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The omnibus tax bill passed in October 2020  contained the temporary loss carry-back provisions that will allow Corporate Tax Entities only to carry back tax losses from the 2019–20, 2020–21 or 2021–22 income years to offset against tax paid in a previous income year as far back as the 2018–19 income year.

The tax refund will be limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry-back does not generate a franking account deficit.

Eligibility for the loss carry-back includes a requirement for the Corporate Tax Entity to have lodged an income tax return for the current year and each of the five years immediately preceding it. There will be provisions for entities that are not required to lodge a return for a year, such as when the entity did not exist in that year.

It should be noted though that losses incurred throughout 2019–20, at the height of the pandemic, will not be able to be claimed until the 2020–21 lodgement cycle.

If the pandemic has caused a business in 2019-2020 to show losses and if tax had been paid in the 2018–19 year, the business would ideally want to claw that back in the 2019–20 return, but the claw back  will only operate when the 2020-21 tax return is lodged. So any credit won’t occur until at least July 2020-21 which is not ideal from a cash flow perspective.

Just note that only Corporate Tax Entities are eligible for this at the present time.

If you clarification or need to discuss this further please call Seeton Consulting.