Author: Wendy Waack, Partner, TAG Financial Services
As it is coming up to tax planning time for businesses, it is a good time to consider whether you can take advantage of the 2020 Budget announcement that will allow the carry back tax loss rules similar to previous carry back loss rules.
Who can take advantage of these conditions?
Eligible companies with turnover of less than $5 billion turnover in the relevant loss year.
We note that the following limitations apply with respect to this measure:
- Losses carried back cannot exceed earlier taxed profits.
- The carry-back amount must not generate a franking account deficit.
- The rules apply to revenue losses only.
- Tax losses can only be carried back to the 2018/19 financial year.
This is a choice that can be made at the time of lodgement of the 2021 income tax year. The choice is optional, but it should be noted that carry forward losses are subject to the integrity rules of change of ownership and business conditions. If considering a change in structure this could result in a use of franking credits prior to sale of change.
What occurs?
The business can carry back their losses for the year ended 30 June 2021. Companies can claim the refundable tax offset in their income tax returns for the year ended 30 June 2021 and 30 June 2022.
How does this help your business?
Basically, businesses that have tax losses do not have to wait for a future profit to gain some benefit. The business can claim back income tax paid in the previous years subject to qualifying conditions.
The COVID-19 situation may have had an impact on your business for the last quarter of financial year 2020 but this year may have still resulted in a profit. For the financial year 30 June 2021, if there is a loss the tax office is allowing you to claim part of the tax paid for the 2020 financial year. With the concessions allowed for asset purchases for the 2021 year a loss could be created from a strategic purpose.
Yes, this is a timing event, but it has an important impact on cash flow. Cash flow could be assisted from past tax paid!
What do you need to do?
It is more important than ever to have an interim review with us to review your financial position and engage in strategic planning to ensure you are in the right place to take advantage of the new rules.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).