"I came to Bath with a bit of a point to prove with my rugby and I don't feel like I've done that yet," said Carraro.
"The way our play is progressing there is a lot more to come and I'm really looking forward to being part of it.
"My partner and I are very excited to continue our stay in Bath.
"We know how lucky we are to have come to a place as beautiful as this, and with the direction the club is going, we knew that there is nowhere we would rather be."
Director of Rugby, Sir Ian McGeechan, added: "Matt is a great asset to the squad, and we are delighted he has agreed to extend his contract with us.
"The fact he is as comfortable on the wing as he is in the centre is a great strength to have, and is incredibly beneficial to us here at Bath."