Startup refundability and how it works
Small start-up companies with aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to convert that loss into a refundable tax offset, limited to the value of fringe benefits tax (FBT) and withholding tax on wages paid to Australian employees in the loss year.
In simple terms:
Your startup spends more than it earns → creates a tax loss
Instead of just carrying that loss forward, you can convert it to a cash refund
The refund is capped at whatever PAYG withholding + FBT you paid on your Australian staff wages that year
This measure is designed to support new start-up businesses, and is expected to provide vital cash flow benefits to up to 25,000 companies each year, directly addressing one of the most persistent pressures faced by early-stage companies.
Here’s an example
Take NewCo Pty Ltd, which incorporates on 1 July 2028. In FY29, it has $200K revenue, $700K of eligible core R&D, $500K of other operating spend, and pays $800K of Australian wages with $180K of PAYG withholding. The R&D refundable offset returns $336K cash (48% of $700K). On top of that, loss refundability returns another $180K cash, capped by the PAYG withholding figure.
There are a couple of critical timing rules
Loss refundability is hard-wired to the first two years of operation only. There are no extensions and no second windows once you pass that mark. The clock starts at incorporation, not first revenue or first hire.
This means:
If you incorporated before 1 July 2028, you may miss part or all of this window
If you incorporate in July 2028 or later, you get two full years of stacked R&D plus loss refundability under the new rules. Incorporated before that, you'll lose some or all of the loss refundability window. If you have genuine flexibility on when to incorporate, push past 1 July 2028.
You can stack this with the R&D tax incentive
This is where it gets really powerful. The two measures stack. From 1 July 2028, a startup in its first two years with turnover under $10M can claim the R&D refundable offset at roughly 48% on eligible core R&D expenditure, and separately claim loss refundability on the remaining losses, capped at PAYG withholding on Australian wages.
In a typical early-stage loss year with significant R&D and payroll, the combined cash recovery can exceed half the total operating loss.
Let’s have a look at who it's designed for
This measure is specifically built for:
Brand new companies (Pty Ltd structure) with no profitable history to carry losses back against.
Startups that are actively hiring staff (your payroll directly determines how much you can claim)
Early-stage companies with no profitable history to carry losses back against. It stacks on top of the R&D Tax Incentive refundable offset.
It’s important to look at what it is NOT
❌ It does not apply to sole traders, partnerships, or trusts, only companies (Pty Ltd)
❌ It does not apply if you're past your first two years of operation.
❌ The refund is not your full loss amount. It's capped at the PAYG withholding + FBT you've already paid on Australian wages.
❌ It is not yet available. It kicks in for income years starting 1 July 2028
Here is what you need to claim it
New companies with aggregated turnover of less than $10 million will be able to claim a refund of tax losses in their first 2 years of operation, up to the amount of PAYG withholding and FBT payments made in the year the loss is generated. The changes will apply to income years starting on or after 1 July 2028. Eligible companies will first be able to claim the refundable tax offset in their 2028–29 income tax returns.
In summary
If you're planning to start a new company and have the flexibility to incorporate on or after 1 July 2028, you could unlock significant cash refunds during your riskiest early trading years, especially if you're hiring staff and investing in R&D.
Always speak with an accountant before making incorporation or structural decisions based on this measure, as your individual circumstances will affect your eligibility and outcomes. If you have any questions please simply contact me paul@congdonfuzi.com.au