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The treasurer has announced that eligible companies will be allowed to carry back tax losses from the Financial Years ending 30 June 2020, 2021 & 2022 to offset profits previously taxed in the Financial Years ending 30 June 2019 or later.

Currently, companies are required to carry tax losses forward to offset future taxable income.  This measure allows companies to apply current year losses against previous year profits and obtain a refund for previous taxes paid.  Therefore, if your previously profitable company is now making losses you can apply these losses against previous profits in the 2020-2021 or 2021-2022 Company Tax Return to receive a cash refund of taxes paid in prior years.

Important Conditions:

  • The company must be carrying on a business and its aggregated turnover must be less than $5 billion.
  • Companies that do not elect to carry back losses can still carry forward losses to offset future profits as per current law.
  • The maximum amount you can carry back is the amount which reduces previous profits to nil (subject to the next condition concerning the company’s franking account balance).
  • The carry back amount, if it results in a tax refund, cannot generate a franking account deficit.
  • This refundable tax offset will not be available until the 2021 & 2022 Income Tax Years, meaning that the earliest time it can be utilised and converted into a refund is July 2021.

The ability to carry back losses will still be subject to the normal rules governing the use of historical losses by companies (e.g. continuity of ownership or same/similar business being conducted), with an additional integrity rule introduced to counter deliberate schemes entered into by companies involving new shareholders obtaining the benefit of carry back tax losses.

Please contact one of the staff members at The Macro Group if you wish to further discuss this measure or if you feel it may be applicable to your circumstances.

Date published: 8 October 2020

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