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  • Loss carry back tax offset

    Loss carry back provides a refundable tax offset that eligible corporate entities can claim:

    • after the end of their 2020–21 and 2021–22 income years
    • in their 2020–21 and 2021–22 company tax returns.

    Eligible entities get the offset by choosing to carry back losses to earlier years in which there were income tax liabilities. The offset effectively represents the tax the eligible entity would save if it was able to deduct the loss in the earlier year using the loss year tax rate.

    The eligible entity does not need to amend the earlier income years to claim the offset.

    If an entity does not choose to carry back a loss, the loss may be carried forward to use in a later income year.

    Loss carry back is intended to interact with temporary full expensing, encouraging new investment which may result in tax losses. The choice to carry back tax losses may result in a tax refund which will increase business cash flow.

    We are considering the application of the loss carry back choice. This includes whether there is any ability to revoke, amend or make additional choices after making an initial loss carry back choice.

    We will continue to update this page to provide you with further information on the loss carry back rules and how to claim the tax offset.

    On this page:

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    Eligibility

    You must meet the eligibility requirements to choose to carry back the loss and claim the tax offset.

    You can claim the tax offset if you:

    Eligible entities

    You are an eligible corporate entity if you are both a:

    • company, corporate limited partnership or a public trading trust throughout      
      • the income year that you are claiming the tax offset
      • the income year you choose to carry the loss back to (ignoring any part of the year before you existed)
      • any income years in between
       
    • small business entity in the loss year or would have been a small business entity if the aggregated turnover threshold was $5 billion.

    The rules for calculating aggregated turnover are the same as those used for the small business entity concessions. Your aggregated turnover may include the annual turnover of other business entities, in addition to your own annual turnover.

    See also:

    Tax losses

    You can only carry back tax losses made in the 2019–20, 2020–21 or 2021–22 income years.

    You can only use a tax loss once.

    You cannot carry back:

    • capital losses
    • certain tax losses arising from the conversion of excess franking offsets
    • transferred losses relating to
      • foreign banking groups (Division 170 of the Income Tax Assessment Act 1997 (ITAA 1997))
      • head companies of consolidated groups (Subdivision 707-A of the ITAA 1997).
       

    See also:

    Tax liabilities

    You can carry back losses to the 2018–19, 2019–20 or 2020–21 income year if you were liable to pay income tax for that year.

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    Franking account surplus

    The amount of tax offset available is limited to your franking account surplus on the last day of the income year for which you claim it.

    Lodgment obligations

    To claim the tax offset for an income year, you must both:

    • lodge your tax return for that income year
    • have lodged for the previous 5 income years.

    If you have not lodged for any of those income years, you may still be able to claim the tax offset if, for those years:

    • we assessed your income tax liability, or
    • you were not required to lodge a tax return.

    Claiming the tax offset

    You cannot claim the tax offset in your company tax return for the 2019–20 income year. You will be able to claim the tax offset in your company tax return for the 2020–21 or 2021–22 income years.

    Claiming the tax offset is optional. To the extent you choose not to carry back the losses, you may be able to carry them forward to a future income year.

    If you want to claim the tax offset for an income year, you will need to make the loss carry back choice by the time you lodge your company tax return for that year. When making the choice, you will also need to specify the amount of tax loss you choose to carry back.

    If your 2020–21 income year ends:

    See also:

    Find out about:

    Working out the tax offset

    Loss carry back provides a refundable tax offset which may in effect reduce your tax payable to zero for the earlier income year and result in an amount being refunded to you in the income year you claim.

    The amount of tax offset may be affected by your net exempt income, income tax liabilities and the surplus in your franking account.

    In this section:

    Exempt income

    In working out the amount of your tax offset, you must reduce the amount of loss you are carrying back by any (unutilised) net exempt income you had for the income year you are carrying back the loss to.

    Once the exempt income has been used to reduce a loss you are carrying back, you do not use it to reduce another loss carried back to that same income year.

    Example 1: Exempt income

    In the 2018–19 income year, MNO Pty Ltd had net exempt income of $20,000.

    MNO Pty Ltd has a tax loss of $100,000 in the 2019–20 income year and $50,000 in the 2020–21 income year. In the 2020–21 income year, it chooses to carry back all these amounts to the 2018–19 income year.

    The $100,000 it carries back from the 2019–20 income year is reduced by the $20,000 of net exempt income in the 2018–19 income year to be $80,000 when calculating the tax offset.

    It does not need to reduce the $50,000 it carries back from the 2020–21 income year because its exempt income in the 2018–19 income year has been fully used to reduce the loss carried back from the 2019–20 income year.

    End of example

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    Tax liability in the year carried back to

    The amount of your tax offset cannot exceed your income tax liability for the income year you are carrying the loss back to.

    Once the amount of your income tax liability for an income year has been fully used to claim tax offsets, you cannot claim any further offset amounts by carrying back losses to that year.

