Tax refunds for businesses who report losses

Small businesses will be able to claim tax refunds on income losses under a suite of new measures outlined in the federal budget aimed at giving the struggling sector a boost.

The government announced tonight it is reintroducing a two-year loss carry back policy, set to take effect from July 1 this year.

It was last in effect during the COVID-19 pandemic, and Treasury figures showed it supported more than 70,000 companies, 95 per cent of which had less than $10 million in turnover.

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The now-permanent measure outlined in the budget will allow businesses with up to $1 billion in turnover who make a loss in the current income year to use that loss to get a refund against tax paid in the prior two income years.

This will couple with the government permanently extending the $20,000 small business instant asset write-off, meaning any small businesses who make a business-related purchase of less than $20,000 can immediately deduct that amount from taxable profit.

That particular benefit is only available to businesses with turnover of under $10 million.

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In one of the Treasury's nuts-and-bolts explainers about how it worked, it posted the example of a hypothetical coffee shop that generated $40,000 taxable income and paid $10,000 tax for 2025-26.

In 2026-27, the coffee shop decided to expand, purchasing a new coffee machine for $19,000, new tables and chairs for $19,000, and outdoor heaters for $17,000.

All these assets were immediately deducted from the $40,000 taxable income for the year, allowing the coffee shop owners to report a $15,000 tax loss.

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Not only, therefore, do they pay no tax for 2026-27, but they can carry that back to the tax paid last financial year, and receive a refund of $3750 - based on the 25 per cent tax rate against their $15,000 loss.

The measure is at the heart of what the government says is $3.5 billion worth of measures aimed at supporting small businesses in the budget.

It's estimated the loss carry back policy will cost the government $2.3 billion from 2027-28, to 2029-30.

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The government believes that the policy will benefit up to 85,000 businesses.

Meanwhile, the government has boasted that the small business write-off will cut a collective $32 million from compliance costs, and save 366,000 hours on record keeping.

"This is about tax relief and tax reform to make our economy work for more Australians, businesses and future generations," Treasurer Jim Chalmers said.

Start-ups are the recipients of similar support, with loss refundability for them arriving in 2028-29.

The government will also work to attract more venture capital down under, by increasing some asset caps for global and local investors - including super funds.

It says the collective aim of these measures is to encourage investment, "sensible" risk-taking, and innovation for a more "dynamic and resilient" economy.

To this end, the government has flagged big cuts to "red tape" and regulatory costs it claims will deliver businesses $10.2 billion a year.

A $7.6 billion expansion of the government's Trusted Trader program will allow small businesses to deliver more efficient exports to markets such as the European Union, with whom Australia signed a recent trade agreement.

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