Loss Carry-Back Offset for Australian Companies: Rules and Bookkeeping

Last reviewed against current ATO guidance: 15 Jan 2027. Always confirm current thresholds, rates, and dates at ato.gov.au.

The loss carry-back offset was introduced for the 2019-20 income year and allows eligible companies to offset current year tax losses against prior years when tax was actually paid. The result is a refundable tax offset — a cash refund — rather than a deferred benefit carried forward.

Who is eligible?

The loss carry-back offset is available to companies that:

• Are a corporate tax entity (company, corporate limited partnership, public trading trust)
• Have an aggregated turnover of $5 billion or less
• Were in existence for the entire loss year and the offset year being applied against
• Have a tax liability or tax paid in the prior year being offset

The offset is not available to trusts, partnerships, or individuals.

How the offset works

The company must first have a tax loss in the current year. It can then elect to carry that loss back to one or more prior income years (starting from 2018-19 onwards, subject to the offset years being available).

The maximum refundable amount is limited to the lesser of:

• The tax offset calculated (loss × applicable tax rate)
• The franking account balance at the end of the current year

The franking account balance cap is important: it prevents companies from claiming a refund that would result in the franking account going into deficit. A company that has not paid corporate tax in recent years will have a zero or low franking account balance, limiting the available offset.

Example

A company has:

• 2022-23 taxable income: $200,000 (tax paid at 25% = $50,000)
• 2023-24 taxable income: $150,000 (tax paid at 25% = $37,500)
• 2024-25 tax loss: $180,000
• Franking account balance at 30 June 2025: $40,000

The company could carry back the $180,000 loss against prior years:

• Apply $150,000 to 2023-24: refund = $37,500
• Apply $30,000 to 2022-23: refund = $7,500
• Total potential refund = $45,000

But the franking account cap limits the refund to $40,000 (the franking account balance). The remaining $5,000 is carried forward as a tax loss.

The election mechanism

The loss carry-back offset is claimed by making an election in the company income tax return for the loss year. The election specifies:

• The loss year
• The offset year(s) being applied against
• The amount being carried back

Once made, the election cannot be varied after the return is lodged and assessed, so the calculation needs to be right the first time.

Franking account management

Because the franking account balance caps the available offset, companies approaching a loss year should monitor their franking account carefully. Actions that affect the franking account in the loss year include:

• Tax payments made during the year (increase the account)
• Franked dividends paid to shareholders (reduce the account)
• Refunds received (reduce the account)

If a company is likely to be loss-making, delaying franked dividend payments until after year end can preserve the franking account balance and maximise the carry-back offset available.

Bookkeeping treatment

When a loss carry-back offset is claimed and a refund is received:

1. The refund is not assessable income — it is a return of tax previously paid
2. Record the receipt as a reduction in income tax payable or tax expense
3. The journal entry at refund: Dr Cash / Cr Income Tax Payable (or Cr Retained Earnings if the prior year tax expense has already been closed)

The franking account must also be adjusted: the refund reduces the franking account by the amount of the offset.

In Xero or MYOB, the refund should be coded to the tax payable account, not to revenue or other income.

Interaction with carry-forward losses

If the full loss cannot be carried back (due to the franking account cap or insufficient prior year tax), the remainder is carried forward as a tax loss under the standard rules. There is no interaction between carry-back and the continuity of ownership test or the same business test for carry-forward losses — the rules operate independently.

Practical workflow

For clients who report a loss year, the process:

1. Confirm eligibility (corporate entity, turnover under $5B)
2. Identify offset years with taxable income and tax paid
3. Calculate the franking account balance at year end
4. Determine the maximum offset available
5. Prepare the election for inclusion in the company return
6. On receipt of the refund, post to the income tax payable account and update the franking account register