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Business Tax Changes Budget 2026: What Changed for Australian Companies in the 2026-27 Federal Budget
The 2026-27 Federal Budget introduced a loss carry-back mechanism allowing eligible companies to offset current-year losses against tax paid in the prior two income years, a start-up tax refund for companies in their first two years of operation (from 2028-29), and maintained all existing small business CGT concessions. There were no changes to the company tax rate itself.
The 2026-27 Federal Budget does not cut the headline company tax rate — the 25% rate for base rate entities (those with turnover under $50 million and passive income below 80% of total income) and the 30% rate for larger companies remain unchanged. However, the budget does deliver meaningful structural tax relief for businesses through three targeted measures: loss carry-back, start-up refunds, and the preservation of small business CGT concessions.
For small businesses operating as companies, this budget is primarily about cash flow and resilience — making it easier to recover from a down year without facing a full tax bill in the years surrounding it.
What’s Changing: The Three Business Tax Measures
1. Loss Carry-Back for Companies
What is it?
From the 2026-27 income year, eligible companies that make a tax loss can apply that loss as an offset against income tax paid in either of the prior two income years. The result is a cash refund of that earlier tax — paid out through the tax return process.
Previously, tax losses could only be carried forward and used to offset future taxable income. This was frustrating for businesses that had a profitable period, paid tax, then experienced a downturn — they had to wait years before the loss reduced their tax bill, and in the meantime had no access to the cash they’d paid in.
Example:
- 2024-25: $200,000 taxable profit. Company tax paid: $50,000 (at 25%).
- 2025-26: $150,000 taxable profit. Tax paid: $37,500.
- 2026-27: $80,000 tax loss.
Under loss carry-back, the 2026-27 loss of $80,000 generates a refundable tax offset of $20,000 (80,000 × 25%) — applied against the 2024-25 tax paid of $50,000. The company would receive a $20,000 refund.
Who’s eligible?
- Companies with an aggregated turnover of less than $5 billion (this is deliberately broad — it’s not just micro-businesses)
- The loss must be genuine — it cannot exceed the amount of tax actually paid in the carry-back year
- A franking account balance condition applies: the refund cannot exceed your franking account balance, preventing a refund that would result in a negative franking account
An estimated 85,000 companies are expected to benefit, the majority of them small businesses.
When does it start?
The loss carry-back applies from the 2026-27 income year — meaning the first time you can use it is when you lodge your 2026-27 tax return (typically October 2027 for companies on standard lodgment dates, or earlier if you lodge by 31 October 2027).
2. Start-Up Tax Refunds (From 2028-29)
What is it?
From the 2028-29 income year, new companies in their first two years of operation can claim a refund on tax losses — up to the total amount of fringe benefits tax (FBT) and PAYG withholding paid on employee wages during that year.
This is a significant departure from normal tax loss rules, which only allow losses to be carried forward. For start-ups investing heavily in staff before they reach profitability, this creates an immediate cash benefit tied directly to their investment in people.
Example:
- Year 1 start-up, 2028-29 income year.
- 5 employees. Total PAYG withholding paid: $90,000. FBT paid: $8,000. Total: $98,000.
- Company has a $150,000 tax loss.
- The start-up can receive a refund of up to $98,000 — the lesser of the tax loss value and the FBT + PAYG amount.
Who’s eligible?
- Companies in their first or second year of operation
- Must have paid PAYG withholding and/or FBT (i.e., actually employing staff)
- Applies to companies only — not trusts, partnerships or individuals
- Up to 25,000 young companies per year are expected to benefit
When does it start?
The start-up refund scheme begins from the 2028-29 income year. Companies starting operations in 2028 or later will be among the first to access this measure.
3. Small Business CGT Concessions: Maintained in Full
The government has confirmed it will maintain all existing CGT concessions for small business, including:
- 15-year exemption: If you’ve owned a CGT asset continuously for 15 years and you’re 55+ and retiring (or permanently incapacitated), the entire capital gain can be disregarded
- 50% active asset reduction: You can reduce a capital gain on an active asset by 50%
- Retirement exemption: Gains up to $500,000 lifetime limit can be disregarded if contributed to super or if you’re under 55
- Rollover relief: Capital gains can be deferred (rolled over) if you replace the asset with another qualifying asset within the required period
These concessions are available to small businesses with aggregated turnover under $2 million, or where the net value of CGT assets is less than $6 million. They remain a cornerstone of business sale and succession planning for small business owners.
This is a deliberate signal from the government that despite the recent capital gains tax reforms announced for property investors, including a 30% minimum tax from 1 July 2027 that applies only to gains arising after that date, the rules for small business owners selling their operating business remain unchanged. Investors in new builds can choose between the old and new CGT arrangements.
→ Note: While the CGT landscape for property investors is changing significantly from 1 July 2027, these changes are covered separately. See Negative Gearing & CGT Budget 2026 →
When Do These Changes Start?
| Measure | Start Date |
|---|---|
| Loss carry-back for companies | 2026-27 income year (1 July 2026) |
| Start-up tax refunds | 2028-29 income year (1 July 2028) |
| Small business CGT concessions | Already in place — maintained |
Who Does This Affect?
