Businesses looking to utilise the temporary loss carry-back provisions have been reminded that they will have to wait until at least the second half of next year to do so.
Loss carry-back sleeper issue ‘not ideal for cash flow’
The temporary loss carry-back measure, announced in the federal budget, currently allows corporate tax entities with an aggregated turnover of less than $5 billion to carry back a tax loss for the 2020, 2021 or 2022 income year and apply it against tax paid in a previous income year as far back as the 2018–19 income year.
Despite the measure covering losses from the 2019–20, 2020–21 or 2021–22 income years, eligible companies can only elect to receive a tax refund when they lodge their 2020–21 and 2021–22 tax returns.
The Institute of Public Accountants general manager of technical policy Tony Greco believes some companies may be disappointed when they realise that losses incurred throughout 2019–20, at the height of the pandemic, will not be able to be claimed until the 2020–21 lodgement cycle.
“For a lot of businesses, 2020 will show losses and if they’ve paid tax in the 2018–19 year, you want to claw that back in the 2019–20 return, but you won’t be able to until at least July next year and that’s not ideal,” Mr Greco said.
“It might be a bit of a sleeper issue for people not understanding that while it goes back to the 2018–19 year, and is taken all the way to the 2021–22 year, you can’t get your hands on it for the 2019–20 year which is not ideal from a cash flow perspective.
“People want that credit now rather than waiting till July next year.”
The government has also been pushed to revisit its eligibility criteria for the loss carry-back measure, with the profession arguing that the limitation to corporate tax entities will shut out thousands of small business non-corporate entities such as sole traders, partnerships and trusts.
“Many businesses affected by the economic impact of COVID-19 are carried on by hard-working Australians through a non-corporate entity, such as in their own name, in a partnership or in a trust,” said NTAA chief executive Geoff Boxer in a letter to the Treasurer last month.
“Furthermore, these businesses are being affected by the economic impact of COVID-19 in the same (or in a similar) way as businesses carried on in a company.
“As a result, non-corporate taxpayers carrying on a business should also have access to similar temporary tax loss carry-back rules that will become available to eligible companies under the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Bill 2020.”
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