Support for business – refundable tax offset under the temporary loss carry back arrangement

|by Caitlin Fruk|Business Advisory

The economic impacts of COVID-19 and the implementation of the government’s tax relief measures, including the temporary full expensing, will likely see an increase in tax loss positions for many SME’s.

From 1 January 2021 eligible corporate entities that generate an overall tax loss will be entitled to claim a refundable tax offset by carrying back these losses and applying them to taxable profits earned in a year where a tax liability was incurred (ITAA 1997 Section 160-1).

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The government announced that it will extend the measure until the 2022-2023 as part of the 2021-22 federal budget (Budget Paper No. 2) however this is not yet law.

To apply the offset a ‘loss carry back choice’ must made in the year in which the offset is intended to be claimed. It is not mandatory for the loss to be claimed in the succeeding year and can be carried forward. A loss can also be carried back over multiple years.

It is important to note that the he offset will be limited to the taxpayer’s surplus franking account balance at the end of year in which it is making the claim (ITAA 1997 Section 160-15(b)) to ensure there is no inadvertent double-dipping of franking credits. The offset will only be made available to entities with a turnover of less than $5 billion and losses will be capped at $1,000,000.

If you would like further guidance in relation to these measures please feel free to contact our office.

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