The Federal Government’s tax loss carry-back scheme has taken centre stage at the 2012 Federal Budget, but most companies will have to wait until around 2014 in order to cash in.
Federal Treasurer Wayne Swan confirmed the government will introduce the $714 million tax reform in a bid to help struggling small businesses.
“We’ll encourage companies to invest and innovate by offsetting a current year tax loss of up to $1 million against tax paid in previous years,” Swan said in his budget speech.
“This will support businesses when they need it – providing an injection of funds to invest in new ideas, equipment and markets.”
In 2012-13, companies will be able to carry back tax losses of up to $1 million so they get a refund against tax previously paid.
From 2013-14, companies will be able to carry back losses for two years, providing a tax benefit of up to $300,000 per year.
For example, a manufacturer makes a profit of $1 million in 2011-12 and pays $300,000 tax. The next year, it makes a loss due to depreciation on new investments.
It would qualify for loss carry-back and are able to get up to $300,000 back.
“We estimate this will help around 110,000 businesses over the first four years,” Swan said.
However, the measure will only be available to “companies and entities that are taxed like companies”, and will apply to their revenue losses only.
The Australian Chamber of Commerce and Industry has already welcomed the measure, although chief executive Peter Anderson has described the benefits as “modest”.
According to Anderson, the benefits are unlikely to accrue until 2014. He also expressed concern that they only apply to incorporated businesses.
It’s worth noting almost three quarters of all small businesses are not companies, so the reform automatically discounts the majority of small businesses.
The loss carry-back tax reform is a recommendation of the Swan’s Business Tax Working Group. The government is expected to release a discussion paper about its introduction shortly.