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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. As it is a refundable tax offset, it may result in a cash refund, a reduced tax liability or a reduction of a debt owing to the ATO.

    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 have made a flowchart to help you work out if you are eligible for the loss carry back tax offset.

    Next steps:

    An exposure draft Bill has been released by Treasury for consultation that proposes to allow a loss carry back choice to be amended. Comments are due to Treasury by 25 May 2021. See Miscellaneous amendments to Treasury portfolio laws 2021External Link for more information.

    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:

    See also:

    Eligibility for the tax offset

    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:

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    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 and tax liabilities

    You can only carry back certain tax losses to certain income years for which you have an income tax liability.

    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 either  
      • 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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    Check your eligibility

    The following table shows which income year your tax loss must be made in and which income year you can carry that loss back to.

    Check your eligibility

    Tax liability in the income year

    Tax loss made in 2018–19 or prior income years

    Tax loss made in 2019–20 income year

    Tax loss made in 2020–21 income year

    Tax loss made in 2021–22 income year

    2018–19

    n/a

    Can carry the 2019–20 loss back to the 2018–19 income year

    Can carry the 2020–21 loss back to the 2018–19 income year

    Can carry the 2021–22 loss back to the 2018–19 income year

    2019–20

    Not eligible

    n/a

    Can carry the 2020–21 loss back to the 2019–20 income year

    Can carry the 2021–22 loss back to the 2019–20 income year

    2020–21

    Not eligible

    Not eligible

    n/a

    Can carry the 2021–22 loss back to the 2020–21 income year

    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 five 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, either:

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

    How to claim the tax offset

    You cannot claim the tax offset in your Company tax return 2020 for a tax loss made in the 2019–20 income year. You will be able to claim the tax offset in your Company tax return 2021 or Company tax return 2022.

    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.

    On this page:

    Form to claim the tax offset

    If you are lodging your Company tax return 2021:

    Check which form to use to claim the tax offset

    Your 2020–21 income year ends

    Before 30 June 2021

    On or after 30 June 2021 and you are required to lodge a company tax return for a part year

    On or after 30 June 2021 and you are not required to lodge a company tax return for a part year

    If you are lodging your company tax return before 1 July 2021, use:

    2020–21 early balancer substituted accounting period claim form

    2020–21 early balancer substituted accounting period claim form

    n/a

    If you are lodging your company tax return on or after 1 July 2021, use:

    Company tax return 2021 form

    Company tax return 2021 form

    Company tax return 2021 form

    Information needed to claim the tax offset

    You will need to complete additional labels in the Company tax return 2021 to make the choice to carry back losses. The labels provide us with information on your eligibility to claim the tax offset and the calculation of the amount. If you complete these labels, we can process your claim in a timely manner.

    To complete the additional labels, you will need to have the following information:

    • your opening and closing franking account balance, which is necessary for the calculation of the amount of the tax offset
    • your aggregated turnover for each loss year, which is necessary to ensure you meet the eligibility requirement and will also help inform future services and initiatives for business
    • the amounts of your tax losses that you are carrying back, which informs us of your choice and forms the basis of the calculation of the amount of the tax offset
    • your tax liability for the income years you are carrying the loss back to, which is necessary for the calculation of the amount of the tax offset
    • the amounts of unutilised net exempt income for the income years you are carrying the losses back to, which is necessary for the calculation of the amount of the tax offset.

    If you are submitting the Loss carry back – 2020–21 early balancer substituted accounting period or lodging a company tax return for part year claim form, we have also asked you to provide us with this information.

    You can start preparing for your claim by reviewing your franking account balance early and considering your aggregated turnover. By doing so, you will have the information needed to complete the additional labels.

    See also:

    Find out about:

    Reviewing franking account balance

    When reviewing your franking account balance, check your records and information to ensure you have:

    • identified all transactions that result in a credit or debit in your franking account (see the table below for examples of records or information that you can use to check your transactions), for example  
      • franking credits arise on paying income tax and pay as you go (PAYG) instalments, incurring a liability for franking deficit tax, and receiving franked distributions
      • franking debits arise on receiving refunds of tax including refunds of PAYG instalments, and paying franked distributions
    • recorded all transactions correctly in your franking account, including  
      • whether it is a debit or a credit
      • when the debit or credit arises
    • calculated the balance of the franking account correctly in determining whether the franking account is in a surplus (credit) or deficit (debit) position at the end of the income year.

    Remember to keep your working papers for your records, particularly if you have identified and corrected errors when reviewing your franking account.

    The following table provides examples of records or information that you can use to check your transactions that result in credits or debits in your franking account.

    Examples of records or information you can use

    Transactions

    Examples of records or information

    Paying income tax or receiving income tax refund

    Income Tax Account transaction history via Online services for agents (OSFA), Online services for business or Business Portal

    Paying PAYG instalments or receiving PAYG instalment refunds

    Integrated Client Account transaction history via OSFA, Online services for business or Business Portal

    Receiving franked distributions

    Company minute book and distribution statements

    Paying franked distributions

    Company minute book and distribution statements

    Receiving R&D tax offset

    Records of your R&D tax offset claims

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    Common errors

    If you do not complete all relevant labels or you make an error when claiming your tax offset, this may delay the processing of your claim, result in an incorrect claim or result in your choice being considered as not having been made.

    Common errors include:

    • entering the wrong amount at one or more labels. For example, the amount of tax loss incurred in the 2020–21 income year carried back to the 2018–19 income year is entered at the label Tax loss for 2020–21 income year carried back to 2019–20.
    • disclosing an incorrect opening or closing franking account balance because of errors made when preparing the franking account such as  
      • missing entries
      • failing to reduce franking credits for any deferred debits (which could result from an amount of R&D tax offset refunded)
      • treating franked dividends received or paid incorrectly (for example, debiting instead of crediting)
      • including Quarter 4 PAYG instalments or final income tax payment for an income year prior to year end
    • calculating the tax losses incorrectly — see Business losses on what deductions can be included when calculating tax losses
    • calculating the tax offset incorrectly.

    Working out the tax offset

    Loss carry back provides a refundable tax offset. Refundable tax offsets can reduce the amount of tax you are liable to pay to zero, which may result in a refundable amount.

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

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    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.

    A franking credit is recorded in the account if you pay a PAYG instalment. Note: Paying your Quarter 4 PAYG instalment on or before the last day of the income year will not result in a credit to your franking account on that day. The credit will occur in the subsequent income year.

    A franking debit is recorded in the account if you receive a refund of income tax. 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.

    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.

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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

    See also:

    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. You can either:

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

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    Last modified: 11 Jun 2021QC 64421