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New small businesses will face lower corporate tax rates, and technology upgrades will cop bonus tax deductions, according to election promises floated by Opposition leader Peter Dutton.

Speaking on Friday, Dutton revealed the Coalition's latest salvo of small business plans ahead of the May 3 federal election.

Here's what you need to know.

What has the Coalition promised small businesses and startups?

Under the Coalition's plan, newly incorporated businesses and startups will pay less tax on their first $200,000 of taxable income.

The tax offset will taper down over the first three years of a business' operation.

In year one, eligible businesses can offset 75% of the first $100,000 of taxable income, and 50% of the next $100,000.

The ABC reports that it will drop to a 60% offset for the first $100,000, and 40% for the second $100,000, in year two.

Year three will see the offset drop to a 50% offset on the first $100,000, and 30% on the last $100,000.

The Coalition said the policy would cost $214 million.

What businesses will be covered?

The key phrase is "newly incorporated", suggesting sole traders and partnerships will not be eligible for the Coalition's planned tax breaks.

While the tax breaks could encourage some founders to incorporate their business, some may feel operating as a sole trader or in a partnership is simply a better option for them.

Incorporation also requires hundreds of dollars in registration fees, and brings with it higher record keeping standards, which may not suit entrepreneurs at the start of their business journey.

Around 43.5% of Australian businesses were registered as companies in the three months to December 2024, with the rest operating as sole traders, partnerships, or trusts.

Tony Greco, senior tax adviser at the Institute of Public Accountants, said the policy could "open up the floodgates" for business incorporation.

However, experts are waiting for further details on the policy proposal, and how 'new' a business must be to receive the tax break.

Who would benefit?

The tax break is structured to benefit profitable ventures with taxable business income.

In a statement, Dutton said the tax measure will "support more Australians to take the risk and back themselves to start a business, and support businesses through their early years".

It is a "good policy to invigorate entrepreneurship," said Greco.

But earning taxable business income is easier said than done for many early-stage small businesses and startups.

"Most businesses in the startup phase probably don't make money until the second or third year -- or never," said Greco.

"As soon as you have a business which requires factory or floor space, employing people, that sort of infrastructure takes some time to get moving," he added.

"The overheads generally would impose a restriction on profitability.

"They're looking at the long term, building up goodwill. Those sorts of businesses would generally don't make money in their first year."

In a statement, Luke Achterstraat, CEO of the Council of Small Business Organisations Australia, said the new proposals would provide a "real incentive for early-stage businesses".

Beyond those new proposals, Achterstraat reiterated his call for a lower small business tax rate, separate to the targeted offset plan.

What does the Coalition want to achieve?

The proposals are part of the federal Opposition's new small business strategy, which includes the goal of creating 350,000 new small businesses over four years.

For context, the Australian economy counted net 348,550 business entries between 2020-21 and 2023-24.

The Coalition also argues the Albanese Labor government has overseen a rising number of business failures, with cost of living pressures pushing collapses to a four-year high.

While tough trading conditions have clearly played a role, some insolvency practitioners and credit monitoring agencies see things differently.

They suggest rising business collapse figures are effectively "catching up" to the figures expected through the COVID-19 era, when lenient policies kept many struggling businesses afloat.

What about business investment?

The Coalition also announced a second tax measure for small businesses: a bonus tax deduction of $2,000 for eligible technology upgrades worth $4,000 or more.

Eligible upgrades would include customer relationship management software, new point-of-sale systems, cybersecurity tools, and upgraded communication links.

Greco said small businesses could also benefit by adopting artificial intelligence, but it is yet to be seen if the policy proposal would extend to AI tools specifically.

The policy resembles a miniature version of the Technology Investment Boost, which was conceived by the Morrison government and passed into law under the Albanese administration.

"There was bipartisan support for the last technology adoption incentives, both parties recognised the need," said Greco.

What are Labor's plans?

If re-elected, Labor plans to legislate a $20,000 instant asset write-off for 2025-26, helping small businesses instantly deduct the cost of business upgrades.

The Coalition hopes to legislate a $30,000 write-off on an ongoing basis.

Federal Labor has also promised personal income tax cuts benefiting sole traders, $150 energy bill rebates to eligible small businesses, and a pause on excise hikes for draught beer.

Beyond tax measures and cost-of-living relief, Labor also wants to extend unfair trading practice protections to small businesses, and ban non-compete clauses it believes stifle new business formation.

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