Can your company get tax back from a loss year?

Loss carry-back is back, and this time no end date has been set. From the 2026-27 income year, a company that makes a tax loss can get a refund of tax it paid in the two previous years. It's a way to turn a bad year, or a year of heavy investment, into cash when the business needs it most.

What loss carry-back means

Usually, when a company makes a tax loss, the loss is carried forward. It reduces tax only when the company makes a profit again, which could be years away.

Loss carry-back works the other way. The company applies this year's loss against tax it has already paid in an earlier year and gets some of that tax back as a refundable tax offset. A temporary version was available a few years ago. The government has now brought it back, and it became law in August 2026.

Why it matters for small business

The government expects up to 85,000 companies to benefit, mostly small businesses. The timing of the refund is what matters. A loss year is often when cash is tightest, and a refund then can cover wages, stock or a loan repayment.

It also works well with the $20,000 instant asset write-off, which is now permanent for small businesses from 1 July 2026. Buying equipment can push a company into a tax loss for the year, and loss carry-back can turn that loss into a refund of tax paid in earlier years.

Who can use it

Loss carry-back is for corporate tax entities, which for most small businesses means companies. To qualify, the company's aggregated annual global turnover must be under $1 billion.

It's not available to sole traders, partnerships or ordinary family trusts. If your business runs through one of those structures, any loss is dealt with under the usual rules.

The key rules

These are the main rules to understand:

• Start date. It applies to income years starting on or after 1 July 2026. The first claims go in 2026-27 company tax returns.
• Two years back. A loss can be offset against tax paid in either or both of the two previous income years. For a 2026-27 loss, that means tax paid in 2024-25 or 2025-26.
• Revenue losses only. Losses from normal trading count. Capital losses don't.
• Franking account limit. The refund can't be more than the company's franking account balance.

The refund can't be more than your franking account balance, so check it before you count on the cash.

The franking account tracks tax the company has paid, less the franking credits attached to dividends it has paid out. A company that paid tax and kept its profits will usually have a healthy balance. A company that paid out most of its profits as franked dividends may have very little left, and that caps the refund.

Common mistakes to avoid

These are the mistakes we expect to see:

• Assuming a 2025-26 loss qualifies. The first eligible losses are from 2026-27.
• Assuming the business structure doesn't matter. Sole traders and trusts can't use it.
• Counting on a refund without checking the franking account balance.
• Trying to carry back a capital loss, such as a loss on selling shares.
• Not keeping good records of the tax paid in earlier years, which the calculation depends on.

A worked example

Harbour Joinery Pty Ltd has a turnover of about $1.8 million. In 2025-26 it made a taxable profit of $80,000 and paid $20,000 in tax at the 25% company rate. It kept its profits in the business, so its franking account balance is well above $20,000.

In 2026-27 the company wins a contract to fit out new apartments and buys several new machines for $90,000 in total, each costing less than $20,000. Under the instant asset write-off it deducts the full $90,000 straight away. Without that purchase it would have made a $60,000 profit. With it, the company makes a $30,000 tax loss and pays no tax for the year.

The company then carries that loss back against the tax it paid in 2025-26. Its refund is $30,000 × 25% = $7,500, which fits easily within its franking account balance. It claims this in its 2026-27 tax return and gets the cash back while it grows.

From 2026-27, a company's tax loss can earn a refund of tax paid in the two previous years.

Key Takeaways