What is the loss carry-back?

In 2020, Treasurer Josh Frydenberg said that COVID-19 had turned “fundamentally sound businesses into loss-making businesses” and they should not have to wait to return to profitability to use those losses. In order to keep their workers, the tax system was temporarily changed to allow businesses to balance losses immediately instead of waiting until the following year.

Before measures were introduced in 2020 to allow loss carry-back, companies were only able to carry forward losses. This allowed companies who made a loss in the present year to balance the loss against profits in future years to reduce tax.

The loss carry-back was a measure in response to COVID-19 to allow companies to carry back losses over the coming years to offset previously taxed profits. Eligible corporate entities with less than $5 billion turnover in a relevant loss year can carry back losses made in the 2019–20, 2020–21 and 2021–22 income years to a prior year’s income tax liability in the 2018–19, 2019–20 and 2020–21 income years.

How does the loss carry-back help me?

The loss carry-back allows companies with a turnover of less than $5 billion to offset taxed profits. This threshold means that most Australian businesses will be able to access the scheme. Companies can do this through electing for the refund when lodging future returns. The measures help to keep businesses that are generally profitable but have been impacted by COVID-19 in the short to medium term.

Importantly there is no cap on the amount of offset that can be claimed except that it cannot be higher than the amount of tax paid in relation to previous years.

What is new in the 2021-2022 federal Budget?

The loss carry-back measure was due to expire on 30June 2022 but will now continue for another 12 months until 30 June 2023. This extends the period that businesses can gain earlier access to the tax value of losses, without having to wait until the company turns a profit again.