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The Government will allow eligible companies to carry back tax losses from the 2020, 2021, or 2022 income years to offset previously taxed profits in 2019 or later income years. The effect of this will be to generate a refundable tax offset and will first be available when lodging the 30 June 2021 tax return.
Currently, companies are required to carry losses forward to offset profits in future years. The new (temporary) loss carry-back measure is designed to promote economic recovery by providing cash flow support to usually profitable companies that have experienced losses due to COVID-19 and other economic factors. Some finer details of this initiative:
- Corporations with an aggregated turnover of less than $5 billion can apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made.
- The offset will be limited to the lower of
- Tax paid in the respective years; and
- The extent of franking credits available
- The tax refund will be available on election by eligible businesses when they lodge their 2021 and/or 2022 tax returns.
Please note that access to the benefits from this concession will not be available until you lodge your 2021 tax return. So even though we believe it is a valuable concession, we would suggest this will not provide immediate stimulus to the economy.
In our opinion you will need to get individual advice regarding this concession, because every business structure and position is different. This is especially so where your group structure includes trusts, as they are not covered by this concession.
In the 2019 financial year:
- Company has lodged a return for 2019 year with $100,000 of taxable income.
- Tax payable in this year (assuming 30% tax rate) was $30,000.
In the 2020 financial year:
- Company makes a tax loss in this year of $60,000.
- The Company can choose to offset the 2020 loss against the 2019 profit. This would result in a refund of $18,000 upon lodgement of the 2020 year.
Tax and tax planning can be a complicated and evolving process – it’s important to have an accounting partner who knows the game, is across all legislation and understands your situation and what you want to achieve. If you would like to know more about our tax planning services and how you could reduce your tax exposure, please call our office on (08) 8172 1444 or email our friendly team.