What are the loss carry back rules?
In June this year the Parliament passed a law which allows a company to “carry back” up to $1M in current year losses against profits in the previous years. This equates to a potential tax refund of up to $300,000 which is very significant for an SME entity which paid tax in previous years but are finding themselves in a loss position due to the ongoing “patchwork economy”.
Details of the rules
- The loss carry back regime operates as a refundable tax offset, effectively providing a loss company with a cash refund for the tax that was paid in prior years
- Starts from the 2012-2013 income year
- A company that is in losses for the 2012-2013 year and has paid tax in the 2011-2012 year can receive a refundable tax credit of 30% of the loss. The refund cannot exceed the 2011-2012 year tax paid
- From the 2013-2014 year onwards, a company in losses can receive a tax offset for tax paid in the preceding two years
- The amount of tax offset each year cannot exceed the lower of: (i) tax paid in the applicable prior years, (ii) $300,000 and (iii) the company’s franking account balance
- Only available to corporate tax entities – meaning sole traders and most trusts and partnerships are ineligible
- Only applies to tax losses. Capital losses and losses transferred to a tax consolidated group are ineligible
- Not limited to small businesses
- A company can choose this regime or the existing loss carry forward regime. Azure Group feels that the loss carry back regime is more attractive because companies receive the cash refund earlier and do not need to be concerned with the usual carry forward loss testing rules.
Please contact Azure Group’s tax advisors at ourteam@azuregroup.com.au should you wish to receive more information on how to best utilise the new rules.
This article is intended to provide general information only, and is not to be regarded as legal or financial advice. The content is based on current facts, circumstances, and assumptions, and its accuracy may be affected by changes in laws, regulations, or market conditions. Accordingly, neither Azure Group Pty Ltd nor any member or employee of Azure Group or associated entities, undertakes responsibility arising in any way whatsoever to any persons in respect of this alert or any error or omissions herein, arising through negligence or otherwise howsoever caused. Readers are advised to consult with qualified professionals for advice specific to their situation before taking any action.