Turn your company tax loss into a refund
Recent Government changes mean that certain companies may be able to turn a 2013 tax loss into a cash refund.
If your company meets the following criteria, you could be eligible to take advantage of new rules introduced by the Government relating to the carry-back of tax losses:
- Expecting to incur a tax loss for the year ended 30 June 2013
- Paid corporate tax in the year ended 30 June 2012
- Has a positive franking account balance at 30 June 2013
What do the new rules mean?
The Government has recently enacted rules which, for the first time, allow a company to carry-back tax losses and claim a cash refund of income tax paid in prior years. The rules are intended to encourage continued growth and investment and assist companies who are experiencing a downturn by spreading current year losses over prior, profitable years.
These rules apply to losses incurred in the year ended 30 June 2013 and subsequent years.
Particularly in light of the difficult trading conditions experienced by many companies in recent times, this could provide the opportunity to turn tax losses incurred in the year ended 30 June 2013 into a cash refund of up to $300,000.
Tax losses incurred in the year ended 30 June 2013 may be carried back one year (i.e. to the year ended 30 June 2012). Tax losses incurred in the years ended 30 June 2014 (and subsequent years) may be carried back and offset against income tax paid in the preceding two income years.
Please note that these rules do not permit the carry-back of capital losses.
What are the conditions?
There are a number of conditions relating to the claim for a carry-back of tax losses, including:
- A refund will only be available to the extent that the company paid tax in the preceding year (for losses incurred in the year ended 30 June 2013) or preceding two years (for losses incurred in the year ended 30 June 2014 or later)
- The maximum amount of losses which may be eligible for the carry-back is $1m (i.e. maximum benefit of $300,000 being $1m of losses carried back, multiplied by the corporate tax rate of 30%)
- Any tax refund will be capped at the company's franking account balance at the end of the loss year
- A claim is only available for companies or entities taxed like companies
- There are certain integrity provisions which may apply to deny a company the benefit of the tax loss-carry back in certain instances (e.g. change of ownership)
If you do qualify for the tax loss carry-back, we recommend completing your 2013 tax return as soon as possible. As well as the obvious cash flow benefits of submitting your claim early, this may also protect you from any change to these rules if the Australian Government changes at this year's Federal Election.
Our Taxation specialists would be happy to assist in this process. Feel free to contact Iain Spittal, Partner on (02) 8346 0000 should you have any questions.