The temporary loss carry back measure from the recent Federal Budget currently works as follows:

 

  • Eligible to corporate tax entities only who have an aggregated turnover of less than $5 billion
  • Allows them to carry back a tax loss for the 2020, 2021 or 2022 income year and apply it against tax paid in a previous income year as far back as the 2018-19 income year.
  • It is a choice, you otherwise can continue to carry forward tax losses as you could before.
  • The loss carry back is a refundable tax offset, effectively providing a loss company with a cash refund for the tax that was paid in a prior year(s). This is capped at the entity’s tax liability for the prior year and the franking account balance at the end of the year in which the offset is claimed
  • Because it is an immediate refund it seems logical you would carry back the loss rather than wait or risk losing the loss.
  • A choice to carry-back losses must be made by the day on which the company lodges its tax return for the year in which the offset is claimed, likely a form on the tax return will be available.

 

2 issues have been identified:

  1. The cash assistance from this measure is not immediate, you need to wait until you lodge your 2020-21 and 2021-22 tax returns. So if your P/L made a Loss in 2020 and you paid tax in the 2018-19 year, you will want to claw that back in the 2019-20 return but you won’t be able to until at least July next year, unfortunate from a cash flow perspective.
  1. Only Companies (P/L, corporate tax entities) receive it, a significant amount of other small business non-corporate entities such as sole traders, partnerships and trusts do not.

Great but not perfect šŸ™‚

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