    Example 2: Tax liability used entirely

    In the 2018–19 income year, ABC Co had an income tax liability of $100,000 and no net exempt income.

    ABC Co makes a tax loss in the 2019–20 income year and carries that loss back to the 2018–19 income year. It works out the amount of its tax offset for the 2019–20 tax loss would be $100,000. ABC Co has used all of its $100,000 income tax liability in the 2018–19 income year.

    If ABC Co also made a tax loss in the 2020–21 income year, it cannot carry back that loss to the 2018–19 income year because the tax liability in that year has been fully used.

    End of example

    Franking account

    The amount of your tax offset is also limited by the surplus in your franking account on the last day of the income year in which you are claiming the tax offset.

    These rules do not apply if you are a foreign resident for more than half of the income year you are carrying the loss back to. The exception is if you are a New Zealand company that has chosen to enter the Australian imputation system.

    A debit will arise in your franking account if you get a tax refund because you claimed the tax offset. This will happen on the day you receive the refund.

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    Losses can only be used once

    To the extent that you have carried back a tax loss, you can only use it once. This means you cannot:

    • carry the same tax loss back again
    • carry it forward to use it in a future income year.

    This includes any losses that have been used to reduce your exempt income.

    Example 3: Loss used entirely

    XYZ Co has a tax loss of $50,000 in the 2020–21 income year. It chooses to carry back all the $50,000 tax loss to the 2018–19 income year and receives a tax offset in the 2020–21 income year.

    XYZ Co cannot carry forward and use the tax loss of $50,000 incurred in the 2020–21 income year as it has chosen to carry back that loss to the 2018–19 income year.

    End of example

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    How to calculate the amount of tax offset

    To calculate the amount of your tax offset for an income year follow these steps.

    1. For each tax loss you are carrying back to an earlier income year
      1. determine the amount of the tax loss you are carrying back
      2. work out the net exempt income, that has not previously been used, in that earlier income year
      3. subtract the amount at step 1b from the amount at step 1a
      4. multiply the result from step 1c by your tax rate for the income year in which you made the loss.
       
    2. If more than one tax loss is being carried back to the same earlier income year, add the step 1d results together. The amount you can claim is capped at the amount of your income tax liability for that earlier income year.
    3. If you are carrying back losses to more than one earlier income year, apply steps 1 and 2 for all years the losses are being carried back to and add the results together.
    4. If the amount calculated under step 3 is greater than your franking account surplus at the end of the income year in which you are claiming the tax offset, your offset is limited to your franking account surplus. Otherwise, the amount of your tax offset is the amount calculated under step 3.

    Note: step 4 does not apply to foreign residents (other than New Zealand franking companies).

    Example 4: Calculating the amount of the tax offset

    GHI Pty Ltd has a tax loss of $100,000 in the 2019–20 income year and an income tax rate of 30%.

    At the end of its 2020–21 income year, it has a franking account balance of $25,000 and chooses to carry back all its tax loss from the 2019–20 income year to the 2018–19 income year.

    In the 2018–19 income year, GHI Pty Ltd had an income tax liability of $40,000 and no exempt income.

    GHI Pty Ltd calculates the amount of its tax offset for the 2020–21 income year as follows:

    • Step 1a: $100,000 of loss carried back to the 2018–19 income year
    • Step 1b: $0
    • Step 1c: $100,000
    • Step 1d: $100,000 × 30% tax rate for the 2019–20 income year = $30,000
    • Step 2: No adjustment is required as the tax liability in the 2018–19 income year ($40,000) is greater than the $30,000 from step 1d
    • Step 3: As the loss is only being carried back to one earlier income year, the result of step 3 is $30,000
    • Step 4: As $30,000 is greater than GHI Pty Ltd's franking account balance at the end of the 2020–21 income year ($25,000), the amount of its tax offset is limited to $25,000.

    GHI Pty Ltd calculates the amount of its refundable tax offset from loss carry back as $25,000.

    End of example

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    Integrity rules

    A specific integrity rule can deny the loss carry back in cases where there is:

    • a scheme for disposition of ownership interests resulting in a change of control of a corporate entity
    • a financial benefit received in connection with the scheme
    • a more than incidental purpose of enabling the entity to get a loss carry back tax offset.

    Existing general anti-avoidance rules have also been adapted so that they may apply appropriately in the context of loss carry back.

    We will be providing further information on the operation of integrity rules for loss carry-back, and on features of arrangements or schemes that may attract our attention in due course.

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    Paying your liabilities

    We will not defer the due date for payments you owe solely because you expect a potential future refund from claiming the loss carry back tax offset. If you have capacity to pay, we expect payment on time and in full.

    If you can't pay on time, we can work with you to find a solution tailored to your situation:

    • phone us on 13 11 42 during our operating hours
    • contact your tax adviser to discuss options.

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    Last modified: 05 Mar 2021QC 64421