Tax and Superannuation Laws Amendment (2013 Measures No. 1) Act 2013 (88 of 2013)
Schedule 5 Loss carry back
Part 1 Main amendments
Income Tax Assessment Act 1997
2 Before Division 164
Insert:
Division 160 - Corporate loss carry back tax offset
Table of Subdivisions
Guide to Division 160
160-A Object of this Division
160-B Entitlement to and amount of loss carry back tax offset
160-C Loss carry back choice
Guide to Division 160
160-1 What this Division is about
A corporate tax entity can choose to "carry back" a tax loss it has for the current year, or for the preceding income year, against the income tax liability it had for either of the 2 income years preceding the current year.
The entity gets a refundable tax offset for the current year that is a proxy for the tax the entity would save if it deducted the loss in the income year to which the loss is "carried back".
The refundable tax offset is capped at the lesser of $1,000,000 multiplied by the corporate tax rate, and the entity's franking account balance.
Subdivision 160-A - Object of this Division
Table of sections
160-5 Object of this Division
160-5 Object of this Division
The object of this Division is to reduce the tax disincentive for corporate tax entities to take sensible investment risks. The Division does this by allowing such entities to offset their tax losses against their income tax liabilities for the 2 previous income years through a refundable tax offset.
Subdivision 160-B - Entitlement to and amount of loss carry back tax offset
Table of sections
160-10 Entitlement to loss carry back tax offset
160-15 Amount of loss carry back tax offset
160-10 Entitlement to loss carry back tax offset
An entity is entitled to a *tax offset (the loss carry back tax offset ) for the *current year if the following conditions are satisfied:
(a) the entity is a *corporate tax entity throughout the current year;
Note: See also section 160-25.
(b) either or both of the following income years were *loss years:
(i) the current year;
(ii) the income year just before the current year (the middle year );
(c) the entity had an *income tax liability for either or both of the following income years:
(i) the middle year;
(ii) the income year just before the middle year (the earliest year );
(d) any of the following requirements are satisfied for the current year and each of the 5 income years before the current year:
(i) the entity has lodged its *income tax return for the year;
(ii) the entity was not required to lodge an income tax return for the year;
(iii) the Commissioner has made an assessment of the entity's income tax for the year;
(e) the entity makes a *loss carry back choice for the current year in accordance with Subdivision 160-C.
Note 1: The entity is entitled to only one loss carry back tax offset for the current year. However, that offset has 2 components, one relating to the earliest year and one relating to the middle year: see section 160-15.
Note 2: The loss carry back tax offset is a refundable tax offset: see section 67-23.
160-15 Amount of loss carry back tax offset
(1) The amount of the entity's *loss carry back tax offset for the *current year is the least of the following amounts:
(a) the sum of the *loss carry back tax offset components for the earliest year and the middle year;
(b) the entity's *franking account balance at the end of the current year;
(c) $1,000,000 multiplied by the *corporate tax rate for the current year.
(2) For the purposes of working out the amount of the entity's *loss carry back tax offset for the *current year, the entity's loss carry back tax offset component for an income year is worked out as follows:
Method statement
Step 1. Start with the amount of the *tax loss the entity *carries back to the income year (or the sum of the amounts of the tax losses the entity carries back to the income year).
Note: If no amount is carried back to the income year, the step 1 amount, and the loss carry back tax offset component for the income year, are nil.
Step 2. Reduce the step 1 amount by the entity's *net exempt income for the income year.
Note: Do not reduce the step 1 amount by the entity's net exempt income to the extent the net exempt income has already been utilised: see section 960-20.
Step 3. Multiply the step 2 amount by the *corporate tax rate for the *current year.
Step 4. The entity's loss carry back tax offset component for the income year is so much of the entity's *income tax liability for the income year as does not exceed the step 3 amount.
Example: Redom Pty Ltd has at the end of the 2013-14 income year:
(a) a tax loss of $900,000 for that year and a franking account balance of $280,000; and
(b) for the 2011-12 income year - an income tax liability of $120,000 and net exempt income of $5,000; and
(c) for the 2012-13 income year - an income tax liability of $210,000.
Redom chooses to carry back $405,000 of its tax loss for the 2013-14 year to the 2011-12 year and $495,000 of that loss to the 2012-13 year.
Redom's loss carry back tax offset for the 2013-14 year is $268,500, worked out as follows:
(a) an offset component for the 2011-12 income year of $120,000, calculated by starting with the $405,000 carried back, reducing that at step 2 by $5,000, and multiplying the result by 30%.
