With only three days to go until the end of financial year, small businesses must now consider a new tax measure which could save them hundreds of thousands of dollars, as Parliament yesterday passed the loss carry-back measures.
The loss carry-back scheme means about 110,000 Australian businesses will be able to benefit from the new tax break, as small businesses can “carry back” their losses to offset past profits and receive a tax refund.
Small businesses are able to carry back up to $1 million in deductions against profits made in the previous year to receive a refund of up to $300,000 each year from tax previously paid – representing the company tax rate of 30 cents in the dollar.
Council of Small Businesses of Australia executive director Peter Strong told SmartCompany this measure was good for small business and urged business owners to consult with their accountant to make the most of the scheme.
“Now we have to get the message out there to people who qualify for it about what they can do with it. This is accountant’s territory.
“It’s particularly beneficial to businesses which want to reinvent themselves – retailers who want to refurbish their stores, manufacturers which need new tools or new machinery and even transport companies which may need a more efficient truck or a new trailer,” he says.
Prior to this new legislation, businesses have been able to carry debt forward to offset profits in future years, but this is the first time in Australian history businesses have been able to carry the losses back to gain refunds on previous profits.
Despite the end of financial year being just three days away, businesses have been granted a one-year loss carry-back for the 2012-2013 financial year, where tax losses incurred this financial year can be carried back and offset against tax paid in 2011-2012.
Next year and in later years, tax losses will be able to be carried back and offset against tax paid up to two years earlier.
CPA Australia head of policy Paul Drum told SmartCompany CPA Australia and other bodies first started pushing for a loss carry-back measure in early 2000.
“It was raised in the early 2000s, but the GFC was the catalyst and at the national tax forum in 2011 we revisited it and the government decided it would bring it in.
“It will play havoc with the federal budget, but there are some caps around it which means it’s not totally out of control, particularly around which businesses can claim who is eligible,” he says.
Drum says it’s a measure designed to help small business, although he says its place in the tax system may be short-lived.
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“I really don’t think it will become part of the landscape of perpetuity because there are other things we have to deal with and it’s too costly.
“It’s really a question of affordability, regardless of which government we have, since this is something the current opposition small business minister, Bruce Billson, would usually have liked. So it’s likely to be a short-term measure which will help ameliorate the fallout from the GFC,” he says.
Drum says because the measure is likely to be short-lived, businesses should capitalise on it this financial year.
The loss carry-back measure was also proposed in 2011 as part of the Henry Tax Review, as one of the reforms to the company tax system.
The delay in passing the legislation in Parliament sparked concerns from tax professionals earlier this year that the small business measure would never become law.