At the Federal Budget in May 2026, the Government announced that it would reintroduce a loss carry back tax offset for companies, providing a crucial buffer to any business facing difficult trading conditions.
How the rules work
Typically, company tax losses have only been able to be carried forward and deducted against income derived in later income years. However, for tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion can choose to either carry forward their losses or carry back a tax loss and offset it against tax paid up to two years earlier. The relief is flexible, meaning companies can choose how much tax loss to carry back to one or both of the previous two years.
There are some restrictions. For instance, the loss carry back:
- is only available to revenue losses. Capital losses aren’t eligible,
- is limited by a company’s franking account balance.
Who can claim?
Importantly, this relief is only available to ‘corporate tax entities’ (essentially, companies). Unless the Federal Government makes any last-minute changes to the rules, this means that sole traders and partnerships who make a loss will not, sadly, be able to make use of these new loss carry back rules.
Are there any other requirements?
A company wanting to carry back a loss must also be up to date with its tax compliance. Namely, it must have lodged an income tax return for the current year and each of the five years immediately preceding it in order to claim the loss carry back tax offset. This is an integrity measure, designed to provide a level of assurance that the entity’s tax liabilities, tax losses and franking account entries for those periods are likely accurate and easy to verify.
When do the new rules apply?
Currently, these rules are being finalised by Parliament. However, once the legislation is in effect, these changes will apply to losses that arise in income years starting on or after 1 July 2026.
This means that eligible corporate tax entities will first be able to claim the refundable tax offset in their 2026/27 income tax returns.