Loss carry-back scheme to encourage investment
Companies will be permitted to carry-back up to $1 million of losses annually against taxable income arising two years prior.
It is an attempt to stimulate investment and risk taking in new businesses and will enable companies to receive a refund against tax previously paid.
The measures will provide some relief for companies that suffer temporary losses. Whilst this may be seen as a positive step for business owners, there are factors that must be taken into consideration before being able to take full advantage of the new rules.
In 2012/2013 a one year loss carry-back will apply. Tax losses incurred in that year can be carried back and offset against tax paid in 2011/2012.
From 2013/2014 onwards, tax losses can be carried back and offset against tax paid up to two years earlier.
Companies will be able to carry-back up to $1 million of losses each year. This measure may provide a cash benefit of up to $300,000 a year.
Any loss carry-back will be capped at the balance of a company’s franking account. This will ensure that a company is only able to claim a refund on tax that was already paid and has not been used to frank dividend payments.
It also avoids potentially troublesome interaction with franking deficit tax (which hits a company when its franking account balance becomes negative).
The loss-carry back tax reform is a recommendation of the Business Tax Working Group.
The Government is expected to hold further discussions in the near future.