Tax and losses

Article by
Philip Martin
PMCA
November 2020

If you made a loss this year, you might be able to claim a refund on previous taxes paid.

The federal government announced a new “loss carry back” rule in the 2020–21 Federal Budget.

If your business turned over less than $5bn and made a loss, you could claim against tax you previously paid on profits.

If your company qualifies, tax losses since 2019–20 can either be:

  • carried forward and deducted against income derived in later income years (as has previously been the case); or
  • carried back against income of earlier income years as far back as 2018–19, creating a tax offset refund.

Who qualifies?

As well as turning over less than $5bn (which is most of us), this loss carry back option is available if your company:

  • is a corporate tax entities (e.g. companies, public trading trusts, corporate limited partnerships), not sole traders;
  • has lodged the previous 6 annual tax returns (if required to do so);
  • has a tax loss in one or either of 2019–20 and 2020–21; and
  • has a tax liability (i.e. tax payable) in one or either of 2018–19 and 2019–20.

Those with long memories might recall that a similar carry-back rule was introduced by the Gillard government in 2012, before later being repealed.

Claiming the carryback offset

Firstly, it’s worth noting that it’s not mandatory for businesses with losses to use the carry back option. Carrying losses forward to use against future profits is still an option. The trick for many businesses will be to work out which option is best. This will be a balancing act involving pre-COVID-19 profits, current cashflow and future earnings potential.

This isn’t always easy to work out, and is one of the aspects to this new rule that we at PMCA can help you figure out.

To actually claim the carry back option, you need to do it as part of your tax return. If you made a loss in 2019–20, you can’t claim against it until you lodge either your 2020–21 or 21–22 returns. The year you choose to make the claim will really come down to whether you’ll make a loss in the 2020–21 income year. If you will, then you need to wait until the following year’s return to carry back your claim.

Note that the amount carried back can’t be more that the previously taxed profits. Any refund is limited to your tax liabilities in the years you made a profit. In short, you can’t claim back more than you’ve already paid.

Invest now to take advantage

In the 2020–21 Federal Budget the government made another announcement designed to intersect with this carry back offset policy: companies would be able to immediately expense investment in capital assets. The idea here is to provide cash to stimulate business growth further following the pandemic-led downturn in many sectors.

If you have any questions, feel free to get in touch. We’re happy to help

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained. We are here to help, contact us today:

Philip Martin Chartered Accountant
Phone 1300 744 547 | Web pmca.com.au | Email philip@pmca.com.au
Level 9, 440 Collins Street, Melbourne, Vic 3000

It works like this: If your company invests in capital assets, it can immediately expense it, and thereby record a loss. That loss can then be carried back against past tax payments, generating a refund that could be significant.

Talk to an expert

There are many considerations when determining whether to use this new carry-back rule, when to use it, and whether to tie it to capital investment.

Philip at PMCA has decades of experience in tax matters affecting SMEs and can work with you to determine the best course of action for your company. Contact us today.

Carry back or forward? We can help you make the right decision.

Ready to get on top of your tax and accounting?

Philip Martin can change the culture of your business to ensure independent financial strength.
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What’s a Rich Text element?

The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.

Static and dynamic content editing

A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!

How to customize formatting for each rich text

Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.

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What’s a Rich Text element?

The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.

Static and dynamic content editing

A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!

How to customize formatting for each rich text

Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.

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What’s a Rich Text element?

The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.

Static and dynamic content editing

A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!

How to customize formatting for each rich text

Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.

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