Date posted: 7/10/2020

Australian Federal Budget 2020-21 - Loss carry back scheme to apply back to 2018-19

In a further boost for business eligible companies will be able to offset losses against previously taxed profits.

In Brief

  • Eligible companies are permitted to carry back losses from three financial years
  • Losses can be offset against tax profits in 2018-19 or later income years
  • Available for companies with aggregated turnover of less than $5 billion

Corporations will be permitted to apply tax losses against taxed profits in a previous year.

(Note this policy does not apply to other business structures such as partnerships, trusts or sole proprietors.)

The policy objective is to generate a refundable tax offset in the year the loss is made.

The refund will be limited so that the amount carried back is not more than earlier taxed profits, and the carry-back cannot generate a franking account deficit. In other words, the impact on the company’s franking account will be a key consideration.

Companies with aggregated turnover of less than $5 billion will be able to elect to access this option when they lodge their 2020-21 and 2021-22 tax returns. Companies that elect not to use this carry back policy will offset losses under the current policy.

Why this policy?

The government says that this policy will provide cashflow support for previously profitable businesses that have fallen into a loss situation because of the COVID-19 economic downturn.

The government points out that companies could elect to access this policy by making use of instant asset write-offs.

Budget Paper No. 2

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