Business groups have welcomed the Federal Government’s Budget tax loss carry-back measures, although concerns remain over business tax levels amid local and global economic conditions.
In a bid to boost confidence in the small business sector, businesses will be able to “carry back” losses of up to $1 million as part of a Federal Budget initiative.
Currently, businesses are able to carry forward their tax losses to offset future profits and reduce future tax liabilities.
The new initiative will allow businesses to also carry back their losses, to offset past profits and receive a refund of tax previously paid on that profit.
In doing so, this reform will mean businesses can use their tax losses now – when they need to – rather than in the future when their businesses are performing better.
As part of the loss carry-back, from July 1 this year, companies will be able to carry back up to $1 million worth of losses to get a refund of tax paid in the previous year.
From July 1 next year, companies will be able to carry back up to $1 million worth of losses against tax paid up to two years earlier.
“It will give businesses greater access to their legitimate tax deductions when they are making losses,” Treasurer Wayne Swan said in a joint statement with Assistant Treasurer David Bradbury and Small Business Minister Brendan O’Connor.
“It will help struggling companies adjust to the challenges and opportunities of the patchwork economy by improving cashflows and reduce disincentives for businesses to take sensible risks.”
The introduction of the loss carry-back tax reform implements another recommendation of Australia’s Future Tax System review.
The government is expected to release a discussion paper about the introduction of the loss carry-back shortly.
Garry Green, national sales manager of Bibby Financial Services, says while he welcomes the tax loss carry-back measures, there is still a strong case for small business tax cuts.
“The latest statistics from Dun & Bradstreet’s business expectations survey reveal declining expectations for Australian businesses in the coming September quarter,” Green says.
“Similarly, ASIC statistics show that 1,123 companies were placed into receivership in February 2012, which is the highest number on record since the statistics were introduced in 1999.”
“The majority of these were SMEs with fewer than five employees.”
According to Green, the research is “painting a consistent picture” of small business stress.
“We call on the Federal Government to provide tax relief in the budget for the struggling small business sector… given the tough economic conditions in which SMEs are currently operating,” he says.