Key Highlights

  • Eligible companies can use current tax losses against tax paid in the previous two years.
  • It applies to income years from 1 July 2026.
  • Eligible losses can generate a refundable tax offset, subject to the measure's conditions.
  • The government expects company loss carry-back to help 85,000 businesses.

A bad year in Business usually means no tax to pay, but it rarely means money back. For eligible companies, that is changing. The Treasury Laws Amendment (Tax Reform No. 2) Act, which passed the Senate on 19 August 2026, reinstates company loss carry-back for income years starting from 1 July 2026. The government expects about 85,000 businesses to benefit, and the first claims will arise as 2026–27 returns are prepared.

What passed in August

According to Treasurer Jim Chalmers' media release on the passage of the "next tranche" of tax reforms, Tax Reform No. 2 passed the Senate on 19 August 2026.

The package reinstates company loss carry-back for income years from 1 July 2026. Eligible companies will be able to carry a tax loss back up to two years and receive a refundable tax offset. The government expects the measure to help 85,000 businesses.

The same law makes the $20,000 instant asset write-off permanent from 1 July 2026 for businesses with aggregated turnover under $10 million. The government says that covers about 2.7 million businesses and will save around $32 million a year in compliance costs.

This is enacted law, not a proposal. The detailed eligibility conditions are set out in the legislation and the ATO's guidance.

How loss carry-back works

Ordinarily, a company that makes a tax loss carries it forward and uses it to reduce Taxable Income in later profitable years, subject to the continuity of ownership and business continuity tests.

Loss carry-back works in the other direction. It lets a company apply a current-year loss against tax it has already paid in an earlier year, and receive the benefit as a refundable tax offset.

The practical difference is timing. Carrying a loss forward only helps once the company returns to profit. Carrying it back can put cash in the company's hands soon after the loss year's return is lodged, when it may be needed most.

Australia has used this approach before. A temporary loss carry-back regime ran during the Pandemic period. Under that earlier version, the offset was generally limited to the company's franking Account Balance and to the tax paid in the carry-back years, and the choice was made in the company tax return. Whether the same limits apply in identical form to the reinstated measure should be checked against the new law and ATO guidance.

The measure is aimed at companies that are not significant global entities, a category that broadly covers the largest multinational groups.

Hypothetical example: turning a loss into a refund

Hypothetical example: a small Manufacturing company had taxable income of $200,000 in an earlier year within the carry-back period and paid company tax at the 25% Base Rate entity rate, or $50,000.

In 2026–27 a key customer collapses and the company makes a tax loss of $120,000.

If the company is eligible and chooses to carry back the full loss, the refundable tax offset would be $120,000 multiplied by 25%, or $30,000. That amount would be applied when the 2026–27 return is assessed and, as a refundable offset, could be paid out as a refund if the company has no other tax to pay.

Without carry-back, the $120,000 loss would sit on the company's books until it returns to profit. If that takes two or three years, the $30,000 benefit is deferred for that period, or lost if the company does not survive.

The example assumes the earlier tax was paid at 25%, the loss is within any limits set by the law, and the company has sufficient franking account balance if a franking limit applies. Real outcomes depend on the company's tax history.

Carry-back is generally a choice rather than an automatic outcome. A company that expects to return to profit quickly may weigh a refund now against a deduction later. A loss that is carried back generally cannot also be carried forward, so the same dollar of loss is used only once.

The permanent $20,000 write-off and falling finance demand

The loss carry-back sits alongside the permanent $20,000 instant asset write-off. The ATO's page on the measure, updated on 27 August 2026, notes that the five-year lockout under the simplified Depreciation rules has been suspended until 30 June 2027.

Making the write-off permanent has not yet translated into higher investment, at least on one measure. Equifax data for July 2026 showed Demand for SME asset finance fell 12.6% year on year.

According to the same data, total asset finance demand fell 9.1%, while business Loan demand rose 6.2%.

The figures do not prove the write-off is failing. They may reflect wider economic conditions, including higher interest rates. They do suggest that tax incentives alone may not drive Investment decisions when Cash Flow is tight.

Why the timing matters for struggling companies

The loss carry-back measure arrives at a time when borrowing costs are rising. The Reserve Bank lifted the cash rate to 4.85% from 3 November 2026.

The general interest charge on overdue tax debts is 11.51% a year for October to December 2026, according to the ATO, having risen in every quarter of 2026.

For a company that paid tax in good years and is now under pressure, a refundable offset could provide Liquidity without new borrowing. The benefit depends on having a recent tax history to carry losses back against, so newer businesses that have never paid tax may gain little.

What to watch

The first loss carry-back claims will be made in company tax returns for the 2026–27 income year, which ends on 30 June 2027. Further ATO guidance on how to make the choice in the return may follow.

The simplified depreciation lockout suspension runs until 30 June 2027.

The Senate Economics Legislation Committee is due to report on the government's trust tax bills, Tax Reform No. 3, on 13 November. The proposed minimum tax on discretionary trusts, still a bill, would start on 1 July 2028 and could affect how some businesses are structured.

The mid-year economic and fiscal outlook, due in December, may update the cost estimates for the measures.