IMPORTANT FEDERAL BUDGET 2021-22 UPDATE!

The Government will further support Australia’s economic recovery and business investment by extending the 2020-21 Budget measure titled JobMaker Plan — temporary loss carry-back to support cash flow. The extension will allow eligible companies to carry back (utilise) tax losses from the 2022-23 income year to offset previously taxed profits as far back as the 2018-19 income year when they lodge their 2022-23 tax return.

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🕮 TRANSCRIPT

In a nutshell

The loss carryback offset is a temporary measure, which allows a company that is you to claim a tax offset or refund in your FY21 or FY22 income tax returns. It's a tax offset, which means it reduces your tax payable as opposed to where tax losses reduce your taxable income.

Also it's a refundable tax offset, which means you get cash back from the Tax Office.

Eligibility 00:28

If you made a tax loss in FY20 or FY21 or FY22, you can basically carry those losses back to a previous income year where you made a tax gain or where you paid tax. But you can only carry it back as far as FY19 .

And you must have paid tax or had an income tax liability in either FY19 20 or 21. Okay, so that was bloody confusing. Well, at least it was very confusing to me when I first read it. Because it's like, you have to make a loss in one of these bunch of years and then pay tax in one of these bunch of years. And they look practically identical.

Quick examples 01:10

So let's quickly go through a quick example to explain what that actually means.

So let's say we're in currently F Y 21. And you've paid tax in FY19. And you made tax losses in FY20, and also in FY21. So this means you can carry back those losses from FY20 and FY21 to the FY19 year in your FY21 income tax return. Another example is where you pay tax in FY19. And you also pay tax in FY20. But you made a tax loss in FY21. So this means you can carry back the loss that you made in FY21 to FY19 as well as to FY20.

A misnomer? 02:06

So before we go on, I just want to clarify something. The loss carryback offset is a little bit of a misnomer. Well, to me anyway, because technically you're not carrying losses back to the past. And then, you know, amending the returns in the past. You're actually carrying forward tax that you have paid in the past to a loss year or, you know, your current loss year.

So, this is what I mean by, yeah. It's a bit of a misnomer because we're not actually carrying back losses. We're actually carrying forward tax paid to a future loss year.

Maximum offset 02:41

Now that we've got that out of the way. Let's talk about the cap. So very broadly, the offset is capped at a lesser of the following three items. The tax that you've paid in the earlier years. The tax losses that you've made in eligible years, but you've got to gross that down to the tax equivalent value.

And finally your franking account balance in the current year. That is the year you wish to claim the offset. And this concept sounds pretty straightforward, you know. But it can get pretty confusing once the income years introduced, especially when you can carry it back two loss years to one year that you paiad tax. But that you can also carry back losses from one loss year to two years that you paid tax. But don't worry. We'll go through all these with some examples in the next videos.

How to claim the offset 03:31

So, how do you actually claim the offset?

Step 1

Well, the first step is to work out whether you're an eligible entity. Broadly, you're eligible if you're a company and you're carrying on a business with an aggregated turnover of less than $5 billion. So pretty much, you know, a lot of us will be eligible.

Step 2

Step two is to work out if you have met all the eligibility criteria such as you must have paid tax in certain years . And you must've made losses in certain years and you've met your lodgement obligations in the last five years. As well as certain integrity provisions.

Step 3

Step three is then to work out the maximum offset that you can claim. And this is where the cap applies.

Step 4

Step four is to work out how much losses you actually want to carry back because you have the option to choose how much you want to carry back, meaning you don't have to carry back anything at all. And this is where you take into account some pros and cons and practical considerations.

Step 5

Step five is then to lodge your return to claim the offset.

Step 6

And finally step six is get your tax refund, but don't forget to debit your franking account.

End

I hope you found this introduction useful, and I will see you in the next videos is where we will walk through each of these steps in detail. And we'll also go through a couple of examples together.

Cheers.

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