Introduced as part of the 2020–21 federal Budget on 6 October 2020, the loss carry back regime is now law from 1 January 2021.
Loss carry back provides a refundable tax offset that eligible corporate entities can claim in their 2020–21 and 2021–22 company tax returns.
Eligible entities get the offset by choosing to carry back losses to earlier years in which there were income tax liabilities. The offset effectively represents the tax the eligible entity would save if it was able to deduct the loss in the earlier year using the loss year tax rate.
The amount of the tax offset is limited by:
- the corporate entity’s income tax liabilities in the relevant gain years; and
- its franking account balance at the end of the year in which the entity files its tax return claiming the loss carry back tax offset (that is, in the 2020–21 or 2021–22 income year).
If an entity does not choose to carry back a loss, the loss may be carried forward to use in a later income year.
You can claim the tax offset if you:
- are an eligible entity
- made tax losses in the 2019–20, 2020–21 or 2021–22 income years
- had an income tax liability for the 2018–19, 2019–20 or 2020–21 income years
- have met your tax return lodgment obligations.
You are an eligible corporate entity if you are both a:
- company, corporate limited partnership or a public trading trust
- small business entity in the loss year or would have been a small business entity if the aggregated turnover threshold was $5 billion.
To carry back a loss, you need to make a ‘loss carry back choice’ in the current year (loss year) tax return. To check the eligibility of your loss to carry back, please refer to the below ATO’s table:
|Tax liability in the income year
|Tax loss made in 2018–19 or prior income years
|Tax loss made in 2019–20 income year
|Tax loss made in 2020–21 income year
|Tax loss made in 2021–22 income year
|Can carry the 2019–20 loss back to the 2018–19 income year
|Can carry the 2020–21 loss back to the 2018–19 income year
|Can carry the 2021–22 loss back to the 2018–19 income year
|Can carry the 2020–21 loss back to the 2019–20 income year
|Can carry the 2021–22 loss back to the 2019–20 income year
|Can carry the 2021–22 loss back to the 2020–21 income year
Table source: the ATO website
For further information, please visit the ATO website.
Please note that this article is intended to be a general guide only, and should not be seen to constitute legal or tax advice. Where necessary, you should seek a second professional opinion for any legal or tax issues raised in your personal or business tax affairs.