The Budget confirmed the Treasurer’s announcement on 6 May 2012 that the Government would allow businesses to carry-back losses. Mr Swan said the proposed changes would “allow businesses to ‘carry back’ their losses, to offset past profits and get a refund of tax previously paid on that profit”. The carry-back will be available to companies and entities that are taxed like companies.
As part of the loss carry-back, from 1 July 2012, companies will be able to carry back up to $1m worth of losses to get a refund of tax paid in the previous year. From 1 July 2013, companies will be able to carry back up to $1m worth of losses against tax paid up to 2 years earlier.
The Treasurer said loss carry-back “received strong and widespread support” at the Tax Forum last year and was developed further in close consultation with business representatives and tax experts through the Business Tax Working Group, which recommended the measure in its Final Report on the Tax Treatment of Losses.
The Treasurer said the Government would release a Discussion Paper about the introduction of loss carry-back shortly.
Source: Treasurer’s press release 031, 6 May 2012
[Thomson Reuters observation: The Business Tax Working Group recommended loss carry-back be phased in from 2013-14 ie 1 July 2013, so the Government’s announcement appears to bring that forward by one year. No other details were given in the Treasurer’s 6 May announcement, nor the Budget papers, so it can only be presumed that the Government is implementing the Working Group’s announcement eg loss carry-back provided through a refundable tax offset, and carry-back limited to companies only. Although it must be noted that the Working Group’s final report was heavily qualified and it said it did have time to examine the issue fully. It said it had not had an opportunity to explore the relative net-benefit of loss carry back compared with other business tax reforms such as a cut to the corporate tax rate. The Working Group also said it did not have time to fully consider the benefits and risks of any savings measures to fund tax loss reform. Presumably the discussion paper will spell out the details of the reform proposals.
If loss carry-back is limited to companies, there is concern that many small businesses would miss out as they are not incorporated. Many operate as sole traders, partnerships or trusts.
Also, if carry-back is to apply from 1 July 2012, there is very little time for release of a Discussion Paper and the passage of legislation before then.]
[WTB 19, 8/5]