Company Loss Carry-Back Is Back: How the New Refund Works
Legislative timing clarified on 6 September 2026. Enacted: the Treasury Laws Amendment (Tax Reform No. 2) Act 2026 received Royal Assent on 26 August 2026. Commencement: Schedule 1 starts on 1 October 2026. Application: income years starting on or after 1 July 2026. A standard 30 June-balancing company’s first eligible loss-year claim is in its 2026–27 company tax return, not an immediate September 2026 refund. Who qualifies: eligible corporate tax entities that are not significant global entities; other statutory conditions apply.
What is company loss carry-back?
Usually, a company that makes a tax loss carries it forward and waits until it earns future taxable profits. That can be frustrating when the company paid tax in good years but needs cash during a temporary downturn or investment phase.
The new company loss carry-back rules provide another option. An eligible corporate tax entity can carry a current revenue tax loss back against income tax paid for either or both of the previous two income years. The benefit is delivered as a refundable tax offset.
In plain English: if your company paid tax recently and then makes a qualifying loss, it can recover some of that earlier tax rather than waiting to use the loss in the future.
Which companies are eligible?
The measure applies to eligible corporate tax entities that are not significant global entities. The legal tests are more detailed than a simple turnover check.
This is a corporate-tax-entity measure. Sole traders, ordinary partnerships and ordinary trusts do not qualify, but corporate limited partnerships and public trading trusts may qualify because they are corporate tax entities.
Eligibility is not the same as entitlement to a refund. The entity needs an eligible revenue loss, previously paid company tax and enough capacity under the statutory limits.
Which losses can be carried back?
The measure is for revenue tax losses. Capital losses cannot be converted into a loss carry-back refund.
For a standard 30 June-balancing company, the first eligible loss year is 2026–27. A qualifying loss from that year can be carried back against tax paid for 2025–26, 2024–25, or both. Companies using a substituted accounting period need to map their own income years carefully.
The entity chooses whether to claim through its tax return. Carry-back should be considered alongside the option of retaining a loss for future years, forecast profits, ownership changes and dividend plans.
The refund is capped
The offset is not unlimited. Broadly, it cannot exceed:
the tax value of the eligible loss;
the company tax paid for the selected earlier year or years; or
the available balance in the company’s franking account under the statutory calculation.
The franking-account limit is important because refunding past company tax can affect the tax credits supporting franked dividends. Companies should model the carry-back and their proposed distributions together rather than treating the refund as an isolated decision.
Integrity rules also apply. The measure is intended to support genuine business losses, not arrangements created mainly to manufacture an offset.
Practical example: a profitable company has a setback
Dining Co is an eligible base-rate company. It paid company tax in the previous income year, then makes a $15,000 revenue tax loss in an income year beginning on or after 1 July 2026.
At a 25% company tax rate, the loss has a tax value of $3,750. If Dining Co paid at least that much tax in the relevant prior years, has sufficient franking-account capacity and satisfies the other rules, it may receive a refundable tax offset of $3,750.
Without loss carry-back, Dining Co would generally carry the $15,000 loss forward and wait for future taxable profits. The new rule can bring the cash benefit forward to when the company may need it most.
Brand-new companies with no earlier tax paid have nothing to carry back — the Government has separately proposed a start-up loss refund from 2028; see our guide.
Why this may help growing businesses too
Loss carry-back is not designed only for businesses in distress. A healthy company can move into a tax loss because it invests in staff, product development or deductible operating costs. It could also make asset purchases that generate immediate deductions under the permanent $20,000 instant asset write-off, which Schedule 2 of the same Act makes permanent for eligible small businesses from the 2026–27 income year. Those provisions also commence on 1 October 2026.
If the underlying business remains sound, recovering some prior tax can reduce the cash-flow strain of that investment year. The key is to distinguish a timing loss from a deeper profitability problem — tax relief helps cash flow, but it does not repair an unviable business model.
Records and planning steps
Keep final tax returns, assessments, loss workpapers and franking-account records for the current and two earlier years together. Before claiming, we recommend modelling:
the available loss and prior-year tax;
any effect on the franking account and dividends;
whether company continuity or business tests affect the loss; and
the value of claiming through the eligible loss-year return compared with carrying the loss forward.
Frequently asked questions
Is loss carry-back automatic?
No. An eligible entity makes a choice to claim the refundable offset in its tax return. The claim needs the required calculations and records.
Can my family trust carry a loss back?
No. This measure applies to eligible corporate tax entities. A trust’s own losses remain subject to the trust loss rules, although a company within the group may separately qualify.
Can a company carry back a capital loss?
No. The new offset applies to eligible revenue tax losses, not net capital losses.
Talk to us before lodging the loss-year return
Regans Accountants can calculate the maximum offset, review your franking account and compare carry-back with carrying the loss forward. If your company has moved from profit to loss, contact us early so the refund and your broader cash-flow plan work together.
General information only. Legislative timing clarified on 6 September 2026. Speak with us about your own circumstances.
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