Examples on what to include in the Loss carry back change in choice schedule.
Example 1: Changing the loss carry back choice for one income year
JKL Co is not a base rate entity. For the 2020–21 income year, JKL Co has a taxable income of $300,000, no net exempt income and income tax liability of $90,000.
For the:
- 2021–22 income year
- JKL Co has a tax loss of $800,000 and chooses to carry back $300,000 of that loss to the 2020–21 income year
- the amount of its tax offset is worked out to be $90,000
- the amount of tax loss carried forward is $500,000
- the amount of its opening franking account balance is $400,000
- the amount of its closing franking account balance is $422,500
- 2022–23 income year
- JKL Co has taxable income (before deducting tax losses) of $60,000
- after deducting $60,000 of the tax loss it carried forward, it has no taxable income and carries forward the remaining tax loss of $440,000
- 2023–24 income year
- JKL Co has taxable income (before deducting tax losses) of $290,000
- after deducting $290,000 of the tax loss it carried forward, it has no taxable income and carries forward the remaining tax loss of $150,000.
JKL Co's assessment for the 2020–21 income year is subsequently amended to increase the taxable income to $600,000, resulting in tax payable of $180,000.
JKL Co wants to change its original loss carry back choice for the 2021–22 income year to increase the amount of tax loss carried back to the 2020–21 income year from $300,000 to $600,000. The tax offset for the 2021–22 income year is increased to $180,000 and the amount of tax loss carried forward is reduced by $300,000 to $200,000.
As a result:
- JKL Co will still have no taxable income in the 2022–23 income year but the tax loss remaining to be carried forward in the 2022–23 income year is reduced by $300,000 to $140,000
- for the 2023–24 income year, JKL Co will have $140,000 of tax loss available to be deducted, resulting in a reduction in tax losses deducted by $150,000, an increase in taxable income by $150,000 to $150,000 and a decrease in tax losses carried forward to later years by $150,000 to $0.
JKL Co:
- notifies us of the change in loss carry back choice by completing a Loss carry back change in choice schedule 2022 and lodging it with an amendment request for Company tax return 2022
- lodges an amendment request for Company tax return 2024, as JKL Co only has $140,000 of tax loss available to be deducted, resulting in a taxable income of $150,000.
JKL Co completes the Loss carry back change in choice schedule 2022 as follows:
- at item 1, JKL Co selects B as it is changing the loss carry back choice due to an adjustment to the tax liability for the 2020–21 income year
- at item 2, JKL Co prints X in the Yes box as it has lodged the company tax return for the 2022–23 and 2023–24 income year and the change in loss carry back choice affects the company tax return for the 2023–24 income year but does not affect a loss carry back change in choice for the 2022–23 income year
- at item 3, JKL Co completes the following labels which are relevant to making and changing its loss carry back choice for the 2021–22 income year
- label F Tax loss in 2021–22 carried back to 2020–21 with $600,000
- label M Net exempt income 2020–21 with $0
- label Q Income tax liability for 2020–21 with $180,000
- label S Opening franking account balance with $400,000
- label T Closing franking account balance with $422,500
- label X Loss carry back tax offset with $180,000
- at item 4, JKL Co:
- prints X in the Increase box at label A because it is increasing the total amount of tax losses carried back as a result of its change in loss carry back choice
- writes $300,000 at label B, which is the difference between the original amount of $300,000 and the new amount of $600,000
- at item 5, JKL Co completes
- Part A – choice year column
- as there is no change in total tax losses deducted in the 2021–22 income year, JKL Co prints X in the No change box at label A and leaves label B and C blank
- Part B – consequential amendments column, but only for 2023 and 2024 as they are the only years where the company tax returns have been lodged and are affected by the change in loss carry back choice
- as there is no change in total tax losses deducted in the 2022–23 income year, JKL Co prints X in the No change box at label A, and leaves label B and C blank
- for the 2023–24 income year, as there is a reduction in tax losses available to be deducted, JKL Co prints X in the Decrease box at label A and writes the difference of $150,000 at label B and the amount of $140,000 at label C
- Part A – choice year column
- at item 6, JKL Co completes
- Part B – consequential amendments column, but only for 2023 and 2024 as they are the only years where the company tax returns have been lodged and are affected by the change in loss carry back choice
- as there are no other adjustments to taxable/net income or loss for the 2022–23 income year, JKL Co prints X in the No box at label A and leaves label B and C blank
- as there are no other adjustments to taxable/net income or loss for the 2023–24 income year in addition to the amounts shown at item 5, JKL Co prints X in the No box at label A and leaves label B and C blank
- Part B – consequential amendments column, but only for 2023 and 2024 as they are the only years where the company tax returns have been lodged and are affected by the change in loss carry back choice
- at item 7, JKL Co completes
- Part A – choice year column
- as there is no change in the amount of taxable/net income or loss for the 2021–22 income year, JKL Co prints X in the No change box at label A and leaves label B, C and D blank
- Part B – consequential amendments column, but only for 2023 and 2024 as they are the only years where the company tax returns have been lodged and are affected by the change in loss carry back choice
- as there is no change in the amount of taxable/net income or loss for the 2022–23 income year, JKL Co prints X in the No change box at label A, and leaves label B, C and D blank
- for the 2023–24 income year, as there is an increase in taxable/net income due to the change in choice for 2021–22, JKL Co prints X in the Increase box at label A, writes the difference of $150,000 at label B and $150,000 at label C, and leaves label D blank.
