What is the new Loss carryback scheme

What is the new “Loss carryback” scheme which was mentioned in the budget last week? I have been asked by many LiveAccounts users and partners, so I thought I would jot down my thoughts on what this is and how it could help you when funds are tight.

If a company incurs a loss from 2012-2013 onwards, they may claim a refund based on prior year profits and taxes paid. For 2012-2013 you may go back 1 year and for losses incurred from 2013-2014 onwards, you can claim a refund going back two years. The business can only claim up to $1 million in losses which equates to a $300,000 refund for each loss year (refunds limited to the balance of a company’s franking account).

Let’s look at an example

Hennie runs a child minding business. The business, a company, has had a trading profit of $100,000 per annum, resulting in Hennie paying $30,000 in tax.  During 2013-2014, Hennie had a health scare and had to employ extra staff to cover her absence. As a result, the business suffered a $200,000 loss. With the “loss carryback” scheme, Hennie can now go back 2 years (2011 -2012 & 2012-2013) and “carry back” the loss against the profitable years. In this scenario, Hennie should receive a $60,000 refund.

Calculate the loss carryback

At this point in time, I am not aware on how the ATO is going to administer the new scheme and if there are any tricks, loop holes or gotcha clauses. This is just my take on the upcoming law, so please consult your accountant for further information.

Richard Puffe | Product Manager, LiveAccounts – MYOB