Proposed Start-Up Loss Refundability
Status at 5 September 2026: Proposal only — not yet law. Proposed start date: Income years starting on or after 1 July 2028. Proposed eligibility: Start-up companies with aggregated annual turnover under $10 million, for losses in their first two years of operation.
What is the proposed start-up loss refund?
Start-ups often spend heavily before revenue catches up. Under the usual rules, a company carries its tax loss forward and receives no benefit until it earns enough future taxable profit.
The Government’s start-up loss refundability proposal would let an eligible new company claim a refundable tax offset for losses made in its first two years of operation. The measure is intended to provide cash when young businesses are investing, hiring and developing products, rather than years later.
The Budget estimates that up to 25,000 young companies could benefit each year. However, this measure had not become law by 5 September 2026, and important design details may still change.
The proposed eligibility rules
Based on the announced design, the measure would apply to start-up companies that:
have aggregated annual turnover of less than $10 million;
make a tax loss in one of their first two years of operation; and
make that loss in an income year starting on or after 1 July 2028.
It is described as a company measure. A sole trader, partnership or discretionary trust should not assume it can access the refund. Choosing a business structure purely for a proposed concession is risky — commercial liability, ownership, investment and long-term tax consequences matter as well.
The final legislation will also need to define when a company’s “first two years” begin, including how the rules apply to dormant entities, restructures and businesses transferred into a new company.
The employee-tax cap is the big detail
The proposed refund would be capped by the value of the start-up’s fringe benefits tax plus PAYG withholding on wages for Australian employees in the loss year.
That link is deliberate: the measure is intended to support start-ups that build Australian employment. It also means two companies with the same tax loss could receive very different refunds.
A founder-only business with no wages, an overseas workforce or a contractor-heavy model may have little or no PAYG withholding or FBT to support a refund. Conversely, a young company employing staff in Australia may have a more meaningful cap.
PAYG withholding is the tax withheld from employee wages. It is different from PAYG instalments, which are prepayments towards the company’s own income-tax bill.
Practical example: the loss is larger than the cap
Bright App Pty Ltd is in its first operating year, has turnover below $10 million and makes a $120,000 tax loss in 2028–29.
Assume, purely for illustration, that the tax value of its loss at a 25% company rate is $30,000. During the year, it withholds $18,000 of PAYG from Australian employee wages and incurs $2,000 of FBT. Its proposed employee-tax cap would be $20,000.
On those simplified assumptions, Bright App’s potential refund would be limited to $20,000, not $30,000. The unused loss treatment will depend on the final law; founders should not build forecasts around this example yet.
How this differs from company loss carry-back
Company loss carry-back is now law (Treasury Laws Amendment (Tax Reform No. 2) Act 2026, Royal Assent 26 August 2026). Eligible corporate tax entities can carry a loss back for income years starting on or after 1 July 2026. That measure relies on company tax paid in one or both of the previous two years. A brand-new start-up may have no earlier taxable profit and therefore nothing to carry a loss back against.
The proposed start-up refund addresses that gap by linking refund capacity to Australian employee PAYG withholding and FBT instead of past company tax. The two measures serve different business stages and have different caps.
What founders can do now
There is no need to restructure or accelerate spending for a rule that would not start until July 2028 and has not been enacted. Sensible preparation is much simpler:
maintain clean payroll, PAYG withholding and FBT records;
keep robust tax-loss workpapers from day one;
document when the business genuinely begins operating;
separate Australian employees from contractors and offshore personnel correctly; and
update financial forecasts only when the final law is clear.
Do not misclassify employees as contractors to chase a commercial outcome. Worker classification has superannuation, PAYG withholding, Fair Work and payroll-tax consequences.
Frequently asked questions
Is the start-up loss refund available now?
No. As at 5 September 2026 it is a proposal, with a proposed start date for income years beginning on or after 1 July 2028.
Would every loss-making start-up receive cash?
No. The company would need to satisfy the eligibility rules, and the refund would be limited by the proposed FBT and Australian employee PAYG-withholding cap.
What if the start-up has no employees?
On the announced design, little or no PAYG withholding and FBT may mean little or no refundable offset. We need the final legislation before confirming the result.
Build a forecast, not an assumption
Regans Accountants can model your start-up losses, payroll taxes and funding runway under the current rules, then update the position as legislation develops. Contact us before relying on a future tax refund in an investor deck or cash-flow forecast.
General information only, current at 5 September 2026. Speak with us about your own circumstances.
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