Claiming the loss carry-back offset

Businesses can claim the loss carry-back in their 2021–2022 and 2022-2023 income tax returns. 

To recap, the loss carry-back is a refundable offset that effectively represents the tax that the business would save if it had been able to deduct the loss in an earlier year using the loss year tax rate. It may result in a cash refund, a reduced tax liability, or reduction of a debt owing to the ATO. Eligible businesses include companies, corporate limited partnerships and public trading trusts.

A company, corporate limited partnership or public trading trust may be eligible if it made a tax loss in 2020, 2021, 2022 or 2023, carried on a business with an aggregated turnover of less than $5 billion, had an income tax liability in 2019, 2020, 2021 or 2022, and has met all of its lodgment obligations for the five prior income years.

Loss carry-back can either be claimed by businesses through their standard business reporting enabled software, where it has the additional loss carry-back labels required, or by using the paper copy of the company tax return 2021 or 2022 and attaching a schedule of additional information to report the extra aggregated turnover and loss carry-back labels required (because these are not included in the company tax return itself).

For example, if a business is carrying back a tax loss from the 2021–2022 income year, the additional information needed includes the income year the business is choosing to carry the loss back to, the tax losses incurred, net exempt income, the income tax liability for the prior year, and the aggregated turnover range of the business.

Since there are so many additional labels which may need to be completed, the ATO has developed a loss carry-back tax offset tool which will assist businesses that are claiming the loss carry-back to determine which labels are relevant in their unique situations. Once all of the relevant information is provided, the tool will first determine whether the business is eligible to claim the loss carry-back tax offset, then calculate the maximum amount of tax offset available. It will also provide a printable report of the labels which will need to be completed.

However, to use the tool, businesses will need to have the following information handy:

• income tax lodgment history;
• for the 2019–2020 and later income years, details of the loss that was made, including the amount of tax losses, the tax rate and the aggregated turnover for that year and the prior year;
• for the 2018–2019 and later income years, details of the tax liability, including the amount, and any net exempt income; and
• opening and closing balances of the franking account for the income year that is being lodged.

If your clients’ businesses have been battered by the latest COVID-19 wave, they may be able to take advantage of this refundable offset one last time. Remember, the offset effectively represents the tax that the business would save if it had been able to deduct the loss in an earlier year using the loss year tax rate. Because the offset is refundable, it may result in a cash refund, a reduced tax liability, or reduction of a debt owing to the ATO, all of which should help with cash flow.

Source: www.ato.gov.au/business/loss-carry-back-tax-offset/ 
www.ato.gov.au/Calculators-and-tools/Loss-carry-back-tax-offset-tool/