Loss carry-back disappeared in 2024 when the COVID-era scheme expired. The 2026-27 Budget revived it from 1 July 2026 for companies with aggregated global turnover under $1 billion. Treasury estimates 85,000 companies — mostly small businesses — will use it and the measure will reduce Commonwealth receipts by $2.3 billion over five years. This post walks the mechanics, the limits, and the separate start-up refundability scheme that applies from 1 July 2028.
How loss carry-back works
Normally a tax loss carries forward — you accumulate it, then offset it against future taxable income when the business returns to profit. The downside: in a tough year you have no cash and the loss benefit sits frozen until profitability returns.
Loss carry-back goes the other way. The current-year loss is notionally applied to a prior profitable year. Tax already paid in that prior year is refunded to the extent of the loss. The company gets actual cash back at a time it most needs it.
Mechanically:
- Eligible: company with aggregated annual global turnover < $1 billion
- Loss year: tax years commencing on or after 1 July 2026 (FY27 onwards)
- Look-back: up to 2 income years preceding the loss year
- Loss type: revenue losses only (capital losses excluded)
- Cap: refund limited by the company's franking account balance — you can't refund tax that has already been distributed out as franked dividends
The franking-balance cap is the binding constraint
This is the part to model carefully. The refund mechanism works by treating the loss as offsetting prior-year assessable income; the prior-year tax is refunded to the company. But if that prior-year tax has already been distributed to shareholders as a franked dividend, the franking credit is gone — refunding it would create a double benefit. The legislation caps the refund at the franking account balance.
Practical implication: companies that distributed heavily in profitable years (typical of family companies with active dividend policies) will have low franking balances at the loss year. Their refund is correspondingly small. Companies that retained profits will have higher franking balances and full benefit.
Who benefits most
Clear winners
- Cyclical small-medium companies with one or two profitable years followed by a downturn. Build / construction, hospitality, retail with seasonal lumpy revenue.
- Companies with retained earnings — profits kept in the company rather than distributed out, so franking balance is high.
- Companies undergoing transition — restructuring, expanding, or absorbing a one-off hit (lost contract, R&D write-down).
Limited benefit
- Family bucket companies with high distribution rates and low retained earnings.
- Companies with capital losses — not eligible; revenue losses only.
- Newly profitable companies — nothing to carry back to; carry-forward is the only path.
The separate start-up refundability scheme
Loss carry-back works for companies that have PAID tax in prior years. Start-ups by definition haven't. The Budget addressed this with a separate scheme — loss refundability for start-ups — effective from 1 July 2028.
Eligible: company with aggregated turnover under $10M, in its first two years of operation, generating a tax loss. The loss can be converted into a refundable tax offset (i.e. paid in cash by the ATO) up to the value of FBT and PAYG withholding paid in respect of Australian employees in the loss year.
Treasury estimates this will increase administered payments by $410 million over five years. The capping at "FBT + PAYG-W on wages" is deliberate: it ensures the refund tracks actual Australian employment activity rather than purely paper losses.
What to do
If your company is currently in profit
Make sure prior-year tax is documented and the franking account balance is current. The carry-back claim will reference these. We maintain franking-account reconciliations as part of company tax compliance — if yours is out of date, we'll bring it current as a one-off before FY27 lodgement.
If your company is heading into a loss year
Map the prior two years' tax paid against the current loss projection. If the loss exceeds the two years of prior tax, the excess carries forward as a normal tax loss — nothing wasted. Tell us before lodgement so we can model both paths (carry-back vs all carry-forward) and pick the most cash-positive.
If you're launching a company in 2027 or 2028
The start-up refundability scheme starts 1 July 2028 and applies to first-two-years losses. Companies incorporated in FY28 (year 1) and FY29 (year 2) will be in the eligible window. Worth knowing if your early-stage cash-flow planning includes operating losses.
Related Budget measures
Two other measures from the same Budget interact with company tax planning:
- The $20,000 IAWO made permanent — capital purchases continue to qualify for immediate expensing.
- The 30% minimum tax on discretionary trusts — companies are not affected, so trust → company restructures may become more attractive. See our rollover-relief post for the 3-year window opening 1 July 2027.
Sources
- Budget 2026-27 tax reform page (budget.gov.au/content/04-tax-reform.htm)
- Treasurer's 2026-27 Budget speech (ministers.treasury.gov.au)
- SmartCompany — Budget 2026 revives loss carry-back scheme for start-ups and SMEs
- Baker McKenzie technical note — Budget Bites: Loss Carry Back
