• Loss carry-back for companies

Loss carry-back for companies

The Federal Government has announced a temporary tax relief by allowing eligible companies to carry-back tax losses made in the 2020 to 2022 income years to offset tax paid on profits from the 2019 income year onwards. This refunding of tax previously paid to the ATO when a loss is subsequently incurred is described as a ‘loss carry-back’.

Currently, if a company makes losses in an income year, it has to wait until it returns to profitability before it can utilise these losses to reduce its taxable income and ultimately, the amount of tax it pays. Companies are able to carry forward tax losses indefinitely and deduct these from their taxable income in future income years, provided they satisfy certain integrity rules. The existing rules do not allow companies to utilise losses to recoup tax previously paid on profits.

We note that the following limitations apply with respect to this measure:

  • Losses carried back cannot exceed earlier taxed profits
  • The carry-back amount must not generate a franking account deficit.

For companies that elect to apply this measure, they will receive a tax refund in the loss making year equal to the tax which has been offset by the losses carried back. 

BDO Comment

Readers may recall that provisions for loss carry-back were legislated in the 2012/2013 income year. However, these rules were subsequently repealed for the 2014 income year onwards.

BDO is pleased that the Federal Government has resurrected this measure, which not only provides tax relief to companies, but corrects the existing asymmetries (albeit temporary) in the tax utilisation provisions where only prior year losses are allowed to reduce future tax profits.