As part of the 2026-27 Federal Budget, the Australian Government announced the return of loss carry back rules for businesses.
What is the change?
Loss carry back provisions
The Government will reintroduce a two-year loss carry back rule for companies with aggregated annual global turnover of less than $1 billion.
Eligible companies that incur a tax loss in an income year may be able to “carry back” that loss and offset it against taxable profits from the previous two income years. Loss carry back will apply to revenue losses only and will be limited by a company’s franking account balance.
This enables the company to receive a refund of income tax previously paid, rather than carrying the loss forward and waiting to apply it against future taxable profits.
Loss refundability for small start-up companies
The Government has also announced the introduction of loss refundability for small start-up companies. Start‑up companies with aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to utilise the loss to generate a refundable tax offset. The offset will be limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year.
When will the changes apply?
The loss carry back provisions are proposed to apply from 1 July 2026.
The loss refundability provisions for small start-up companies are proposed to apply from 1 July 2028.
At this stage, the changes remain announcements only and will require legislation to be passed before they become available to businesses.
Insights
This is a significant measure for medium-sized businesses and growing corporate groups. A few practical observations:
- Improved cash flow during downturns: Businesses facing cyclical conditions or temporary disruptions may recover tax previously paid, providing valuable cash flow when needed most.
- Encouraged investment and innovation: The tax impact of failed or delayed investments is effectively softened, improving confidence for businesses considering expansion.
- Watch for the fine print: The legislation will be important in determining how the regime will operate in practice. As the measure has only been announced at this stage, further detail on how the rules will apply is expected once the legislation is released.
The return of company loss carry back is likely to be welcomed by many businesses, particularly those operating in cyclical industries, or those navigating current economic uncertainty.
If you would like to understand how these proposed changes may affect your investment portfolio or existing assets, please contact our team for tailored advice.
