Loss Carry Back for Company’s
On the 6 October 2020 and as part of the 2020-2021 Budget, the government announced that it will be allowing companies to roll back tax losses.
What does that mean? Well, the existing rules say that if your company makes a tax loss in a given year, that you can only offset this loss against a future years profit.
Now that has all been temporarily changed so that if the company makes a tax loss in the financial years 2019–20, 2020–21 and 2021–22 you can carry the loss back to use against an income tax liability in the 2018–19, 2019–20 and 2020–21 financial years.
Let’s give a practical example of how this will work. Say your company made $100,000 loss in the 2020 financial year, but the company made a profit of $200,000 in 2019. You can reduce your 2019 income by $100,000 (carry back the loss). If you’re a small business, you’ll get $27,500* as a tax refund.
*The amount of refund will be limited to the income tax liability in the relevant gain year and the companys franking account balance at the end of the year which the company files its tax return (the 2020–21 or 2021–22 financial year).
This regime will only start from when you lodge the 2021 tax return. This may have something to do with the ATO needing to upgrade their computer systems and tax return layout to accommodate this carry back loss feature.