Loss carry back: how it works, and when the refund actually lands

The short answer

Loss carry back is back. If your company makes a tax loss in 2026–27 or a later year, it can claim a cash refund for tax it paid in one or both of the two years before. There are two catches. The refund is capped by your franking account balance, and you can only claim it in the loss year’s tax return. For a normal 30 June year end, that means no refund before the 2026–27 year closes on 30 June 2027.

That timing is the part most Budget write-ups skip. If trading has turned rough this spring, the refund is real, but it’s a long way off. Here’s the 1-2-3:

1. Check you’re eligible. Companies only, with recent tax paid and lodgments up to date.
2. Check your franking balance. It decides how big the refund can be.
3. Map the gap. Work out how many months sit between today’s cash squeeze and the day the refund lands.

What changed in 2026?

The loss carry back offset was announced in the May 2026 Budget and became law in August, when Parliament passed the Treasury Laws Amendment (Tax Reform No. 2) Bill 2026. The ATO confirmed it in its September bulletin, Tax loss carry back law now passed. The same package made the $20,000 instant asset write-off permanent, which we cover in our instant asset write-off guide.

If this rings a bell, you’re not imagining it: there was a short-lived COVID-era version that wound up in 2023. Plenty of older Budget alerts still describe it as a proposal. They’re behind the times.

Step 1: is my company eligible for the loss carry back tax offset?

According to the ATO’s loss carry back legislation page, a company needs to tick every box:

• It’s a corporate tax entity. For most small businesses that means a Pty Ltd. Trading in your own name, in a partnership or through a discretionary trust rules you out.
• It isn’t a significant global entity. That’s broadly groups with global turnover of $1 billion or more, so almost every small and medium business is fine here.
• It made a revenue tax loss in an income year starting on or after 1 July 2026. A loss on selling an investment, which is a capital loss, isn’t eligible.
• It paid income tax in one or both of the two previous income years.
• Its tax returns are lodged for the previous five years, or it wasn’t required to lodge them.
• It has a franking account balance at the end of the loss year.
• It chooses to carry the loss back in its company tax return.

That second-to-last point is where plenty of small companies come unstuck, so it gets a step of its own.

Step 2: how does the franking account limit shrink the refund?

Your refund is the lower of two numbers: the loss carry back amount, worked out at the loss year’s company tax rate, and your franking account balance at the end of the loss year.

The franking account goes up when the company pays tax. It goes down when the company pays franked dividends. That’s why a company that hands its profit to shareholders each year, with full franking credits attached, can pay plenty of tax and still find the franking account close to zero.

An illustrative example

Here’s a made-up trades company, with round numbers.

• It paid $30,000 of company tax for 2024–25 and $35,000 for 2025–26.
• Over those years it paid franked dividends that used up most of its franking credits. On 30 June 2027 its franking balance is $25,000.
• In 2026–27, a big contract goes wrong and the company makes a $200,000 tax loss. At a 25% company tax rate, that loss is worth up to $50,000 in tax.

	Amount
Tax paid in the two prior years	$65,000
Loss × 25% tax rate	$50,000
Franking balance at 30 June 2027	$25,000
Refund available (the lowest figure)	$25,000

The franking balance caps the refund at $25,000, so the company should carry back only about $100,000 of the loss ($25,000 ÷ 25%) and carry the other $100,000 forward to use against future profits. Carrying back the full $200,000 would waste part of the loss unless the choice is later amended. Your accountant runs the exact calculation, but the lesson is simple: check the franking balance before you pay another dividend this year.

Step 3: when does a loss carry back refund actually land?

Most guides stop at Step 2. For an owner, Step 3 is the one that matters.

You choose loss carry back in the company tax return for the loss year. For a 30 June balancer:

1. The loss year runs from 1 July 2026 to 30 June 2027. Nothing can be claimed while the year is still running.
2. The return can be lodged once the year closes and the books are finalised. Many small companies lodge months later under their tax agent’s lodgment program.
3. The refund follows once the ATO processes the return. It can also be reduced if the company owes the ATO anything else.

So if trading turned bad in, say, September 2026, the refund may be nine months to well over a year away. Meanwhile wages, BAS, super and suppliers still need paying every week.

Three practical moves shorten the wait or soften it:

• Ask your accountant to lodge early. You don’t have to wait for the latest date the lodgment program allows. A tidy set of books in July 2027 can mean a refund much sooner.
• Review your PAYG instalments now. If the company is paying instalments based on last year’s profit, ask your accountant whether varying them makes sense for a loss year. That keeps cash in the business this year rather than next.
• Stay on top of BAS and super. A refund can be offset against other ATO debts, and late super brings its own penalties. Our BAS time cash flow page has three ways through a heavy quarter.

If the gap between now and that refund is already keeping you up at night, you can check your options in about 60 seconds, with no credit check just for asking.

Loss carry back vs the start-up loss refund: don’t mix them up

AI tools and some search results blur two different measures together.

	Loss carry back	Start-up loss refund
Status	Law (passed August 2026)	Announced, not yet law
Who	Companies that aren’t significant global entities, with tax paid in the past two years	New companies with turnover under $10 million, in their first two years
Refund capped by	Franking account balance	PAYG withholding and FBT paid in the loss year
Starts	Income years from 1 July 2026	Income years from 1 July 2028 (proposed)

The details for the start-up measure come from the ATO’s page on loss refundability reforms for businesses and start-ups and the Budget tax reform papers. A brand-new company with no tax history can’t use loss carry back today. It may have something from 2028, if that measure is legislated.

Bridging the gap: three sensible options

A loss carry back refund is money the company is owed, but lenders generally won’t lend against it like an invoice. What matters to them is the business itself: turnover, bank statements, any property, and why the loss happened. Here are the three usual ways owners bridge the wait.

1. A business line of credit. You draw only what you need for a few lean months and pay it down when the refund arrives. It’s flexible, and our line of credit page explains how it works.
2. A working capital or cash flow loan. This is a set amount over a set term, sized on your trading history. See working capital loans and cash flow loans.
3. Property-backed funding. If the gap is large, or the bank statements look bruised after a loss year, equity in property can make the difference. Property-secured options run from $20,000 to $5,000,000. The full list is on our business loan options page.

When not to borrow

If the loss came from one bad job, a supplier collapse or a one-off write-down, bridging finance can make sense. If the business is losing money month after month, a loan only buys time. Fix pricing, costs or the customer mix first, and talk to your accountant. A refund that arrives in 2027 won’t fix a business that’s still losing money in 2028.

Not sure which fits? The 1-2-3 finance finder asks three questions and points you to a sensible starting place.

A loss year doesn’t have to become a cash crisis

A loss carry back refund is a genuinely useful thing to have coming. It turns tax you paid in the good years into cash for the bad one. But the money arrives on the tax system’s timetable, not yours, and a lot of payrolls can go by before it does.

That waiting period is where we can help. We work with company owners through rough years all the time, including owners whose last set of financials doesn’t look as good as the business really is. We’ll look at what’s happening now, not just last year’s numbers.

Enquiring takes about a minute, and it won’t leave a mark on your credit file. That only comes up if you decide to go ahead. We don’t send your details to a pile of lenders, so your phone won’t start ringing with strangers. A real person reads your situation and calls you to talk it through. Please fill the form in accurately: your turnover, roughly how big the gap is, how long until you expect the refund, and whether there’s property in the picture. Accurate answers mean we can match the right option first time.

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