Various tax and income support measures are in place to support individuals and business taxpayers to weather the impact of the COVID-19 outbreak. One of those tax changes is the temporary loss carry back for corporate tax entities.
In general, the temporary loss carry back rules allow eligible entities to offset tax losses incurred during 2019/20, 2020/21 or 2021/22 income years against profits made in or after the 2018/19 income year to generate a refund. This legislation is intended to interact with temporary full expensing, encouraging new investment which may result in tax losses. And the choice to carry back tax losses may result in a tax refund which will increase business cash flow. If an entity does not choose to carry back a loss, the loss may be carried forward to use in a later income year.
A corporate entity is an eligible entity if the entity:
- is a company, corporate limited partnership or a public trading trust
- throughout the income year that it is claiming the tax offset
- the income year the entity chooses to carry the loss back to (ignoring any part of the year before you existed)
- any income years in between; and
- has an aggregated turnover of less than $5 billion for the income year in which the entity made the loss (or the income year before that year); and
- carries on a business.
The eligible entities also need to meet the following requirements to be able to choose whether to carry back the loss:
- The entity made tax losses in the 2019–20, 2020–21 or 2021–22 income years; and
- The entity was liable to pay income tax in the 2018–19, 2019–20 or 2020–21 income years; and
- The entity has a surplus in its franking account at the end of the income year that it is claiming the tax offset; and
- The entity has met its income tax return lodgement obligations.
The legislation will apply to assessments made in the 2020-21 and 2021-22 income years, so the company can only claim a refund on a 2019/20 income year tax loss when lodging its 2020/21 income tax return.
The amount of loss carry back offset is affected by the amount of previous year net exempt income, previous year income tax liabilities and the surplus in entity’s franking account.
If you would like to find more about the tax loss carry back regime, please do not hesitate to contact our office.