Highlights

  • Eligible corporate tax entities can carry qualifying 2026–27 tax losses back against tax liabilities from earlier income years.
  • The benefit takes the form of a refundable tax offset rather than merely deferring the use of the loss.
  • Eligibility depends on factors including prior-year income tax liabilities, lodgment history and the company's franking account position.
  • Companies expecting a loss in 2026–27 should assess the potential offset before year-end rather than waiting until the return is lodged.

A significant tax change has become law: eligible companies that make a tax loss will again be able to carry that loss back against tax paid in earlier years and potentially receive a refundable tax offset.

The Australian Taxation Office has indicated that the first opportunity to claim under the revived measure will arise in 2026–27 company tax returns.

For businesses that were profitable in recent years but are now facing weaker trading conditions, the measure can provide a genuine cash-flow benefit rather than requiring the company to wait for future profits before using its tax loss.

How loss carry-back works

Normally, a company making a tax loss may carry that loss forward and use it against Taxable Income in a later year, subject to the relevant loss rules.

Loss carry-back provides an alternative.

Eligible corporate tax entities can elect to carry a qualifying current-year tax loss back against income tax liabilities from one or both of the two preceding income years.

Where the relevant conditions are satisfied, the result is a refundable tax offset.

This can improve Cash Flow because the company is effectively accessing the benefit of the loss sooner rather than waiting until it becomes profitable again.

The revived measure applies to income years commencing on or after 1 July 2026, making 2026–27 the first year in which a claim can be made under the new rules.

Who is eligible

The measure is aimed at eligible corporate tax entities and does not extend automatically to every Business structure.

According to the ATO guidance, significant global entities are excluded.

To claim, an entity generally needs to:

  • be an eligible corporate tax entity;
  • have a qualifying Revenue tax loss for the relevant income year;
  • have an income tax Liability in one or both of the applicable earlier income years;
  • satisfy relevant lodgment requirements;
  • have sufficient franking account capacity; and
  • make the required loss carry-back choice in its company tax return.

Sole traders, partnerships and other unincorporated businesses do not access the company loss carry-back offset simply because they have incurred a business loss.

How much can be claimed

The refundable tax offset is subject to statutory limits.

A company cannot simply carry back any amount of loss and obtain an unrestricted refund.

The available offset is limited by factors including the company's income tax liabilities in the years to which the loss is carried back and its franking Account Balance at the end of the claim year.

In practical terms, these limits help ensure that the refund does not exceed the tax capacity available under the carry-back rules.

The company's tax rate in the relevant prior year can also affect the calculation.

Who may be affected

Companies that paid income tax in recent years but expect to make a tax loss in 2026–27 are likely to have the greatest potential benefit.

The measure could be particularly relevant for businesses experiencing a temporary downturn after previously profitable years.

By contrast, a company with no relevant prior-year income tax liability may have little or no offset available even if it makes a substantial current-year loss.

Similarly, the franking account cap may restrict the size of the refund that can ultimately be claimed.

What to consider next

Businesses expecting a 2026–27 tax loss should assess their eligibility before year-end.

That means reviewing prior-year income tax liabilities, checking whether earlier returns and required lodgments are up to date, and monitoring the company's franking account balance.

The company should also consider whether carrying the loss back is preferable to preserving it for use against future taxable profits.

Because the offset is elective rather than automatic, businesses need to make the appropriate choice in their company tax return.

Modelling the likely benefit before lodgment can help avoid surprises.

A cash-flow lifeline for eligible companies

The attraction of loss carry-back lies largely in timing.

A company that was profitable and paid tax in earlier years but subsequently falls into loss would ordinarily need to wait until it generates future taxable income before obtaining the benefit of that loss.

Carry-back can bring that benefit forward.

Where eligibility requirements are met, the company may receive a refundable tax offset based on tax previously paid in the relevant earlier years.

For a business dealing with weaker revenue, higher costs or a temporary downturn, receiving the benefit sooner may materially improve liquidity.

However, it is important not to describe the measure as a refund of the accounting loss itself. The benefit is determined by the specific tax offset calculation and the statutory caps.

The franking account matters

One of the key limitations is the company's franking account balance.

The loss carry-back offset cannot exceed the relevant franking-account limit at the end of the claim year.

This is important because a company can have a large tax loss while still being unable to claim the full theoretical carry-back amount if its franking position does not support it.

Companies considering the measure should therefore monitor both their projected tax loss and their franking account throughout the year.

Steps to be ready to claim

To prepare for a possible 2026–27 claim, companies should review several areas.

First, confirm that the entity falls within the eligible corporate tax framework and is not excluded by rules such as those applying to significant global entities.

Second, identify the income tax liabilities in the two relevant earlier years.

Third, check that prior lodgment obligations have been satisfied.

Fourth, estimate the likely current-year revenue tax loss and monitor the closing franking account balance.

Finally, compare the immediate cash-flow benefit from carrying the loss back with the potential value of carrying it forward.

The election is made through the company tax return, so the decision should be informed by the company's full tax position rather than made automatically.