Update on loss carry-back provisions

These provisions seek to allow a company to carry back losses incurred in the current income year to be offset against taxable income from previous years.  This will allow companies to access their tax losses sooner, effectively relieving pressure on businesses operating in today’s patchwork economy. 

The key features of this regime include:

• Companies will receive a refundable tax offset for the losses chosen to be carried back
• The tax offset will be the lowest of the following amounts:
  The tax payable on $1 million of taxable income ($300,000 at a 30% tax rate)
  The franking account balance at year end
  The tax value of the amount of losses chosen to carry back; and
  The tax liability for the income year(s) the loss is carried back to
• The ability to carry back losses two years preceding the current income year

Loss carry-back will be available for the 2012/13 income year. However, as a transitional measure for the first year, companies will only be able to carry back losses to the 2011/12 income year.  There is an incentive for taxpayers to lodge income tax returns as soon as possible given the refundable tax offset that is available.

These changes are a welcome relief for many businesses, especially those operating in the SME space where relief from the changing economy has been minimal.  However the loss carry back provisions are fairly limited in their scope in comparison to other jurisdictions given the two year time limit and $1 million threshold.