Corporates Tax
Oct 20th, 2020 • Industry News • Business Loans
CORPORATES
Loss carry back
Under the announced measures, companies with aggregated turnover of less than $5b will be eligible to generate cash-flow by offsetting tax losses incurred in the 2020, 2021 and 2022 income years against profits taxed in 2019 or later years. The tax refund will be available on election by eligible companies when they lodge their 2020-21 and 2021-22 tax returns. Companies will need to wait at least until they lodge their 2021 income tax return before they reap the Tax Loss Carry Back refund. For companies with a 31 December substituted accounting period, this could be as early as January 2021.
Companies may be able to maximise their Tax Loss Carry Back refund by taking advantage of the expanded instant asset write-off or small business tax concessions deductions announced with this Budget.
Limitations of this measure are:
The company must have an aggregated turnover of less than $5b. Aggregated turnover includes the turnover of associates (including non-resident associates
The amount carried back must not be more than the earlier taxed profits
The tax offset must not cause the company’s franking account to go into deficit
The measure is only available to companies – businesses operating through other structures (eg trusts) will not benefit
Companies that do not elect to carry back their losses will carry them forward as normal. The Budget does not include any detail on how this measure will operate in practice. Issues to be considered include
At what point is the $5b aggregated turnover considered – the loss making year, the profit making year, or throughout?
Which loss integrity tests (continuity of ownership, same business, similar business), if any, will apply?
What integrity measures, if any, will be introduced to prevent companies being overly aggressive in generating losses to carry back?
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