The Treasurer with his 2012 Budget introduced a new concept that has some merit, albeit with severe limitations, called the ‘business tax loss carry back’. For some context, before this was introduced, businesses could only carry forward tax losses and use them to reduce taxable income in ‘future’ years, not ‘prior’ years. So in effect with the introduction of this new measure, if your business made a profit and paid tax in the previous tax year and then the business makes a loss this tax year then that loss can be used to reduce that prior years income and any difference in the tax paid will be refunded to the business. That is Fantastic! Now here are the limitations:
1. Starts 1 July 2012 – Your business will need to make a taxable profit this financial year i.e on your 2012 tax return. Any loss you make in the 2012 financial year cannot be carried back to any profit you made in the 2011 financial year. So if you make a loss in 2012 this won’t benefit you. On the plus side if you make a profit in 2012 and pay tax on that profit then go on to make losses in 2013 or 2014 then those losses can be carried back and offset against the profit made in 2012 (or 2013) up to a maximum loss of $1m.
2. Only applies to Companies – To take advantage of this generous concession, your business must be operating as a corporate entity i.e company structure. Trusts, Partnerships, SMSF’s and sole traders need not apply.
Perhaps the ‘Business Loss Carry Back’ should be renamed ‘Companies only restricted time frame loss carry back designed for the big international conglomerates and not the average small to mid size family owned business’ (I know it’s a bit too long). Although on a positive note there are some planning opportunities for smart business owners operating through a corporate entity, so if you haven’t structured your business affairs to maximise this opportunity as yet, contact us immediately as time is quickly running out, 30 June 2012 is approaching rapidly.
N.B – we will be following this closely as more details are released by Treasury and the ATO.
