Level 1, 206 Adelaide Terrace, Perth WA 6004
230 Railway Parade, Cannington WA 6107
Best Accountant Perth | Accounting Firms in PerthBest Accountant Perth | Accounting Firms in Perth
A company can spend years building a profitable business and still have a difficult financial year.
Customers may spend less, costs can rise unexpectedly, or the business may put a large amount of money into expansion. When the numbers are finalised, the company may discover that it has made a tax loss after previously paying company tax.
That raises an obvious question: can the company get some of that earlier tax back?
From the 2026–27 income year, new Australian tax loss carry-back rules give eligible companies an opportunity to obtain a refundable tax offset by using certain current-year losses against tax liabilities from earlier years.
It can be useful for businesses dealing with a temporary downturn, but it is not an automatic refund scheme. The company’s history, tax position, turnover, losses and other factors all need to be considered.
Normally, when a company makes a tax loss, the loss can potentially be kept for a later year.
If the company becomes profitable in the future, that carried-forward loss may be used to reduce taxable income, provided the company satisfies the applicable rules.
Tax loss carry back takes a different approach.
Instead of waiting for a future profitable year, an eligible company can potentially use a current loss to obtain a tax benefit from tax liabilities it had in an earlier period.
In practical terms, the rules recognise that a business may have paid tax when it was profitable and then suffered a temporary setback.
For an eligible company, this can bring forward the benefit associated with that loss.
The new rules apply to relevant income years beginning on or after 1 July 2026.
The rules are aimed at eligible companies with aggregated annual global turnover of less than $1 billion.
However, the turnover threshold is only one part of the picture.
A company also needs to satisfy other requirements relating to its tax history and current circumstances.
For example, the company needs an eligible earlier year with an income tax liability against which the loss can potentially be applied.
There are also restrictions involving significant global entities and other requirements contained in the legislation.
So, a company should not look at its turnover alone and conclude that it will receive a refund.
The complete tax position needs to be checked.
The new arrangement can allow an eligible company to look back two income years.
For example, if a company makes a qualifying tax loss in 2026–27, the potentially relevant earlier years are:
The company may be able to use an eligible portion of the current loss against tax paid in those earlier years.
The exact amount depends on the company’s circumstances and the limits built into the rules.
This two-year window can be particularly useful for an established company that has recently moved from a period of strong profitability into a loss.
This is where many business owners can misunderstand the rules.
Suppose a company reports a tax loss of $200,000.
That does not mean the company can expect a $200,000 refund.
The loss is used in working out a refundable tax offset. The resulting amount is affected by the company’s earlier tax position and other restrictions.
The company’s franking account balance is also relevant to the maximum benefit that may be available.
Therefore, two companies with exactly the same tax loss could potentially have different outcomes.
The calculation needs to be based on the company’s actual tax records rather than the loss figure alone.
Consider a fictional company called Westside Manufacturing Pty Ltd.
The company had a profitable year and paid company tax.
The following year, several large projects were delayed and operating costs increased. After completing its tax calculations, the company has a substantial tax loss.
Rather than automatically carrying the entire loss into future years, the company investigates whether the new loss carry-back rules apply.
If it meets the eligibility requirements, it may be able to use part of the current loss against an earlier year’s tax liability.
The result could be a refundable tax offset.
But the company would first need to calculate the allowable amount and consider its franking account and other applicable limits.
The example shows why “we made a $200,000 loss” and “we will receive $200,000 back” are two completely different statements.
This is not always an obvious decision.
A company experiencing cash-flow pressure may value an immediate tax benefit.
Another company may be confident that profits will increase significantly in the following year and may want to consider retaining available losses for future use.
For example, imagine a business has made a temporary loss because it spent heavily developing a new product. The company expects that product to generate substantial income next year.
The directors may want to compare the immediate benefit of loss carry back with the future value of retaining the loss.
There is no universal answer.
The decision should take into account the company’s expected profits, cash position and wider tax circumstances.
This is one reason tax planning consulting can be valuable when a company moves unexpectedly from profit into loss.
No.
A company cannot obtain a benefit from the same loss through both methods.
If a particular amount of loss is used to calculate a loss carry-back benefit, that same amount cannot simply be saved and used again against future taxable income.
This makes the decision more important than it may initially appear.
Before choosing the carry-back option, the company should understand how much loss it has, how much may be used and what remains available afterwards.
A change in ownership can make tax losses more complicated.
For instance, a company may have brought in new investors, sold shares or undergone a major restructure.
Australian tax law contains rules designed to determine whether a company can continue to use its tax losses after ownership or business changes.
Depending on the circumstances, the company may need to satisfy ownership continuity requirements or relevant business continuity rules.
This means an old tax loss should never be treated as something that can automatically be transferred to a new owner or used after a major change in the business.
If ownership has changed, the loss position should be reviewed before relying on it.
Another common misunderstanding is treating every type of loss as a company tax loss.
They are not all treated alike.
A tax loss generally relates to the company’s taxable income and allowable deductions.
A capital loss normally arises from a capital gains tax event.
For example, if a company sells an asset for less than its relevant tax cost, the resulting loss may be a capital loss rather than an ordinary tax loss.
Capital losses have separate rules and should not simply be added to the company’s ordinary tax loss calculation.
