Loss Carry-Back for Companies

Last year’s Federal Budget included a temporary loss carry-back measure.

On 9 October 2020, the Government passed this into law.

Under the temporary loss carry-back measure, a corporate tax entity (mainly companies) is able to choose to carry back income tax losses (but not capital losses) to prior years.

Broadly speaking, the rules apply to corporate tax entities that:

• Have aggregated turnover of less than $5 billion in the relevant loss year
• Incurred a tax loss in any of the 2019-20, 2020-21 or 2021-22 years (referred to as loss years) and
• Have an “income tax liability” for any of the 2018-19, 2019-20 or 2020-21 years (referred to as tax liability years)

If the criteria is met, a refundable tax offset will be available in either the 2020-21 or 2021-22 years.

That is, even though a tax loss in the 2019-20 year may generate a tax offset, that offset will only be able to be claimed in the 2020-21 or 2021-22 years.

Consequently, the earliest that the offset would become available is upon lodgement of the tax return for the 2020-21 year (after completion of the 2020-21 year).

All told, companies – like other business structures – may have been hard hit during the COIV-19 downturn in the economy over the past year. This measure may provide your business with some tax relief.

Full coverage of this new law will be provided in our next bi-monthly magazine.