Reforming the treatment of tax losses for businesses and start-ups

The Government proposes to reintroduce the loss carry back offset and introduce a refundable tax offset for certain small business start-ups.

Loss carry back for companies with turnover under $1 billion

Currently, if a company incurs losses in an income year, it must wait until it returns to profitability before using the tax losses to reduce taxable income. For tax years commencing on or after 1 July 2026, companies with an aggregated annual global turnover of less than $1 billion will be able to carry back revenue tax losses and offset them against tax paid up to two years earlier. This loss carry back will be limited by the company’s franking account balance. For companies that elect to apply this measure, they will receive a tax refund in the loss-making year equal to the tax that has been offset by the losses carried back.

Loss refundability for small start-up companies

From 1 July 2028, start-up companies with an aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to use the tax loss to generate a refundable tax offset. The offset will be capped at the value of fringe benefits tax and withholding tax on wages paid to Australian employees in the loss year.