Companies with turnover of up to $5 billion will now be able 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 income years.
Announced in the federal budget on Tuesday, the temporary loss carry-back provision will be available on election by eligible businesses when they lodge their 2020-21 and 2021-22 tax returns.
The tax refund will 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.
Around 1 million companies employing up to 8.8 million workers are expected to be eligible for the loss carry-back, with the temporary provisions costing the government $4.9 billion.
Treasurer Josh Frydenberg said the measure would help improve cash flow for previously profitable businesses that are now finding themselves in a loss position.
“Through no fault of their own, millions of small and medium sized businesses have faced lockdowns and restrictions that have severely impacted their ability to trade,” said Mr Frydenberg.
“COVID-19 has turned fundamentally sound businesses into loss making businesses.
“Normally, businesses would have to return to profit before they can use these losses, but these are not normal times.”
The introduction of a loss carry-back scheme comes after Labor first introduced the measure for the 2012–13 income year, capped at $300,000, but it was later repealed in 2014, along with the minerals resource rent tax.
CPA Australia tax policy adviser said the measure would be welcome news for businesses suddenly facing a loss due to the global pandemic, and urged the government to consider making it a permanent feature of the tax system.
“It would be interesting to see the take-up and its impact because this is something that other jurisdictions have as a permanent feature,” said Ms Kasapidis.
“While the government has said it is temporary, I think it is a really good opportunity at the end of the period to assess whether we should make it more permanent.”