Every business faces ups and downs, but not all losses spell disaster. For Australian companies, a Net Operating Loss (NOL) can actually be a strategic financial tool, helping to ease the burden during tough years. With new tax updates rolling out in 2025, understanding how to leverage NOLs could make a real difference to your bottom line.
What Is a Net Operating Loss (NOL)?
A Net Operating Loss occurs when a company’s allowable tax deductions exceed its taxable income within a financial year. In plain English: your business spent more on deductible expenses than it earned, resulting in a loss for tax purposes. While no one loves seeing red ink, the Australian Tax Office (ATO) lets you use these losses to your advantage by reducing taxable income in other years.
For example, if your tech startup spent heavily on R&D and marketing in 2024 and finished the year $100,000 in the red, that $100,000 NOL can be carried forward to offset future profits, lowering your tax bill down the track.
2025 Policy Updates: What’s Changed?
Recent federal budgets have continued to refine NOL rules to help businesses recover from economic shocks and foster innovation. Here are the key updates for 2025:
- Loss Carry Back Extended: The temporary loss carry back measure, first introduced during the COVID-19 recovery, has been extended for the 2024–25 income year. Eligible companies can now ‘carry back’ tax losses incurred in the 2022–23, 2023–24, or 2024–25 income years to offset profits (and tax paid) as far back as 2018–19.
- Eligibility: To access carry back, your company must be a corporate tax entity with an aggregated turnover under $5 billion and must have paid tax in previous years. Trusts and sole traders are not eligible for the carry back, but can still carry losses forward indefinitely.
- No More ‘Continuity of Ownership’ Surprises: The ATO has clarified its approach to continuity of ownership and business tests, which determine if your company can use carried forward losses after changes in ownership or business activities. In 2025, documentation requirements have tightened, so keeping detailed records is now crucial.
How to Use NOLs: Real-World Scenarios
Let’s see how NOLs work in practice for Aussie businesses in 2025:
- Scenario 1: Fast-Growing Startup
Imagine a fintech startup that records a $200,000 NOL in FY24 after heavy investment. In FY25, the business turns profitable with $500,000 in taxable income. By carrying forward the NOL, it can reduce taxable income to $300,000, trimming its tax liability significantly. - Scenario 2: COVID-19 Impacted Hospitality Chain
A café chain posted profits in 2019 and 2020, but suffered losses in 2021–24. With loss carry back, it can claim a refundable tax offset for tax paid in profitable years—freeing up cash for recovery or expansion. - Scenario 3: SME with Ownership Change
A manufacturing SME changes hands in 2025. To keep using its carried-forward NOLs, it must pass the ‘continuity of ownership’ or ‘same business’ tests. If the business model remains consistent, the NOLs stay valid—but if the new owners pivot to a new line of business, those losses may be locked.
Maximising Your NOL: Tips for 2025 and Beyond
- Keep Meticulous Records: Detailed documentation on ownership, business activities, and tax positions is more important than ever with the ATO’s 2025 compliance crackdown.
- Strategic Planning: Time large deductible expenses (like R&D, equipment purchases, or marketing blitzes) in lean years to maximise NOLs when you need them most.
- Review Ownership Structures: If your business is considering a merger, acquisition, or restructure, analyse the impact on your ability to use existing NOLs.
- Stay Updated on Policy: With federal budgets frequently tweaking NOL rules, keep an eye on ATO updates to ensure you don’t miss new opportunities or compliance requirements.
Conclusion
Net Operating Losses are more than just a line on your tax return—they’re a chance to turn a challenging year into a future tax advantage. With 2025’s rules, Australian businesses have new flexibility to smooth out the financial bumps and keep investing in growth. Use your NOLs wisely, keep your paperwork sharp, and your next big win might be closer than you think.
