Date posted: 11/05/2021 3 min read

Australian Federal Budget 2021-22 - Loss carry-back extended for a year

The Budget recognises that take-up of tax breaks has been difficult for some eligible businesses

In brief

  • An additional year granted for claiming temporary full expensing and temporary loss carryback
  • Legislation must be enacted to implement the extension

The rumours were true: the Federal Budget has extended by one year the availability of two important COVID-19 tax-stimulus measures:

  • Temporary full expensing, and
  • Temporary loss carryback

What's the current law?

Under existing income tax law:

  • For full expensing – eligible businesses can deduct the full cost of eligible depreciating assets (turnover or expenditure tests apply, depending on the size of the business). An opt-out mechanism applies if the entity does not wish to claim full expensing. Temporary full expensing ceases to apply on 30 June 2022.
  • For loss carry-backs – companies that have an aggregated turnover of less than $5 billion in the loss year can choose to carry back tax losses incurred in the 2019-20, 2020-21 or 2021-22 income years to earlier, profitable tax years (but not before 2018-19) to generate a refundable tax offset. The offset amount is limited by reference to the company's current year franking account balance.

What's the proposed Budget change?

The Budget recognises that take-up of these temporary tax breaks has been difficult for some eligible businesses. For example, full expensing may be of little relevance currently for a business experiencing cashflow or financing difficulties, or whose capex decisions involve long lead-times.

The Budget recognizes that take-up of these temporary tax breaks has been difficult for some eligible businesses.

So, the Budget proposes that:

  • For full expensing – Temporary full expensing will be extended to allow eligible businesses with aggregated annual turnover or total income less than $5 billion to deduct the full cost of eligible depreciating assets of any value acquired from 7.30pm on 6 October 2020 (the original announcement date) provided the assets are first used or installed ready for use by 30 June 2023.
  • For loss carry-backs – The extension will allow eligible companies to carry back tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year.

CA Budget Conversation Starters

  • For full expensing:
    • Identify eligible clients whose ability to claim temporary full expensing has been constrained (e.g. because of cashflow problems, difficulty in obtaining finance, or delays in constructing or importing eligible depreciating assets)
    • Discuss whether budgets could factor in temporary full expensing up to and including the income year ended 30 June 2023
    • Model whether a successful claim for temporary full expensing could also trigger a tax loss, thereby attracting eligibility for the extended loss carry-back offset (see below). The two measures are deliberately designed to operate in tandem.
  • For loss carry-backs:
    • Identify companies whose recovery from COVID-19 (or on-going adverse business or industry circumstances) are likely to see them in tax loss in 2022-23
    • Identify companies whose investment decisions – especially capex expenditure eligible for extended temporary full expensing (see above) – may trigger tax losses in the 2022-23 income year
    • If these companies had profitable years from the 2018-19 income year, model the potential benefits of claiming the loss carry back offset and factor the cashflow benefits into future cashflow projections

2021 Budget announcement

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ATO current guidance on temporary full expensing

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ATO current guidance on temporary tax loss carry-backs

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