Getting this distinction wrong can lead to an incorrect expectation about the tax benefit available.
This is particularly important for new businesses.
A startup may spend money on staff, product development, technology, premises and marketing before it becomes profitable.
It could therefore have a genuine tax loss in its early years.
But if the company has not previously had an eligible income tax liability, there may be little or nothing available to carry the loss back against.
The new rules are therefore more immediately relevant to companies that have previously been profitable and paid tax before experiencing a loss.
A startup should not assume that making a loss automatically creates a cash refund.
A tax loss cannot be worked out simply by looking at the business bank account.
The company needs reliable information about its income and expenses and must distinguish between accounting treatment and tax treatment.
Items such as depreciation, asset purchases, financing costs and certain expenses can have different tax consequences.
That is why maintaining accurate business accounting records throughout the year is important.
Good records also make it easier to compare the company’s current position with previous tax returns and determine whether a potential carry-back claim is worth investigating.
If your company has moved from profit to loss, start by reviewing the complete tax picture.
Important areas include:
These figures can help determine whether carrying the loss back could be useful.
They can also highlight situations where carrying the loss forward may be more appropriate.
It can have an impact on an existing ATO liability.
A refundable tax offset does not necessarily mean that the entire amount will arrive as a payment into the company’s bank account.
Depending on the company’s circumstances, the benefit may be used against an amount the company owes.
This is particularly relevant for businesses already dealing with overdue tax obligations.
Before budgeting for a cash refund, check the company’s complete ATO account and outstanding liabilities.
Tax planning is not simply about trying to reduce the tax bill.
It is about understanding what the company’s tax position is likely to look like and making decisions with that information available.
A company that has suddenly made a loss should consider both the immediate situation and what may happen next year.
Questions worth asking include:
A review with a professional taxation and advice service can help the business make the decision based on its actual numbers rather than assumptions.
The loss carry-back choice is dealt with through the company’s tax return for the relevant income year.
This means the underlying tax calculation needs to be accurate before the company makes the claim.
The company needs to establish its actual tax loss, identify the eligible earlier tax liabilities and calculate the amount that can be carried back within the applicable limits.
A mistake at this stage could affect the tax benefit and the amount of loss available for future years.
For companies preparing their annual return, professional income tax return services can help ensure the company’s tax position is properly reviewed before the return is lodged.
Choosing not to carry a loss back does not necessarily mean the loss disappears.
Where the company satisfies the relevant requirements, it may be able to carry the loss forward and potentially use it against taxable income in a later year.
This can be useful for businesses that expect a strong recovery.
The important thing is to make the decision deliberately.
A company should understand what it gives up by carrying a loss back and what future benefit may remain if it keeps the loss available.
Also read: 20 Tax Deductions Australians Can Claim in 2026
Tax loss carry back gives eligible Australian companies another option when a profitable period is followed by a loss.
For the 2026–27 income year onwards, a qualifying company may be able to use an eligible current-year loss against tax liabilities from the previous two income years.
That can potentially create a refundable tax offset and provide useful cash-flow support.
But the rules are not as simple as “make a loss and get a refund.”
The company’s previous tax payments, current loss, turnover, franking account, ownership history and plans can all influence the result.
If your company has recently moved from profit into loss, it is worth reviewing the numbers before deciding what to do with the loss. In some cases, carrying it back may provide valuable relief. In others, keeping the loss for a future profitable year may make more sense.
The best outcome comes from understanding both options before making the choice.
Potentially. From the 2026–27 income year, an eligible company may be able to use a current tax loss to obtain a refundable tax offset against eligible tax liabilities from earlier years. The company must satisfy the relevant conditions, so making a loss by itself does not guarantee a refund.
Under the new rules, an eligible company can potentially look back over the previous two income years. The company must have an eligible tax liability from an earlier year and meet the other requirements before a carry-back benefit can be claimed.
No. A tax loss and a tax refund are not equivalent amounts. The loss is used to calculate a refundable tax offset, and the amount available can be restricted by previous tax liabilities, the company’s franking account and other requirements.
Not necessarily. A business facing immediate cash-flow pressure may value an earlier tax benefit, while a company expecting strong future profits may prefer to retain its loss. The better choice depends on the company’s financial and tax circumstances.
A startup may have a tax loss but may not have an earlier eligible tax liability against which to use it. This means a newly established company should not assume that its first tax loss will automatically produce a refund.
Not automatically. Capital losses and ordinary tax losses are governed by different rules. A capital loss should be identified separately before determining whether it has any role in the company’s loss carry-back calculation.
Ownership changes can affect the availability of company tax losses. Depending on the circumstances, continuity of ownership or business continuity requirements may need to be considered before the company relies on a loss.
No. The same portion of a tax loss cannot generate a carry-back benefit and then be used again as a carried-forward loss. The company therefore needs to consider the amount carefully before making its choice.
Not necessarily. Depending on the company’s circumstances, a refundable tax offset may result in a refund or may reduce an amount owed to the ATO. An existing tax debt can therefore affect the practical cash outcome.
Ideally, as soon as it becomes clear that the business may finish the year in a loss position. Early review gives the company time to compare its previous tax payments, current loss and expected future profits before deciding whether carrying the loss back is appropriate.