Budget paper 2 contains the not so fine print for how businesses small and not so small can technically use this little feature. Tax Losses generated in 2020, 21 and 22 can be carried back to 2019, 20 or 21 provided that: - the loss does not exceed taxed profits in those prior years - the carry back does not generate a franking account deficit. Taken together, it would appear the measure is quite restrictive, especially if franking credits were utilised to pay out dividends in the period up to when Covid started.
Companies with an aggregated turnover of less than $5 billion will be able to carry back losses from the 2019-20, 2020-21 and 2021-22 income years to offset previously taxed profits in the 2018-19, 2019-20 and 2020-21 income years. Under this measure tax losses can be applied against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The amount carried back can be no more than the earlier taxed profits, limiting the refund by the company’s tax liabilities in the profit years. Further, the carry back cannot generate a franking account deficit meaning that the refund is further limited by the company’s franking account balance. The tax refund will be available on election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns. Currently, companies are required to carry losses forward to offset profits in future years. Under the proposed amendments, companies that do not elect to carry back losses can still carry losses forward as normal. This measure will interact with the Government’s announcement to allow full expensing of investments in capital assets. The new investment will generate significant tax losses in some cases which can then be carried back to generate cash refunds for eligible companies. Note that loss carry-back rules were introduced some years ago by the Gillard government. The rules were repealed and were only operational in the 2012-13 year.
Thanks a lot Mike for the comprehensive response. Is the loss carry back option only available for the businesses operating under company (e.g. pty.ltd) structure or is it available for trusts, partnerships and self- employed people as well?
Thanks Mike for the quick response. Interesting that it is only applicable for the companys. Many small businesses are not operating under company structure, especially farmers and small shops, cafes and take-away places. So many small businesses will miss out.
sole traders definitely get the raw end of the deal. Sole traders missed out on the cashflow boost. They also miss out on most Victorian government grants.
Trusts would be excluded as the trustee has already determined net trust income and it cant be unwound. It raises far too many issues to address. I believe from the explanatory materials that this measure is intended to assist and support businesses that employ staff. This is yet another example of how some small businesses have been excluded as Mike points out. And a very large number that fail "employee / employer" relationships. Even jobkeeper 2 is now very hard for a eligible business participant to register correctly. Its like they are trying hard to stop people and make them think they are ineligible.
