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Company Loss ‘Carry-Back’ Scheme

Currently, businesses are able to carry forward tax losses to offset future taxable income and reduce future tax liabilities.

Subject to meeting eligibility requirements, the new initiative will allow businesses to also carry back their tax losses to offset past taxable income and get a refund of income tax previously paid.

The measures apply to revenue losses only and are intended to assist companies experiencing temporary difficulties resulting in a period of losses following a period of profit. Similar regimes exist in various international tax systems.

A one-year loss carry-back will apply in 2012-13, where tax losses incurred in that year can be carried back and offset against tax paid in 2011-12.

For 2013-14 and later income years, tax losses can be carried back and offset against tax paid up to two years earlier.

Losses of up to $1 million can be carried back for each year, providing a cash benefit of up to $300,000 but limited to the balance of a company’s franking account.

The government has recently released Exposure Draft Legislation for comment and the regime is expected to apply from 1 July 2012, subject to the passage of relevant legislation.

We will update you regarding the progress of legislation in subsequent newsletters.

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written by:

McKinley Plowman