2026 Small Business Tax Reforms (Part 2): $10M Active Asset CGT Relief & Permanent Loss Carry-Back Refunds

Introduction: Turning Strategic Tax Reforms into Equity & Cash Flow

In Part 1 of our 2026 Tax Reform series, we examined how the permanent $20,000 Instant Asset Write-Off gives Australian small businesses long-overdue certainty when planning equipment purchases.

Beyond asset write-offs, two major structural changes directly impact long-term enterprise value, business exits, and company cash recovery.

The first change expands Small Business CGT Relief under Section 152-C. From 1 July 2027, the turnover ceiling for the 50% Active Asset Reduction increases from $2 million to $10 million. This change brings roughly 90% of operating businesses into eligibility, significantly reducing the tax you pay when selling or restructuring your business.

The second change is the permanent return of Corporate Loss Carry-Back rules under Division 160. Starting in the 2026–27 financial year, eligible companies that incur a tax loss can offset that loss against profits taxed in the preceding two years—converting past tax paid into an immediate cash tax refund.

Put simply, one rule protects your hard-earned equity when you are ready to sell, while the other restores vital cash flow after a challenging trading year.

In this article, we break down how both measures work, who qualifies, and the key tax planning decisions business owners should consider ahead of time.

Expanded CGT Relief: The $10 Million Active Asset Threshold

When selling a business or eligible business assets, Capital Gains Tax (CGT) can take a substantial chunk out of the wealth you have built up over many years.

Under the existing Small Business CGT Concessions, the 50% Active Asset Reduction can reduce an eligible capital gain by 50%. Until now, one of the main ways to qualify has been to meet either:

• The $2 million aggregated turnover test, OR
• The $6 million maximum net asset value test.

Other eligibility conditions also apply, including requirements around the asset being used in the business.

CGT 50% Active Asset Reduction: What Changes from 1 July 2027?

Other eligibility conditions still apply.

What Is Changing?

Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, the turnover threshold for the 50% Active Asset Reduction increases from $2 million to $10 million from 1 July 2027.

The $6 million maximum net asset value test remains unchanged.

In simple terms, if your business turnover is between $2 million and $10 million, this change could open the door to the 50% Active Asset Reduction even if you could not qualify under the turnover test before.

What This Means for Business Owners

• More businesses can qualify: The Government estimates that the expanded concession will be available to all 2.7 million active small businesses and around 98% of all active businesses in Australia, subject to the other eligibility requirements.
• The $10 million threshold is specific to the 50% Active Asset Reduction: This does not mean the other Small Business CGT Concessions have been increased to a $10 million threshold. For example, a business with $5 million turnover would not qualify for the Retirement Exemption through the turnover test, but it may still qualify under the existing rules if it meets the $6 million net asset value test and the other conditions.
• More businesses can now access the 50% CGT reduction: If your business has annual turnover between $2 million and $10 million, you may now be able to use the 50% Active Asset Reduction when selling your business or an eligible business asset.

Permanent Corporate Loss Carry-Back Rules

When a company has a difficult trading year or makes a large investment in the business, it may end up making a tax loss.

Normally, that loss is carried forward and used against profits made in future years. The problem is that the company may have to wait several years before it can actually benefit from the loss.

The new Loss Carry-Back rules change this.

From the 2026–27 financial year, eligible companies can carry a tax loss back against tax paid in the previous two financial years. This could allow the company to receive a refund of some of the tax it previously paid, rather than waiting to use the loss against future profits.

Who Can Use Loss Carry-Back?

The new rules are available to eligible companies with turnover of up to $1 billion.

This is important because the concession is not limited to small businesses. However, the Government expects small businesses to be among the main beneficiaries, with up to 85,000 companies expected to benefit each year.

Sole traders, partnerships and discretionary trusts cannot use the company loss carry-back rules.

Revenue Losses Only

The loss carry-back rules apply to revenue tax losses, not capital losses.

For example, a company may make a tax loss because business expenses, wages, rent or other deductible costs are greater than its income. That type of loss may potentially qualify.

A capital loss, such as a loss from selling an investment asset, cannot be carried back under these rules. Capital losses continue to be carried forward and used against eligible capital gains.

There Is a Limit to How Much Tax You Can Get Back

A company cannot simply carry back any amount of losses and receive an unlimited refund.

The benefit is limited by the company tax previously paid and the balance of the company’s franking account.

This is particularly important where a company has previously paid fully franked dividends to shareholders, as those dividends use franking credits and may reduce the amount available under the loss carry-back rules.

In simple terms, the company needs to have paid tax in an earlier year and have sufficient franking credits available before it can receive the full benefit of loss carry-back.

Loss Carry-Back: The Rules at a Glance

Final Thoughts

The 2026 tax reforms bring welcome certainty and valuable relief for Australian business owners. The permanent $20,000 Instant Asset Write-Off makes capital purchases easier to plan, the expanded 50% Active Asset Reduction protects equity when selling, and permanent loss carry-back rules provide a critical safety net after a tough trading year.

While these permanent concessions offer unprecedented benefits, unlocking them requires careful compliance management—from navigating active asset eligibility rules to managing franking account caps.

If you are planning a major asset purchase, considering a business exit or restructure, or expecting a trading loss, speak to your tax adviser or book a Strategic Tax Consultation (STC) with the Investax team to understand how these new rules apply to your situation and ensure you take full advantage of the available tax concessions.

Reference –

Australian Treasury – Capital Gains Tax and Discretionary Trusts Reform: Small Business Explainer

Australian Government – 2026–27 Budget Tax Reform

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Frequently Asked Questions (FAQs) – Part 2

1. Does the new $10 million threshold apply to all four Small Business CGT Concessions?

No. The increase from $2 million to $10 million applies specifically to the 50% Active Asset Reduction (Subdivision 152-C).

The other Small Business CGT Concessions, including the 15-Year Exemption, Retirement Exemption and Small Business Rollover, continue under their existing eligibility rules.

For example, a business with turnover above $2 million may still qualify for the Retirement Exemption under the existing rules if it satisfies the $6 million maximum net asset value test and the other requirements.

2. Can sole traders or discretionary trusts use the new loss carry-back rules?

No. The new loss carry-back rules are for eligible corporate tax entities.

This means a sole trader, partnership or discretionary trust cannot use these rules to carry a tax loss back and receive a refund of tax paid in an earlier year.

3. How far back can a company carry its tax losses?

From the 2026–27 financial year, an eligible company can carry a tax loss back against taxable profits from either or both of the previous two financial years, subject to the eligibility requirements and limits.

4. Why does my company’s franking account matter for loss carry-back?

The company’s franking account balance can limit the amount of the loss carry-back tax offset.

If the company has previously paid franked dividends to shareholders, some of its franking credits may already have been used. This can reduce the amount available under the loss carry-back rules.

In simple terms, having a tax loss does not automatically mean the company will get all of its previously paid tax back.

5. Can a company carry back a capital loss and get a tax refund?

No. The loss carry-back rules apply to eligible tax losses, not capital losses.

Capital losses cannot be carried back against profits from earlier years. They generally remain available to offset eligible capital gains in future years.

I particularly prefer changing FAQ 5 from “net revenue (operating) losses” to “tax losses, not capital losses.” That’s terminology business owners can understand while also being more technically natural.

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