Loss Carry-back Provisions – what does it mean?

Neil McDonald

From 1st July 2012 the ATO has introduced the “loss carry-back provisions” for corporate entities. This means that where a company makes a loss in the year ended 30th June 2013 or a later year, the company may be entitled to claim a refund of tax paid in an earlier year. This refund of tax is known as a “loss carry-back tax offset”.

For the year ended 30th June 2013 a company will be able to carry-back a loss for one year (i.e. to the year ended 30th June 2012). For the year ended 30th June 2014 and subsequent years a company will be able to carry-back the loss for a maximum of two years.

The amount of the loss carry-back tax offset is limited to the amount of the tax liability for the year that the loss is carried back to. A maximum of $1 million in revenue losses can be carried back. This equates to a maximum refund of tax previously paid of $300,000, based on the current company tax rate of 30%. The amount of tax will be further limited to the amount of the company’s franking account balance at the end of the year a claim is made.

If a company has net exempt income for the year then current year losses must be reduced by the amount of the net exempt income before calculating the amount of the loss to be carried back.

A revenue loss that is carried back will not be available to be carried forward and deducted against income derived in future years.

There are three types of losses that cannot be carried back:a) Capital losses; 
b) Losses transferred between members of a consolidated group; 
c) Excess franking offsets converted into a tax loss.

The election to claim a loss carry-back tax offset is made in the company income tax return.

Please contact your LBW Chartered Accountants representative for further assistance where required.

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