Loss Carry Back

Ben White | 16 October 2013

Immediate Action Required

On 28 June 2013, a new regime was passed into law which allows a company to ‘carry back’ a tax loss up to two previous tax years and claim a refundable tax offset in the year of the loss, providing a cash refund and a much needed boost.

This means that under certain circumstances a company who has made a loss in the current year, rather than carry that loss forward to reduce future income tax liabilities, can ‘carry back’ the loss and obtain a cash refund on tax paid in the prior year.

Who is Eligible?

Originally planned as a boost for small businesses, struggling in a slowing economy, the regime has been introduced available to all companies – large and small. The loss carry back measures are only available to corporate entities – that is companies broadly speaking. They are not available to individuals or other entities.

What’s the Catch?

There are a number of criteria which must be satisfied to be able to access this carry back in the 2013 income year (being the first year the benefit is available):

  1. The company must have had taxable income and an income tax assessment in the 2012 income year. As such, this will not be available to start-ups and those generating ongoing losses.
  2. The maximum amount of loss carry back credits is $300,000 – ie a taxable loss of $1 million.
  3. The offset cannot exceed the franking account balance at the end of the 2013 income year.
  4. The offset cannot exceed the tax liability from the 2012 income year.
  5. Only tax losses (ie. revenue losses) are eligible for carry back - capital losses cannot be carried back.

As 2013 is the ‘transitional year’, the rules allow the carry back of one income year. As such, the periods would be slightly different for the 2014 income year.

Update: Coalition Announcement

Prior to winning the election, and with the ink still drying on the bill, the Coalition government announced its intention to discontinue the loss carry back regime.
At the time of publication of this article, the Coalition has not specified when it intends to withdraw the legislation which is currently in operation. The Coalitions policy costings document released prior to the election would appear to suggest that the removal of these loss carry back measures will have effect from the 2015 year (i.e. 2013 and 2014 may be the only years a company can claim Loss Carry-Back Tax Offset).

Immediate Action Required

Regardless of politics, if you are eligible, it is important for you to consider taking advantage of this claim now and claim the maximum possible Loss Carry-Back Tax Offset in your company’s 2013 income tax return. Otherwise you risk having to wait for future profitable years to claim this cash back.

For more details on eligibility and whether you may be able to take advantage of this scheme – contact one of our Motor Industry Specialists today.

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