The loss carry-back provisions essentially permit a company to apply current-year tax losses to recover tax paid in prior years.
The tax offset was previously introduced by Labor for the 2012–13 income year, capped at $300,000, but was later repealed in 2014, along with the minerals resource rent tax.
The federal government is now considering introducing a similar provision when it presents its budget on Tuesday, according to reports from The Sydney Morning Herald.
Chartered Accountants Australia and New Zealand, who had called for the introduction of the loss carry-back provision in its pre-budget submission, said it would be easy to implement a measure that previously featured in the Australian tax system.
“The loss carry-back measure has the potential to provide Australian businesses with a soft landing during what are tumultuous economic times and would help many businesses survive until they become profitable again,” said CA ANZ senior tax advocate Susan Franks.
“Implementing such a measure can also be done quickly as loss carry-back legislation has already been drafted and agreed, we just need to tweak it to apply to small business.
“It also won’t be delayed by the establishment of a separate grants administration system as the existing tax system contains all the elements that are required to make this policy successful.”
New Zealand recently introduced a temporary loss carry-back scheme in light of the COVID-19 pandemic, with other countries such as the United States and the United Kingdom also allowing once-profitable businesses to use current losses to offset profits made the year before.
CPA Australia tax policy adviser Elinor Kasapidis said the measure would provide businesses with much-needed cash flow until they became profitable again.
“We support the introduction of a tax loss carry-back as it will provide much-needed cash to businesses who have lost money due to COVID-19. This is an idea that has been on the table for a long time and is being used by other economies to aid their recovery,” Ms Kasapidis said.
“Ideally, we would like to see the government lower the corporate tax rate to not only increase cash flow but also enhance Australia’s international competitiveness.”
Likewise, Australian Small Business and Family Enterprise Ombudsman Kate Carnell welcomed the proposal.
“This is a tax initiative that would result in tangible benefits for small businesses that would have otherwise been profitable if not for harsh trading restrictions and lockdowns,” Ms Carnell said.
“While we haven’t seen the detail on this proposal as yet, the OECD is recommending Australia introduce the loss carry-back provision to mitigate the damage inflicted on businesses that were previously profitable.
“Generally speaking, the federal government has an opportunity to implement tax reforms now that will support the small-business sector grow and hire to restart the economy.”
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.