Author: Charlie Dang

Reading time: 2 minutes

Tax Loss Carry-Back Measures

The Government has proposed extending the tax loss carry-back measures, allowing eligible companies to offset current year tax losses against taxable profits from the previous two income years.

Under the proposed rules, eligible corporate entities may be able to claim refundable tax offsets where losses are carried back against prior-year tax liabilities. The measure may provide additional cash flow relief for businesses experiencing temporary losses or fluctuating trading conditions.

The availability of the refundable tax offset may also depend on the company maintaining sufficient franking account balance under the proposed rules.

The Government will also introduce loss refundability for small start‑up companies. For tax years commencing on or after 1 July 2028, start‑up companies with an aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to utilize 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.

Why does the Government initiate the tax loss carry-back measure?

For some businesses, the significant time lagging between when income is earned and when that income is reported through lodging a tax return can cause cash flow problems. This timing difference can be sometimes 12 months or even more. At the time of lodging last year’s tax return, the income attributed to that period has been largely spent on subsequent business expenses, and while new income hasn’t arrived, there is no money left to pay tax on last year’s income. The current rule doesn’t take the subsequent year’s losses into the prior years’ assessment. The new rule addresses this issue.

Other Tax Changes

In addition to other major structural reforms, the Federal Budget 2026 – 2027 also includes several tax cuts and support measures for individuals and small businesses.

Key measures announced include:

• A proposed $250 personal income tax cut for eligible taxpayers;
• A $1,000 instant work-related expense deduction for individual taxpayers without requiring detailed substantiation;
• Permanency of the $20,000 instant asset write-off for eligible small businesses