How the 2026 Federal Budget Affects AI Investment for Small Business

The 2025–26 Federal Budget was handed down in March 2026, and for Australian small businesses interested in AI, there were several measures worth knowing about. From expanded instant asset write-offs to new digital skills funding, here’s what the budget means for businesses looking to adopt AI tools this financial year.

Instant Asset Write-Off Extended

The instant asset write-off threshold has been extended for the 2025–26 financial year, allowing eligible small businesses to immediately deduct the full cost of assets up to the threshold in the year of purchase. This includes hardware used for AI: computers, servers, tablets, and other devices used in your business. If you’ve been considering upgrading your tech stack to run AI tools more effectively, this is worth discussing with your accountant before 30 June 2026.

Digital Skills and AI Training Funding

The budget continued investment in digital skills programs through the Department of Employment and Workplace Relations, including funding for short-course AI and digital literacy training. This flows through TAFE and registered training organisations across Australia. If you or your staff want to upskill in AI tools, check whether subsidised courses are available in your state: costs can be significantly reduced or eliminated for eligible participants.

Small Business Energy Incentive. Final Year

The Small Business Energy Incentive: which provides a 20% bonus deduction on eligible energy-efficient assets: is in its final year. While this is primarily aimed at energy efficiency rather than AI directly, some AI-adjacent hardware (energy-efficient servers, smart building systems) may qualify. Check the ATO’s guidance to see if any planned purchases are eligible before the scheme closes.

What Wasn’t in the Budget (But Should Have Been)

Despite significant lobbying from the tech sector, the 2025–26 budget didn’t include dedicated AI adoption grants for small businesses, a national AI strategy with attached SMB funding, or tax incentives specifically for AI software subscriptions. The AI Business Council and Australian Chamber of Commerce and Industry have both flagged this as a missed opportunity, arguing that targeted support for SMB AI adoption would deliver significant productivity dividends.

State Government Programs to Watch

In the absence of a strong federal SMB AI program, several state governments have filled the gap:

• Victoria: The Business Victoria digital grants program has historically included AI and automation tools as eligible expenses.
• NSW: Business NSW offers small business grants that can cover digital transformation including AI tools.
• Queensland: The Queensland Government’s small business grants have included technology adoption as an eligible category.
• WA, SA, TAS: Check your state’s small business development corporation for current digital grants.

R&D Tax Incentive for AI Development

If your business is developing AI-powered products or tools (not just using off-the-shelf AI), the R&D Tax Incentive may apply. Companies with turnover under $20 million can receive a 43.5% refundable tax offset for eligible R&D expenditure. AI development: training models on proprietary data, building custom AI features: can qualify if it meets the experimental criteria. Worth a conversation with an R&D tax specialist.

The Bottom Line for Small Business

The 2025–26 budget is broadly supportive but not transformative for AI-adopting small businesses. The instant asset write-off extension is the most practically useful measure: use it before 30 June 2026 if you’re planning hardware purchases. For software subscriptions (where most AI spend actually goes), there’s no specific relief, so the business case needs to stand on its own merits.

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Related Reading

• Australian small business grants for ai
• Best ai tools for australian small business
• Ai for accountants in australia

Sources and Further Reading

• Australian Federal Budget 2025–26
• ATO. Instant Asset Write-Off
• business.gov.au. R&D Tax Incentive
• ATO. Small Business Energy Incentive

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