Eligible corporate tax entities can use revenue tax losses from income years starting on or after 1 July 2026 to claim a refundable loss carry-back tax offset. The measure allows a current-year loss to be applied against eligible income tax liabilities from either or both of the two preceding income years.

The first claims can be made in 2026–27 income tax returns. However, recording a loss does not automatically produce a refund. Eligibility, the loss carry-back calculation and applicable limits determine the amount available.

What the new rules provide

The Treasury Laws Amendment (Tax Reform No. 2) Act 2026 received Royal Assent on 26 August 2026. Schedule 1 establishes the loss carry-back offset for qualifying corporate tax entities.

The provisions commence on 1 October 2026, while eligibility applies to loss years starting on or after 1 July 2026. These are distinct dates: commencement concerns when the legislative amendments take effect, while the application rule identifies the eligible income years.

For a company with a standard 30 June balance date, a qualifying 2026–27 loss can be carried back to eligible tax liabilities for 2024–25, 2025–26, or both.

Which businesses qualify?

The offset applies to corporate tax entities that are not significant global entities in the loss year. Corporate tax entities include companies and certain other entities taxed as companies. Ordinary sole traders, partnerships and trusts do not qualify merely because they operate a business.

Eligibility also requires a revenue tax loss, an eligible prior-year tax position, compliance with the return-history requirements and a loss carry-back choice.

Unused tax losses may remain available to carry forward, subject to the applicable rules. Carry-back and carry-forward therefore provide different ways of using eligible losses, rather than an automatic refund of every business loss.

The significant global entity test should not be reduced to a check of the individual company’s turnover. It involves annual global income and relevant group relationships. A company within a larger group can be affected by the status of its global parent.

Revenue losses and accounting losses differ

The measure applies to revenue tax losses, rather than capital losses. A loss shown in financial statements does not, by itself, establish the amount available for carry-back.

Tax calculations must determine whether an eligible revenue loss exists. Consequently, the description of a company as “loss-making” is insufficient to establish entitlement to the offset.

Capital losses fall outside this measure. The distinction matters when a company’s reported loss includes losses from selling investments or other capital assets.

What limits the offset?

The calculation uses eligible prior-year income tax liabilities and the tax value of the loss carried back. For an Australian-resident company, the resulting offset is also capped by its franking account balance at the end of the current income year.

The legislation contains specific treatment for qualifying foreign-resident entities, so the franking account cap should not be presented as applying identically in every case.

Consider a hypothetical Australian-resident company whose otherwise valid loss carry-back calculation produces an $80,000 offset. If its relevant year-end franking account balance is $50,000, the offset is limited to $50,000.

This example illustrates the cap only. It assumes the company satisfies all eligibility conditions and that the $80,000 calculation has already accounted for the applicable tax rules.

Return history and the claim process

The return-history condition covers the current year and each of the preceding five income years. For each year, the entity must have lodged its return, have had no requirement to lodge, or have received an income tax assessment from the Commissioner.

The entity must also make a loss carry-back choice in the approved form. The offset is therefore a claim requiring supporting tax information, rather than a payment triggered solely by reporting a loss.