All the way back in the 2015–16 Federal Budget, the Government committed to fixing Division 7A. They explained that it was too convoluted and that it had to be reworked. Fast forward to 2025—close to 10 years later—and those fixes still haven’t eventuated. For SMEs, what that means is you’re lumbered with a rule that’s hard to keep. Are you unknowingly breaking it? How do you even know? The vagueness makes it hard to control your cash flow or pay yourself without worrying about getting a tax notice.
The latest twist
Here’s where it gets complicated. The Australian Taxation Office (ATO) has an opinion about something called an “unpaid present entitlement” (UPE). That’s when your business is owed money by a trust but it hasn’t been paid yet. In a decision titled TD 2022/11, the ATO explained this isn’t considered a “loan” under Division 7A, so it shouldn’t give rise to additional tax. But then in early 2025, the Full Federal Court prohibited this in a case, Commissioner of Taxation v Bendel [2025] FCAFC 15. They said it can be a loan, turning on its head the ATO position.
Now, the ATOs in suspense to see whether the High Court will grant an appeal—the Commissioner applied for one on March 18, 2025. Meanwhile, they’re sticking to their original position with an “interim decision impact statement.” To you, the SME owner, this game of tit-for-tat is a nightmare. Do you follow the ATO’s recommendation or wait for a court ruling that may turn everything upside down?
What SMEs need
Robyn Jacobson of The Tax Institute has a simple message: “The Government needs to sort this out.” She’s urging more talks with business operators and advisers before anything is done. If the High Court gets involved, it might delay it, but SMEs can’t wait forever. “You deserve clear rules,” she says. “At the moment, it’s too hard to comply when nobody knows what the law even says.”
Instant Asset Write-Off: A Rollercoaster for SMEs
What’s the IAWO?
The instant asset write-off is a tax deduction concession that lets you claim the entire cost of items like equipment, vehicles, or computers in the same year that you buy them, instead of claiming it bit by bit over the years. It’s a lifeline for SMEs wanting to invest without being slowed down by red tape. But that’s where the catch is: the rules are always changing.
The latest chapter
For the year 2023–24, the IAWO threshold—the amount you can claim—rose to $20,000, but just two days before the deadline on June 30, 2024. That gave SMEs a deadline dash chance to expense things like a new delivery van or a laptop setup. Then, the Government raised the possibility of introducing an extension of that $20,000 threshold up to June 30, 2025. Great news, you might think? Not so fast. That option was cut from a bill called the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 in front of parliament when it was passed.
Without new legislation, the barrier drops to just $1,000 from 1 July this year. That’s a very large step in the wrong direction for SMEs depending on the greater concession to grow.
Why it’s frustrating
This is not the first time the IAWO has ping-ponged. It’s changed seven times since May 2015. One month it’s $20,000, the next month it’s $1,000, then it’s up again—it’s a tax yo-yo. For you, that means constant guessing. Should you buy that new machine now? Wait for a better price? Each change means paperwork and stress.
Jacobson summarizes: “SMEs need a sustainable injection. These flip-flops are eating into your money and time.” She is hearing from business owners who are holding back on investment, waiting for the Government to make a commitment. “Pass now,” she says. “SMEs want to expand, not idle their hands.”
What SMEs need from the 2025–26 budget
The Tax Institute’s newly appointed Head of Tax & Legal, Julie Abdalla, says the Budget is not all about numbers—about giving SMEs a level playing field. She has two big ideas: more money and better listening.
Running a tax system that works for SMEs is not cheap. Abdalla wants Treasury and the ATO to get sustained funding—not bursts of short-term cash for audits, but sustained cash to develop tools and advice you can actually use. “Think of it as servicing your shop,” she says. “Miss a session, and the machinery seizes up.”.
For Treasury, funding means tackling ABUMs like Division 7A and IAWO, plus planning for what’s next. For the ATO, it’s about tech upgrades and clear advice so you’re not guessing what forms to file. “Old ABUMs hanging around for years hurt everyone,” Abdalla says. “The Budget should either fix them or let them go.”
Listening: SMEs deserve a voice
Ever had the sense that tax law rains down from on high? Abdalla’s had it happen to them before. Take November 2023, for example: Greens Senator Barbara Pocock appended new tax professional regulations on to a bill (Treasury Laws Amendment (2023 Measures No. 1) Bill 2023) out of the blue. No drafts, no debate—simply voted on November 27. SMEs and advisors were left holding their hair, caught out by changes they hadn’t been able to prepare for.
That’s what you do without asking,” Abdalla insists. “Talk to us first, and you have legislation that functions—not headaches.” She is calling for public consultations on major changes so SMEs will not be caught off guard.
A word on backdated rules
Has a rule been altered after you’ve decided? That’s retrospective legislation, and it’s occurring more and more. New legislation like Public Country-by-Country Reporting and Pillar Two (passed December 10, 2024, but from January 1, 2024) and thin capitalisation changes (from July 1, 2023) operate retrospectively. “It’s like being told the speed limit has changed after you’ve driven past,” Abdalla says. “SMEs shouldn’t have that uncertainty. Good discussions upfront can avoid it.”
The Federal Budget isn’t a government report card—it’s your roadmap. Division 7A and IAWO currently have no idea what’s happening, and that shouldn’t be the case. You should have simple-to-apply rules to follow, an IAWO you can invest in confidently, and a process that will listen when you want to make your voice heard. The Tax Institute is pushing for all that in 2025–26 with more funding and less surprise.
Analysis on concerns regarding superannuation, SMEs, and individuals can be found at: https://www.taxinstitute.com.au/insights/media/2025/Federal-Budget-2025-26
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