If your business has had a tough year, there's some welcome relief coming out of the 2026–27 Federal Budget. The Government has confirmed it's bringing back loss carry back — a measure that lets eligible companies turn a current-year tax loss into a cash refund, rather than just banking it for future use.
Here's what it means for you, and how it could help with cash flow.
What is loss carry back, exactly?
Normally, if your company makes a tax loss, all you can do is carry it forward and use it to offset profits in future years — useful eventually, but not much help if you need cash now.
Loss carry back flips that around. Instead of waiting, you can apply this year's loss against tax you've already paid in a previous profitable year, and get a refund for the difference.
What's changing, and when
From 1 July 2026, companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid up to two years earlier. A couple of important details: PwC Australia
The loss carry back will apply to revenue losses only — so this is for trading losses, not capital losses. PwC Australia
It will be limited by a company's franking account balance, meaning your refund can't exceed the franking credits sitting in your company's account. PwC Australia
Unlike the temporary COVID-era version, this is being reintroduced as a permanent measure. KPMG
This isn't actually a brand-new idea — Australia has had loss carry back before, briefly during the GFC-era reforms and again as a temporary regime that applied to losses for the 2019–20 to 2022–23 income years during COVID. The difference this time is it's meant to stick around for good. PwC Australia
A practical example
The Government's own Budget materials give a nice illustration of how this could play out for a small business that's invested heavily in equipment:
Without these new investments, a business would have reported a $50,000 profit in 2026–27. However, with the instant asset write‑off deductions, it reports a $15,000 tax loss and pays no tax. Further, the business will now be able to carry back that tax loss to the previous year's tax paid, generating a $3,750 tax refund ($15,000 × 25% tax rate). Australian Government Budget
So rather than that loss just sitting on the books waiting for a future profitable year, it becomes real cash back in the business right now — exactly when many businesses need it most.
Why bring it back?
The Government has been fairly upfront about the motivation here. The measure is intended to "encourage investment and sensible risk‑taking and improve the resilience of firms through temporary shocks". In plain English: businesses are more willing to invest, expand, or take a calculated risk if they know a bad year won't be financially crippling — because there's a safety net in the tax system to help smooth things out. PwC Australia
It's also expected to have a meaningful reach. The government will reintroduce permanent two-year loss carry back for companies with up to $1 billion in turnover, a measure expected to help up to 85,000 companies each year. The vast majority of those will be small and medium-sized businesses rather than large corporates. Wikipedia
There's more help coming for start-ups too
If you're running a newer business that hasn't turned a profit yet, loss carry back on its own won't help much — you need to have paid tax in a prior year to get a refund. The Government has addressed this gap separately:
From 1 July 2028, the government will also introduce loss refundability for eligible start-ups with aggregated turnover of less than $10 million. Specifically, start-up companies with aggregated annual turnover of less than AUD 10 million that generate a tax loss in their first two years of operation will be able to generate a refundable tax offset by using the loss — capped at the amount of FBT and wage withholding tax they've paid. The Government expects this to benefit up to 25,000 young companies each year, providing valuable cash flow support. KPMG + 2
The other piece of the puzzle: instant asset write-off
Loss carry back works hand-in-hand with another permanent change in this Budget. The $20,000 instant asset-write off has finally become permanent for small businesses with turnover below $10 million. That matters here because buying equipment and writing it off instantly is often exactly what tips a business from a small profit into a small loss in a given year — and now that loss can be turned into a refund rather than just carried forward. William Buck
What this means for your business
If you're a small or medium business owner, here's the practical takeaway:
If you're profitable now but expect a leaner year ahead (say, due to a big equipment purchase, a slow patch, or rising costs), you'll have a cash flow buffer you haven't had access to since the COVID-era scheme ended.
You'll need to have paid company tax in one of the prior two years to benefit — this isn't available to brand-new businesses that haven't yet turned a profit (that's what the 2028 start-up measure is for).
Your refund will be capped by your franking account balance, so it's worth understanding what that looks like for your company.
Timing matters: the measure applies to tax years starting on or after 1 July 2026, so the earliest loss year it can apply to is the 2026–27 income year.
A word of caution
This is a Budget announcement, not yet law. The measure will need to be enacted in time for affected companies to factor it into their 2026–27 year-end and tax effect accounting positions — so legislation still needs to pass Parliament. It's worth keeping an eye on developments rather than assuming the details are locked in, and chatting to your accountant about how it might apply to your specific situation once it's confirmed. PwC Australia
This article is general information based on Budget announcements and isn't tax advice — talk to your accountant or tax adviser about how these changes might apply to your business.