Designed to provide temporary cashflow support to companies that were in a tax paying position but now have a tax loss due to COVID-19 or faster deductions under the new instant asset write-off and full expensing measures. Corporate tax entities with ‘aggregated turnover’ of up to $5 billion can choose to ‘carry-back’ tax losses made in the 2020FY, 2021FY, and 2022FY against tax paid for 2019FY or later.
The offset is limited to tax losses up to the 2019 financial year and it cannot be claimed until lodging the 2021 or 2022 tax return. There is no specific limit to the amount of losses that can be offset, however, you can only claim the amount of tax paid the previous financial year and capped at the amount of the franking account surplus at the end of the year.
Unfortunately, there is no loss carry-back relief for individuals or other entities (Trusts) but Accounting bodies are recommending a change so that individuals and other entities have access to the same rules.
The rules are flexible, and you can choose to carry-back the losses or keep them to apply them forward. If the company had taxable income in any of the prior years, then you can choose to apply. Companies with losses in both 2019 and 2020 will not be able to apply as there is no taxable income to offset.
Carrying losses back has its own downfalls and limitations, including the impact on the franking account and the ability to pay franked dividends in the future.
Only tax losses are eligible to be offset, capital losses, foreign losses transferred, consolidated losses from a joining group, or losses because of excess franking credits, are not eligible.
There are several integrity and anti-avoidance rules that apply, one of them is that the company must have lodged its income tax returns for the loss year and for each of the five preceding years (where it was required to do so). Losses, of course, can only be "utilised" once. Consequently, a decision has to be made prior to lodgement.
If you are considering the offset and are not sure if you are eligible or where does your company stand, contact Link Advisors today.