A permanent tax loss carry-back scheme extended to unincorporated businesses should be high on the government’s budget priorities, says Chartered Accountants Australia and New Zealand.
Extend and expand loss carry-back tax offset, says CA ANZ
CA ANZ has urged the government to look across the ditch to New Zealand where a permanent loss carry-back scheme has been proposed to apply to the 2021–22 and later income years.
Australia’s temporary loss carry-back measure currently only allows corporate entities to carry back tax losses made in the 2019–20, 2020–21 or 2021–22 income years.
Using its pre-budget submission, CA ANZ has also called for the government to follow in New Zealand’s footsteps by widening its current eligibility criteria to include non-corporate entities such as sole traders, partnerships and trusts.
“In times when the government is trying to reset the economy and kickstart business investment, consideration needs to be given to extending loss carry-back to non-corporate businesses and making it a permanent feature of the tax law,” said CA ANZ senior tax advocate Susan Franks.
“Making loss carry-backs a permanent feature of the Australian income tax law would help build business (particularly small business) resilience during future economic downturns, and was recommended in the Henry Tax Review.”
Small business missing out on loss carry-back
Up to two-thirds of small businesses have been estimated to miss out on the loss carry-back tax offset because of the corporate entity requirement.
The government has faced similar calls to extend the loss carry-back measure to non-corporate entities, with the National Tax and Accountants’ Association previously writing to Treasurer Josh Frydenberg to point out that the rules were “unnecessarily and unfairly restricted” to corporate entities.
“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.
“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.”