Loss carry-back: Any company structure that pays tax in one year and experiences a loss in a subsequent year. Most relevant for:
- Businesses affected by economic downturns, seasonal variation or unexpected events
- Companies in cyclical industries (construction, hospitality, retail)
- Businesses that have recently made a major investment or expansion that temporarily suppressed profit
Start-up refunds: Companies in their first two years of operation that are already employing staff. Most relevant for:
- Technology and software businesses
- Professional services start-ups
- Any employer-heavy business model where wages precede revenue
CGT concessions: Small business owners planning to exit, transition or sell their business now or in the future.
Worked Example: How Loss Carry-Back Helps a Tradie Company
Scenario: Oakfield Plumbing Pty Ltd, a plumbing company with two employees and annual turnover of $620,000.
2024-25: Taxable income: $180,000. Company tax (25%): $45,000 paid.
2025-26: Taxable income: $120,000. Company tax (25%): $30,000 paid.
2026-27: The company takes on a major commercial project that runs over budget and over schedule. After expenses, the company has a $95,000 tax loss.
Result under loss carry-back: The company can carry back $95,000 of losses. The maximum refund is 25% × $95,000 = $23,750.
This refund is applied against the tax paid in 2025-26 ($30,000 paid). Oakfield Plumbing receives a $23,750 refund — in cash — rather than simply carrying the loss forward against future income.
Note: the franking account balance condition means the refund cannot exceed the balance in the company’s franking account. For more complex scenarios, especially where you’re also using tax losses carried forward and loss carry-back strategies, speak to your adviser before lodging.
What Should You Do?
If you’re a company and had a loss year in 2026-27:
- Talk to your accountant or BOX adviser before lodging your 2026-27 return
- Confirm your aggregated turnover and franking account balance
- Quantify the prior-year tax against which you can carry back
- Factor the potential refund into your cash flow planning
If you’re planning a new business:
- Consider operating as a company if you plan to employ staff from day one — the start-up refund rules (from 2028-29) favour the company structure
- Keep clear records of PAYG withholding and FBT from your first year
If you’re planning to sell or exit your business:
- Review the CGT small business concessions carefully — the 15-year exemption and retirement exemption can dramatically reduce your tax on sale
- Make sure your business structure is eligible; this is worth discussing with BOX well before any transaction
→ Related: Instant Asset Write-Off 2026 → Red Tape & Compliance Changes
From July 2026, the permanent $20,000 instant asset write-off rules let eligible small businesses claim an immediate deduction for eligible assets under $20,000, a measure expected to improve cash flow by $890 million.
→ Back to the hub: Federal Budget 2026-27: Complete Guide
Frequently Asked Questions
Does the company tax rate change in the 2026-27 Budget?
No. The 25% rate for base rate entities (turnover under $50 million with predominantly active income) and the 30% rate for large companies remain unchanged. The business tax relief in this budget comes through structural measures — loss carry-back, start-up refunds, and maintained CGT concessions — not a rate cut.
Can sole traders and partnerships access loss carry-back?
The loss carry-back measure announced in the 2026-27 Budget applies to companies. Individuals, trusts and partnerships have different rules for managing tax losses. If you operate in a non-company structure and experienced a loss year, speak to your tax adviser about the options available to you.
What is the franking account condition for loss carry-back?
When a company claims a loss carry-back refund, the refund amount cannot exceed the balance in the company’s franking account (imputation account) at the end of the income year. This prevents a refund that would push the franking account into a negative position. If your franking account is lower than your potential carry-back refund, you will be limited to the franking account balance.
Can I carry back losses to more than two years ago?
No. The 2026-27 Budget measure allows losses to be carried back to either of the two prior income years. You cannot carry back to three or more years ago.
Are the small business CGT concessions changing because of the new CGT reforms for property investors?
No. The CGT reforms announced in the 2026-27 Budget (replacing the 50% discount with an inflation-indexed discount) apply to investment assets, particularly investment property. The small business CGT concessions — which apply to the sale of active business assets — are maintained in full and are not affected by the property investor CGT changes. On top of that, reforming negative gearing means deductions will be limited to new builds from 1 July 2027. The existing arrangements remain unchanged for properties held before 12 May 2026. For established housing, losses will only offset residential property income, while new builds can still deduct losses against other income.
Does the budget include anything for workers?
Yes. The working Australians tax offset is an ongoing annual tax cut of $250 from the 2027–28 financial year, paid automatically through tax returns, and it lifts the effective tax-free threshold by $1,800. It is aimed at Australian workers, with 13.3 million people expected to benefit, including those on average earnings.
Book a Free Consultation with Box AS
Not sure how the 2026-27 business tax changes apply to your company structure, your industry or your current situation? The Box Advisory Services team works exclusively with small business owners, contractors and investors, offering specialist tax and financial services.
Book a free 15-minute consultation — no obligation.
Last updated June 2026. This content is general in nature and does not constitute financial, tax or legal advice. Individual circumstances vary. Please consult a registered tax agent for advice specific to your situation.
