The Loss Carry Back Tax Offset has been reintroduced into law following the Treasury Laws Amendment (Tax Reform No. 2) Bill 2026 receiving assent on Wednesday, 26 August 2026. The measure is designed to encourage investment and sensible risk-taking and improve the resilience of companies through temporary shocks by allowing eligible companies to obtain a refund of tax paid in recent years when they subsequently incur a tax loss.
For many private companies, this represents a valuable opportunity to access cash during periods of reduced profitability, business investment, expansion, or economic uncertainty.
What is the loss carry back tax offset?
Under the new legislation, eligible companies can carry a current year tax loss back and apply it against taxable income from either or both of the previous two income years. Rather than waiting until future years to utilise the loss, the company can claim a refundable tax offset and receive a cash benefit sooner.
The measure applies to income years commencing on or after 1 July 2026, with eligible companies first able to claim the offset in their 2026-27 income tax returns.
Who can access the offset?
The offset is available to corporate tax entities that are not Significant Global Entities (SGEs). SGEs are entities with aggregated annual global turnover of $1 billion or more.
While the measure will benefit many privately owned companies, it is important to understand that it does not apply to the following business structures:
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Sole traders
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Ordinary partnerships
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Discretionary (family) trusts
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Unit trusts (unless they qualify as a corporate tax entity, such as a public trading trust)
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Significant Global Entities (SGEs), being entities that are part of a global group with annual global income of $1 billion or more.
How does it work?
Consider the following example:
ABC Manufacturing Pty Ltd
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Paid company tax of $250,000 in 2025-26.
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Paid company tax of $50,000 in 2026-27.
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Incurs a tax loss of $800,000 in 2027-28.
Under the new rules, ABC Manufacturing may be able to carry the 2027-28 loss back to earlier profitable years and claim a refundable tax offset based on tax previously paid. If the company’s tax rate is 25% for the 2027-28 year, this will translate to a refundable tax offset of $200,000. This allows the company to convert the tax loss into an immediate cash benefit rather than waiting until future profits arise.
The franking account limitation
One of the most important limits of the regime is the franking account balance limitation.
The loss carry back tax offset is limited by the company's available franking account balance. The franking account balance increases by the tax paid by the company and decreases by franked dividends paid by the company. Your tax advisor can assist you in understanding your franking account balance.
What directors should be reviewing now
The loss carry back rules may create planning opportunities for companies expecting losses arising from:
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Major capital investment programs
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Business restructures
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Property market downturns
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Increased borrowing costs
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Expansion into new markets
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Economic disruptions affecting profitability
Directors should be discussing with their tax advisor:
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Forecast taxable income and losses
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Tax paid in the previous two income years
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Current and projected franking account balances
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Planned dividend payments
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Existing tax loss positions
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Whether the company satisfies the SGE eligibility requirements
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The impact of tax loss integrity and anti-avoidance rules.
Key takeaway
The reintroduced Loss Carry Back Tax Offset provides a significant cash flow opportunity for many privately owned companies. Businesses that have paid tax in recent years but expect to incur losses may be able to obtain a tax refund much sooner than under the traditional loss carry-forward rules.
However, directors should be aware that not all business structures are eligible. The measure is targeted at corporate tax entities and excludes many common structures such as sole traders, partnerships and discretionary trusts. In addition, eligibility alone does not guarantee access to the full refund, with the company's franking account balance likely to be a critical limiting factor.
For business owners, now is an appropriate time to review projected profitability, tax payments, franking balances and business structures to determine whether the new loss carry back rules may provide a valuable source of liquidity in the years ahead.
