Temporary Company Loss Carry Back Offset Rules

This article was originally published October 2020, and updated September 2022.

As part of the Federal Government’s COVID-19 business rescue response aimed at encouraging business investment, the Government introduced legislation that allows for the temporary loss carry back offset rules. These rules only apply to corporate tax entities which include companies, corporate limited partnerships and public trading trusts.

Company loss carry back offset rules

The rules for the temporary loss carry back refundable tax offset are detailed and complex. Under these rules, a corporate tax entity with an aggregated turnover of less than $5 billion can choose to carry back a tax loss for the 2019‑20, 2020‑21, 2021‑22 or 2022-23 income year and apply them against tax paid in a previous income year as far back as the 2018‑19 income year. To receive a tax refund, eligible companies will need to make a choice when they lodge their 2020-21, 2021-22 and/or 2022-23 income tax returns. If the loss carry back is being claimed for the 2019-20 income year the claim must be made when lodging the 2020-21, 2021-22 or 2022-23 tax return i.e. for 2019-20 losses the company must wait at least a year before getting the refund.

The choice to claim a loss carry back tax offset is an alternative to carrying tax losses forward as a deduction for future income years. Note that, only tax losses can be carried back. Capital losses cannot be carried back.

Note: The loss carry back rules are temporary and will cease to apply after the 2022‑23 income year.

Entitlement to loss carry back tax offset

A corporate tax entity will be eligible for loss carry back in a particular income year only if the entity:

  • was a corporate tax entity throughout that income year;
  • carried on a business and had an aggregated turnover of less than $5 billion in the income year that the entity incurred the loss; and
  • was a corporate tax entity throughout the income year the loss is carried back to (disregarding any part of the year before the entity came into existence) and throughout any intervening income years.

In addition, to be entitled to a loss carry back tax offset, a corporate tax entity must have lodged an income tax return for the current year and each of the five years immediately preceding it (if it was required to do so in those years). For a year where an entity is not required to lodge a return for the loss year, the entity will still be entitled to the loss carry back tax offset.

Amount of loss carry back

The amount of the refundable tax offset available to a corporate tax entity is based on the entity’s tax rate in the loss year. However, the amount cannot exceed:

  • the amount of earlier tax paid by the entity; and
  • the entity's franking account balance at the end of the income year for which the refundable tax offset is claimed.

For an entity that is not a base rate entity for the loss year (i.e. entities with aggregated turnover of $50 million or more), the corporate tax rate in the loss year will be 30%. However, for base rate entities the tax rate in the loss year will vary depending on the loss year:

  • if the loss year is the 2019‑20 income year – tax rate is 27.5 per cent;
  • if the loss year is the 2020‑21 income year – tax rate is 26 per cent; or
  • if the loss year is the 2021‑22 income year – tax rate is 25 per cent.

The maximum amount of a corporate tax entity’s loss carry back tax offset for an income year will be limited by the surplus balance of its franking account at the end of that income year. When the entity receives a refund of tax as a result of the loss carry back tax offset, there will be a debit in the corporate tax entity’s franking account on the day the refund is received. Note that the franking credit in relation to the tax previously paid is not affected but care must be taken to ensure the debit arising from the refund does not put the franking account into deficit e.g. where there has been other debits to the franking account between the end of the loss year and the time of receiving the refund.

Choice and timing of loss carry back

The choice to carry back losses is optional and mirrors the existing choice companies have about whether to deduct their tax losses (i.e. how much of its loss for the current year to carry back to an earlier year). The choice must be made by the time the entity lodges its income tax return for the current income year, or within such further time as the Commissioner allows.

Tax losses not used for loss carry back in the current income year are available to reduce any taxable income in that income year or in a future income year, according to the usual rules for deducting prior-year losses in Division 36.

Integrity and other rules

The loss carry back provisions include integrity rules that are consistent with the integrity rules which applied under the previous loss carry back rules that applied in Australia in 2013.

Note that, tax consolidated groups and MEC groups are not eligible to apply the loss carry back rules in respect of losses that have been brought into the group by an entity joining the group.