Two Budget measures are proposed to improve the usefulness of company tax losses by turning some losses into earlier cash refunds: a permanent two‑year loss carry‑back for eligible companies, and a new refundable offset for certain small start‑up companies. While both measures are framed as cash‑flow support, they operate differently and will apply from different start dates.
Here's what's changing.
Permanent two‑year loss carry‑back (from 1 July 2026)
Eligible companies (aggregated turnover up to $1 billion) will be able to carry back tax losses from an income year to one or both of the previous two income years. The practical outcome is a refundable tax offset that can produce a cash refund of income tax previously paid (subject to the company’s prior‑year taxable income, tax paid and franking account position).
Refundable start‑up loss offset (from 1 July 2028)
Eligible small start‑up companies will be able to obtain a refund for losses incurred in their first two income years. Unlike carry‑back, this operates as a refundable offset, with the refund capped by specified employment‑related taxes remitted (including PAYG withholding and FBT), which is intended to link refunds to real employment activity.
What this means for businesses
1) Cash‑flow upside (and when it won’t help):
Carry‑back is most valuable where a company has recently been profitable and paid tax—because the refund is effectively a repayment of that tax. If a business has not paid tax in the last two years (for example, a long‑term start‑up), carry‑back will not generate cash, and the loss will generally continue to be carried forward under existing rules.
2) Key mechanics to watch:
Eligibility is based on aggregated turnover (up to $1 billion) and will likely require careful testing for groups. Refund outcomes can be constrained by prior‑year taxable income/tax paid and franking account impacts. Businesses should also expect integrity rules to limit artificial loss creation and to manage interactions with other tax settings (for example, consolidation/group loss rules and the timing of major deductions).
3) Start‑ups: refundability tied to employment taxes:
The proposed refundable start‑up offset could provide earlier cash support for genuine early‑stage employers, but the cap based on PAYG withholding/FBT means businesses with few or no employees may receive little benefit. The detail will matter—particularly how ‘start‑up’ and ‘first two income years’ are defined, and whether there are restrictions for restructures or changes in ownership.
Actions to consider now
For businesses that expect losses over the next few years, the following steps may be worthwhile as part of tax forecasting and budgeting:
- Model timing: Compare outcomes under carry‑back versus carry‑forward based on expected profitability over the next 2–3 years.
- Check group eligibility: Confirm aggregated turnover (including connected entities/affiliates) to determine whether the $1 billion threshold is met.
- Review franking capacity: Consider how refunds may interact with franking account balances and future distribution plans.
- Start‑ups: Track employment taxes (PAYG withholding/FBT) as this is expected to cap refunds; consider how payroll strategy affects access to the measure.
- Stay close to legislation: The start‑up measure in particular will depend on final eligibility definitions and integrity rules once draft legislation is released.
Limitations and timing
Groups above the aggregated turnover threshold will not benefit from carry‑back. The carry‑back is proposed to apply for income years starting after 1 July 2026, while the start‑up refundable offset is proposed to commence from 1 July 2028. Further legislative detail is required, so the final design and eligibility may change.
Talk to our Expert Accountants
BlueRock's accounting and tax advisors are across every measure in this Budget. If you want to understand what it means for your specific situation, get in touch today via the form below. We'll connect you with the right expert.
