My company is making a loss this year — can it get back the tax it paid in the last two years?

Your Pty Ltd had two reasonable years and paid company tax on both of them. This year is different — a large client went quiet, a project slipped, margins got squeezed — and the accounts are heading for a loss. The standard answer from the tax system is that the loss is carried forward and deducted against future profits, whenever those turn up. That is cold comfort when the pressure is on the bank balance right now.

There is a mechanism designed for exactly this situation, and it took a step forward yesterday. On 13 August 2026 the Senate Economics Legislation Committee reported on the Treasury Laws Amendment (Tax Reform No. 2) Bill 2026 and made a single recommendation: that the bill be passed. Schedule 1 of that bill reintroduces 'loss carry back' — letting a company apply a tax loss against tax it already paid in the two preceding years and receive a refund instead of a deferred deduction.

What loss carry back actually does

Carrying a loss forward turns it into a future deduction. Carrying it back turns it into cash now, through a refundable tax offset. The bill would repeal the temporary version of these rules that ran through the COVID years and replace it with an ongoing one in Division 160 of the Income Tax Assessment Act 1997, applying to assessments for income years commencing on or after 1 July 2026.

It is optional. Carrying the loss forward stays the default, and any part of the loss you do not carry back remains available to be deducted against future income in the normal way. In his second reading speech the Treasurer said the measure is expected to benefit up to 85,000 companies each year, mostly small businesses, with the largest impacts in construction, manufacturing, professional and scientific services, finance and insurance, and wholesale trade.

Who it covers — and who it does not

The measure is limited to corporate tax entities: a company, a corporate limited partnership, or a public trading trust. If you trade as a sole trader with an ABN, in a partnership of individuals, or through a family discretionary trust, this is not the provision for you — a loss in those structures is dealt with under different rules entirely.

The company also has to be under the significant global entity line (broadly, annual global income of $1 billion or more), which almost no small Australian business goes near. Two conditions matter far more in practice. First, the company must have had an income tax liability in at least one of the two preceding income years — there has to be tax actually paid before there is anything to refund. Second, returns must have been lodged (or assessments made, or lodgment not required) for the loss year and each of the five preceding income years. A company sitting on several years of overdue returns would not qualify until that is cleaned up.

How much comes back: two ceilings, not one

The calculation starts with the amount of loss you choose to carry back to a given year, reduced by any net exempt income for that year, multiplied by the company's tax rate for the loss year — 25% for a base rate entity (aggregated turnover under $50 million with no more than 80% base rate entity passive income), otherwise 30%. That figure is then capped by the tax the company actually paid for that year, and each prior year's tax liability can only be used once.

Then comes the ceiling that catches people out. The total offset is capped at the company's franking account balance at the end of the loss year. The franking account is the running record of tax the company has paid, less the credits it has already handed to shareholders on franked dividends. A company that has distributed fully franked dividends over the last two years may have drained that account — and the refund is limited to what is left in it. Two companies with identical losses and identical tax paid can end up with very different amounts back, purely because of what they paid out to shareholders.

One more boundary: only revenue losses can be carried back. Capital losses cannot, so a bad year driven by the sale of an asset does not become a refund through this route.

The two misreadings to avoid

The first is treating a loss as a refund. Under these rules the loss is only the starting figure — what actually comes back is limited by tax genuinely paid in those two years and by the franking account balance. A company that has never paid company tax, or has fully distributed its franking credits, may get nothing from the mechanism no matter how large the loss is.

The second is treating yesterday's news as the finish line. A committee recommending that a bill be passed is a step in the process, not the end of it.

Update, 27 August 2026: the bill is now an Act. The House of Representatives agreed to it at third reading on 18 August 2026 and the Senate on 19 August 2026, and it received Royal Assent on 26 August 2026 as Act No. 71 of 2026. Loss carry back is law, applying to income years commencing on or after 1 July 2026 — so the first losses it can reach are the ones being made now.

The general and unglamorous version of what to do: if your company is heading for a loss this financial year, the value of this measure to you depends on things you can establish now rather than next June — whether tax was actually paid in either of the two preceding years, what your franking account balance looks like after any dividends, and whether every return for the last five years is in. Those three answers decide whether there is anything here for you at all. It is also worth remembering the measure is claimed by making a formal choice in the company's return, specifying how much loss goes to each prior year, so it is a decision to be made deliberately rather than something that happens automatically.

This is general information current as at 27 August 2026 and not advice for your situation; how the rules apply depends on your company's own circumstances. Deciding between carrying a loss forward and carrying it back is a genuine trade-off — the refund now costs you the deduction later — and it turns on your company's own numbers. Keeping the accounts, the franking account and the lodgment history in a state where you can actually use a measure like this when it arrives is what our business, company and bookkeeping service is for.