(b) an offset component for the 2012-13 income year of $148,500, calculated by starting with the $495,000 carried back and multiplying the result by 30%.
The sum of the 2 components is $268,500 (which is less than Redom's $280,000 franking account balance at the end of the 2013-14 year). If that sum had exceeded that balance, the amount of the offset would have been limited under paragraph (1)(b) to that balance.
Income tax liability for earliest year already utilised
(3) For the purposes of applying step 4 of the method statement in subsection (2) to work out the entity's *loss carry back tax offset component for the earliest year, disregard so much of the entity's *income tax liability for the earliest year as has previously been included (for the purpose of working out the entity's entitlement to a *loss carry back tax offset for the middle year) in a loss carry back tax offset component.
Foreign residents
(4) Paragraph (1)(b) does not apply if the entity was a foreign resident (other than an *NZ franking company) for:
(a) if the entity *carries back an amount to the earliest year - more than half of the earliest year; and
(b) if the entity carries back an amount to the middle year - more than half of the middle year.
Subdivision 160-C - Loss carry back choice
Table of sections
160-20 Loss carry back choice
160-25 Entity must have been a corporate tax entity during relevant years
160-30 Transferred tax losses etc. not included
160-35 Integrity rule - no loss carry back tax offset if scheme entered into
160-20 Loss carry back choice
(1) The entity may make a loss carry back choice for the *current year that specifies:
(a) how much of the entity's *tax loss for the current year (if any) is to be carried back to the earliest year; and
(b) how much of the entity's tax loss for the middle year (if any) is to be carried back to the earliest year; and
(c) how much of the entity's tax loss for the current year (if any) is to be carried back to the middle year.
(2) The choice must be made in the *approved form by:
(a) the day the entity lodges its *income tax return for the *current year; or
(b) such later day as the Commissioner allows.
160-25 Entity must have been a corporate tax entity during relevant years
(1) The entity cannot *carry back an amount of a *tax loss to the earliest year unless the entity was a *corporate tax entity throughout the earliest year (disregarding any period when the entity was not in existence) and the middle year.
(2) The entity cannot *carry back an amount of a *tax loss to the middle year unless the entity was a *corporate tax entity throughout the middle year (disregarding any period when the entity was not in existence).
Note: The entity must be a corporate tax entity throughout the current year: see paragraph 160-10(a).
160-30 Transferred tax losses etc. not included
The entity cannot *carry back an amount of a *tax loss for an income year, to the extent that the loss:
(a) was transferred to or from the entity under Division 170 or Subdivision 707-A (about certain company groups); or
(b) exceeds the amount that would be the entity's tax loss for the year if section 36-55 (about excess franking offsets) were disregarded.
160-35 Integrity rule - no loss carry back tax offset if scheme entered into
No loss carry back tax offset if scheme entered into
(1) The *corporate tax entity cannot *carry back an amount of a *tax loss to an income year (the gain year ) if:
(a) there is a *scheme for a disposition of *membership interests, or an *interest in membership interests, in:
(i) the corporate tax entity; or
(ii) an entity that has a direct or indirect interest in the corporate tax entity; and
(b) the scheme is entered into or carried out during the period:
(i) starting at the start of the gain year; and
(ii) ending at the end of the *current year; and
(c) the disposition results in a change in who controls, or is able to control, (whether directly, or indirectly through one or more interposed entities) the voting power in the corporate tax entity; and
(d) another entity receives, in connection with the scheme, a *financial benefit calculated by reference to one or more *loss carry back tax offsets to which it was reasonable, at the time the scheme was entered into or carried out, to expect the corporate tax entity would be entitled; and
(e) having regard to the relevant circumstances of the scheme, it would be concluded that a person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the corporate tax entity to get a loss carry back tax offset.
Relevant circumstances
(2) For the purposes of paragraph (1)(e), the relevant circumstances of the *scheme for a disposition include the following:
(a) the extent to which the *corporate tax entity continued to conduct the same activities after the scheme as it did before the scheme;
(b) if the corporate tax entity continued to use the same assets after the scheme as it did before the scheme - the extent to which those assets were assets for which equivalents were not readily available at the time of the scheme;
(c) the matters referred to in subparagraphs 177D(b)(i) to (viii) of the Income Tax Assessment Act 1936 (applying subparagraph 177D(b)(iv) as if the reference to Part IVA of that Act were instead a reference to this section).
Application of this section to non-share equity interests
(3) This section:
(a) applies to a *non-share equity interest in the same way as it applies to a *membership interest; and
(b) applies to an *equity holder in the same way as it applies to a *member.