2020 Budget Tax Loss Carry Back incentives – Plain Speak Summary Table & Notes

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Mark

 Below is a PLAIN SPEAK table & summary of the new “Carried Back” Losses as announced in the Federal Government’s 2020 Budget on 6th October 2020.

“Carried Back” Taxable Loss Refund opportunities  –  until 30 June 2022

  • The Government will allow eligible companies to carry back tax losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in 2018-19 or later years.

 

  • Corporate tax entities with turnover < $5 billion pa can apply tax losses against taxed profits in a previous year, generating a refundable tax offset in the year in which the loss is made. The tax refund would be limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry back does not generate a franking account deficit.

Franking Account Deficit?

 

    • That is, the loss carry-back tax offset cannot > value of past taxes paid that have not already been distributed to shareholders as franking credits via Dividends

 

    • This is designed to avoid the past payment of tax providing a double benefit. This double benefit could otherwise arise because shareholders received an imputation credit in relation to company tax that, because of loss carry-back, the company had effectively no longer paid.

 

  • The tax refund will be available on election by eligible businesses when they lodge their tax returns for 2020-21 and 2021-22 income years.

 

  • Currently, companies are required to carry losses forward to offset profits in future years. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.

 If you would like to know more, the Government Fact sheet link here has excellent explanation with examples (see pages 9-12) https://budget.gov.au/2020-21/content/factsheets/download/tax_fact-sheet.pdf

 

Mark O’Donoghue, Founder & CEO Finlease

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