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Loss carry-back for companies

August 2012

The Government has released a discussion paper on the proposed loss carry-back measures announced in the 2012 Budget. These rules are expected to apply from 1 July 2012 and will allow companies to claim a tax offset of up to $300,000 (i.e., $1 million worth of tax paid in a prior year) from the 2012-2013 financial year onwards.

The 2012-2013 year will be a transitional year where companies will only be able to claim a loss carry-back offset for tax paid in the prior year. This means the loss carry-back offset would be limited to the lower of $300,000 or the tax actually paid in the prior year. For all following financial years, the rules will allow companies to claim up to $300,000 worth of tax paid in the 2 years prior.

There are a number of important features of the rules including:

  • The refund of tax would always be limited to the company's franking account balance
  • The rules would apply to revenue losses only
  • The refund of tax would only apply to tax paid in the 2 years prior to the year the refund is claimed

Even though this represents a positive step for small business, taxpayers should be conscious of the increased emphasis on documentation to substantiate losses. It is likely that there will be increased ATO compliance focus around these rules due to the ability to claim a 'cash benefit' in the year of the loss, rather than simply creating a deduction against future taxable income.

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Last updated August 2012. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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