Highlights

  • A proposed refundable tax offset could allow eligible start-up companies to convert some early tax losses into cash refunds from 1 July 2028.
  • The refund would be capped by PAYG withholding and fringe benefits tax payments made by the company.
  • The measure is intended for eligible start-ups with aggregated annual turnover below $10 million.
  • Key design details, including the definition of a start-up and the loss-conversion method, remain subject to legislation.
  • The proposal is separate from the enacted loss carry-back regime available to eligible corporate tax entities.

Australia's proposed start-up loss refund measure is designed to provide cash-flow support to eligible early-stage companies that incur tax losses during their first two years of operation. Announced in the 2026-27 Federal Budget, the measure is intended to apply to income years starting on or after 1 July 2028, with first claims expected through 2028-29 income tax returns if the proposal is legislated. The ATO states that the measure is not yet law, leaving several design details to be settled before implementation.

How the Proposed Refund Would Operate

Under the proposal, eligible start-up companies with aggregated annual turnover of less than $10 million could use tax losses from their first two years of operation to claim a refundable tax offset. The amount available would be capped at the PAYG withholding and fringe benefits tax payments the company has made. This links the potential refund to amounts already remitted to the ATO as an employer rather than providing an unrestricted cash payment based solely on the size of the tax loss.

Why Payroll Can Influence the Outcome

The structure means start-ups with employees may be better positioned to access a meaningful refund than founder-only businesses with little or no payroll. PAYG withholding reflects tax deducted from employee wages, while FBT applies to certain non-cash benefits provided by employers. A company with significant early operating losses but minimal PAYG withholding or FBT could therefore face a low refund cap even if its tax loss is substantial.

Details Still Require Legislation

Important elements have not yet been finalised. The government has not set out in legislation exactly how start-up status will be defined, how losses will be converted into an offset amount, or how unused amounts would be treated where the PAYG withholding and FBT cap limits a refund. Timing could also matter for companies established before 1 July 2028, because part of their first two years of operation may fall before the proposed commencement date.

How It Differs From Loss Carry-Back

The proposed start-up refund is distinct from the loss carry-back regime that applies to eligible corporate tax entities for income years starting on or after 1 July 2026. Loss carry-back generally helps companies that have previously paid tax and later incur a tax loss. By contrast, a genuine start-up may have no earlier tax payment to recover, which is the gap the proposed refundable offset is intended to address.

Key Insights

The proposed measure could change how early-stage companies manage tax losses and cash flow from 2028, but its practical value will depend heavily on the final eligibility rules and the PAYG withholding and FBT cap. Until legislation is introduced and passed, the measure remains a policy proposal rather than an available tax concession.