Article written by Mark Rogerson
Managing Director
Proposed Loss Carry Back Rules Could Boost Business Cash Flow
The Federal Budget 2026–27 has announced the return of loss carry back rules for eligible companies, providing a potentially valuable cash flow opportunity for businesses experiencing fluctuating profits or investing heavily in growth.
Importantly, these measures are currently proposed only and are not yet law.
What Has Been Announced?
For income years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion will be able to carry back tax losses and offset those losses against tax paid in prior years.
The proposed measures include:
- Losses can generally be carried back up to two years.
- The rules apply to revenue tax losses only not capital losses.
- The amount that can be refunded will be limited by the company’s franking account balance.
In simple terms, where a company has previously paid tax and later incurs a tax loss, it may be able to receive a refund of tax previously paid.
Why This Matters?
The proposed return of loss carry back is particularly important for businesses that:
- Experience cyclical or volatile earnings
- Are investing in expansion or new projects
- Have significant upfront equipment or technology costs
- Are scaling operations and may move between profit and loss periods
Combined with the proposed permanent $20,000 instant asset write-off, the measures together (loss carry back and $20,000 instant asset write off) may provide meaningful cash flow support for growing businesses.
Example – How the Measures May Work Together
ABC Hospitality Pty Ltd operates a local café and catering business with annual turnover of approximately $1 million.
In the 2025–26 financial year, the company generated taxable profits of $60,000 and paid company tax of $15,000 at the 25% small business tax rate.
In 2026–27, the business decides to expand into supplying packaged meals to local retailers. To support the expansion, the company purchases several new pieces of kitchen and refrigeration equipment costing a total of $72,000, with each individual item costing less than $20,000.
- Under the proposed instant asset write-off rules, the equipment may qualify for an immediate deduction rather than being depreciated over several years.
- Without the equipment purchases, the business would have recorded taxable profits of approximately $55,000 for the year. However, after claiming the immediate deductions, the company instead reports a tax loss of $17,000.
- Under the proposed loss carry back rules, the company may then be able to carry that tax loss back against the prior year’s taxable income, potentially generating a tax refund of $4,250 ($17,000 × 25%).
For growing businesses, this type of measure can provide valuable cash flow support during expansion periods.
Key Things to Consider
While the proposal is positive, several practical considerations remain important:
Franking Account Balance Matters
The refundable amount is proposed to be limited by the company’s franking account balance, meaning companies will still need sufficient franking credits available.
Timing and Structure Are Important
The interaction between:
> Asset purchases,
> Financing arrangements,
> Tax losses,
> Group structures, and
> Future profitability
will still require careful planning.
Not All Losses Qualify
The proposed rules apply to revenue tax losses only and do not apply to capital losses.
Our Thoughts
The return of loss carry back is a welcome announcement, particularly when combined with the proposed permanent extension of the instant asset write-off.
For many small and medium businesses, the measures may improve confidence to invest, expand operations and upgrade equipment while helping smooth cash flow during growth phases.
As with all Budget announcements, further detail and draft legislation are still to come, and the final law may differ from the initial announcement.
Still got questions?
If you would like assistance reviewing how these proposed measures may apply to your business, asset purchases or broader tax planning strategy, please contact our office for professional guidance.
Call us on (03) 9802 2533 to talk through your options.
*Disclaimer: This article is general information only and does not take into account your personal circumstances. Always seek professional advice before making financial decisions.*
Mark became a Director at Rogerson Kenny Business Accountants in 2011 and is currently Managing Director. CPA qualified, an SMSF Specialist Advisor™, Mark has a focus on privately held businesses operating in Australia with turnovers above $1m.
