The government says it can provide tax relief to Australian startups through reforming the treatment of tax losses by reviving loss carry backs and introducing tax loss refundability.
According to the 2026-7 budget papers, companies with an aggregated annual turnover of less than $1 billion will be able to carry back a tax loss and offset it against the tax paid up to two years earlier.
“Loss carry back will apply to revenue losses only and will be limited by a company’s franking account balance,” the papers read.
Treasury has estimated that reintroducing loss carry backs will decrease receipts by $2.3 billion over the five years from 2025–26.
If this sounds familiar, it’s because this is a COVID-era measure that the government is… carrying back. But it’s not as robust this time around.
During the COVID-19 years businesses that had an aggregated turnover of up to $5 billion were able to invoke the measure.
A loss carry-back measure was also previously included in the 2022-23 federal. However, this was quickly repealed after just 12 months.
Loss refundability for startups
While the return of the loss carry back was rumoured ahead of the budget, loss refundability is entirely new.
Startups with an aggregated annual turnover of less than $10 million, that also generate a tax loss in their first two years of operation, will accrue a refundable tax offset.
This offset will be limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year.
In other words, loss-making startups could benefit at tax time if they hire staff in their early days.
The federal government will introduce this measure for startups for tax years commencing on or after July 1, 2028.
There’s also some more good news for startups elsewhere in the budget papers. The federal government plans to boost VC tax incentives to “better facilitate venture capital investment and support early stage and growth businesses.”
And there also may be a reprieve for startup investors who were worried about the CGT overhaul.
