Note: It is necessary to visit the Reconciliation TAB and manually insert the losses you want to apply against current year profits.
Client Profile: Companies with a tax loss in the 2019/20 and later income years (ending 2021/22).
XYZ Pty Ltd located has a turnover that allows it to report as a Base Rate Entity.
XYZ Pty Ltd was impacted by COVID through 2019/20 and 2020/21 income years.
The following table identifies income, losses and taxes for XYZPty Ltd over three income years to 30 June 2021.
|Income Year||Taxable Income/(Loss)||Income Tax Expense|
As at 30 June 2021, the company's franking account balance is $485,000. All lodgements are up to date.
Calculate the loss carry-back tax offset available to XYZ Pty Ltd in the 2020/21 income year.
Determine whether XYZ Pty Ltd has any tax losses to carry forward to 2021/22 and later income years.
XYZPty Ltd is a company and has lodged all the relevant prior year tax returns. Therefore, it is eligible to utilise the loss carry-back tax offset for the 2020/21 income year.
XYZ Pty Ltd was unable to make a claim for the loss incurred during 2019/20 income year until lodgement of the 2020/21 tax return.
The calculation of the loss carry-back tax offset is a four-step process.
Step 1: Work out the amount of the loss to be carried carried back
Only losses from the 2019/20, 2020/21 and 2021/22 income years are eligible for the loss carry-back tax offset.
As XYZ Pty Ltd incurred a taxable loss during both 2019/20 and 2020/21 income years, they are both eligible.
$1,500,000 + $250,000 = $1,750,000
The total tax loss eligible for carry-back is $1,750,000.
Step 2: Reduce the step 1 amount by net exempt income
XYZ Pty Ltd has no net exempt income for any of the years in question.
The amount eligible for carry-back remains as $1,750,000.
Step 3: Convert the step 2 amount to a tax equivalent amount
The conversion to use is the tax rate in the necessary loss year.
As XYZ Pty Ltd is a base rate entity (BRE), the company had a tax rate of 27.5% in 2019/20 and 26% in 2020/21.
The conversion is as follows:
|Income year||Tax rate (BRE)||Calculation||Amount|
|2019/20||27.5%||$1,500,000 x 27.5%||$412,500|
|2020/21||26%||$250,000 x 26%||$65,000|
**click here for declining tax rate table.
Adding the amounts from 2019/20 and 2020/21, the total possible loss carry-back tax offset is $477,500.
Step 4: Work out the amount of the loss carry-back tax offset for an income year
XYZ Pty Ltd loss carry-back tax offset is the lesser of:
1. The sum of the loss carry-back tax offset amounts calculated at Step 3, and
2. The company's franking account balance at the end of 2020/21 income year.
A comparison of those two figures is as follows:
- Eligible loss carry-back tax offset: $477,500
- Closing franking account balance: $485,000
XYZ Pty Ltd is only able to claim back $477,500, i.e. it's Eligible loss carry-back tax offset. It will choose to claim the offset against tax paid in the 2019/20 income year.
On lodgement of its 2020/21 income tax return, XYZ Pty Ltd will be eligible for a tax refund of $477,500 being the loss carry-back tax offset.
Tax Losses to carry forward
The refundable loss carry-back tax offset of $477,500 used up ($477,500/27.5%) $1,736,364 of tax losses incurred by XYZ Pty Ltd.
The new measure allows the loss carry-back back offset to be claimed by a corporate tax entity, defines a corporate tax entity as: Company , Corporate limited partnership, or Public trading trust.