Tax planning and carry-back loss provisions – Are you eligible?

In the 2020-2021 Federal Budget, the government introduced a temporary loss carry back measure. It can be confusing to decipher what this might mean for you and your business. According to the ATO, the loss carry back tax offset allows eligible entities to carry back losses to earlier years in which there were income tax liabilities. The offset effectively represents the tax the eligible entity would save if it was able to deduct the loss in the earlier year using the loss year tax rate. As it is a refundable tax offset, it may result in a cash refund, a reduced tax liability or a reduction of a debt owing to the ATO.

 

This measure will be relevant to you if:

  • You are a company, corporate limited partnership, or a public trading trust, and
  • Your aggregated turnover is less than $5 billion, and
  • Across the four years from 2019 to 2022 financial years, you have (or expect to have) one or more tax loss years occurring after one or more years in which income tax was paid
Under the temporary loss carry back provisions, a corporate tax entity is able to make the choice to accelerate the utilisation of their tax losses by carrying it back to an income year in which the entity had an income tax liability. Where an entity chooses to apply these rules, a refundable tax offset will be available in either the 2021 or 2022 financial years. This refundable offset, however, is limited to the lesser of the income tax liability paid by the entity, and the balance of the corporate franking account at the end of the claim year. It is hoped that this refundable tax offset will alleviate the cash flow pressures faced by many businesses as a result of the COVID-19 global pandemic
 
Should you feel that the above provisions may apply to you, we recommend that you reach out to us to discuss the possibility and consequences of claiming this tax offset in your 2021 Income Tax Return.
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