Your Company's Next Tax Loss Could Come Back as Cash

The federal budget brought back loss carry-back. From 1 July 2026, companies that make a tax loss can claim a cash refund against tax they paid in the previous two years.

The measure was first introduced during COVID as temporary stimulus for businesses hit by lockdowns. It ran until June 2023, then expired. Now it's back permanently, for companies with aggregated turnover under $1 billion. Treasury estimates up to 85,000 companies will benefit, most of them small businesses. The five-year cost to the budget is $2.3 billion.

How it works

If your company paid tax in 2024-25 or 2025-26, and then makes a loss in 2026-27, you can offset that loss against the earlier tax and receive a cash refund.

The refund is limited by two things. First, it only applies to revenue losses, not capital losses. Second, the refund can't exceed your company's franking account balance. In plain terms, that means you can only claim back tax your company has actually paid and hasn't already distributed as franked dividends.

Here's where it gets practical. Say your company made a $40,000 profit last year and paid $10,000 in tax. This year, you invest in new equipment, take the instant asset write-off, and end up with a $15,000 loss. Under loss carry-back, you can claim a refund of up to $3,750 against last year's tax.

That's not a deduction you carry forward and hope to use one day. It's cash back now.

Who it applies to, and who it doesn't

This only works for companies. If you operate as a sole trader, partnership, or trust, loss carry-back doesn't apply to you. That's worth knowing, because most Australian small businesses aren't structured as companies.

If you've been thinking about incorporating for other reasons, this adds another factor to the timing. But structure changes are complex, and this measure alone isn't a reason to restructure. It's one input among several.

The start-up measure

There's a separate but related provision for new businesses. From 1 July 2028, start-ups in their first two years can get a refund for tax losses, capped at the value of fringe benefits tax and PAYG withholding they've paid on employee wages. It's designed to reward early hiring. Treasury estimates it will benefit up to 25,000 young companies a year.

Again, companies only.

What to do

If you're a sole trader or partnership and you've been weighing whether to incorporate, the start date matters. Loss carry-back kicks in from 1 July 2026. Talk to your accountant about whether the broader structure change makes sense for your situation, and whether the timing lines up.

If you're already a company and you're considering a big investment this financial year, run the numbers on what happens if it creates a loss. With loss carry-back, that loss isn't dead weight. You can recover some of the tax you paid in the previous two years as cash. That changes the risk calculation.

It's also worth understanding how loss carry-back interacts with the instant asset write-off, which is now permanent. The write-off lets you deduct the full cost of an eligible asset immediately. If that deduction pushes your company into a loss, loss carry-back lets you turn that loss into a cash refund. The combination is more powerful than either measure on its own.

This article is general information only and is not financial advice.