- Part A – choice year column
- at item 8, JKL Co completes
- Part A – choice year column
- as there is a decrease in tax losses carried forward to later years from the 2021–22 income year, JKL Co prints X in the Decrease box at label A, writes the difference of $300,000 at label B and the new amount of tax losses carried forward to later years of $200,000 at label C
- Part B – consequential amendments column, but only for 2023 and 2024 as they are the only years where the company tax returns have been lodged and are affected by the change in loss carry back choice
- as there is a decrease in tax losses carried forward to later years from the 2022–23 income year, JKL Co prints X in the Decrease box at label A, writes the difference of $300,000 at label B and the new amount of tax losses carried forward to later years of $140,000 at label C
- as there is a decrease in tax losses carried forward to later years from the 2023–24 income year, JKL Co prints X in the Decrease box at label A, writes the difference of $150,000 at label B and the new amount of tax losses carried forward to later years of $0 at label C.
- Part A – choice year column
Example 2: Changing two loss carry back choices
MNO Co is not a base rate entity. For the 2019–20 income year, MNO Co has a taxable income of $50,000, no net exempt income and income tax liability of $15,000.
For the:
- 2020–21 income year
- MNO Co has a tax loss of $20,000 and chooses to carry back all of that loss to the 2019–20 income year
- the amount of its tax offset is worked out to be $6,000
- there are no remaining tax losses to be carried forward
- the amount of its opening franking account balance is $3,000
- the amount of its closing franking account balance is $18,000
- 2021–22 income year
- MNO Co has a tax loss of $30,000 and chooses to carry back all of that loss to the 2019–20 income year
- the amount of its tax offset is worked out to be $9,000
- there are no remaining tax losses to be carried forward
- the amount of its opening franking account balance is $18,000
- the amount of its closing franking account balance is $12,000.
MNO Co identifies an error in its franking account. Specifically, the closing franking account balance included a credit for a tax liability of $15,000 that was paid after 1 July 2021. Consequently, MNO Co's correct closing franking account balance at the end of the 2020–21 income year is $3,000 and the maximum amount of its loss carry back tax offset is reduced to $3,000.
MNO Co only needs to carry back $10,000 to obtain the $3,000 tax offset and requests a change to its 2021 loss carry back choice to reduce the 2020–21 losses carried back to 2019–20 to $10,000. The balance of $10,000 tax losses can be carried forward to later income years. MNO Co also wants to change its 2021–22 loss carry back choice to carry back the $10,000 tax loss from the 2020–21 income year.
MNO Co notifies us of:
- the change in loss carry back choice for the 2020–21 income year by completing a Loss carry back change in choice schedule 2021 and lodging it with an amendment request for Company tax return 2021
- the change in loss carry back choice for the 2021–22 income year by completing a Loss carry back change in choice schedule 2022 and lodging it with an amendment request for Company tax return 2022.
As MNO Co is lodging a loss carry back change in choice schedule for the 2020–21 and the 2021–22 income years and there are no other consequential amendments for other income years, MNO Co only needs to complete Part A – choice year column in each loss carry back change in choice schedule.
MNO Co completes the Loss carry back change in choice schedule 2021 as follows:
- at item 1, MNO Co selects A as it is changing the loss carry back choice because it was carrying back more losses than needed to claim the maximum amount of the tax offset
- at item 2, MNO Co prints X in the No box because, while it has lodged the company tax return for the 2021–22 income year and the company tax return for the 2021–22 income year is affected by the change in loss carry back choice, it is lodging a loss carry back change in choice schedule for the 2021–22 income year
- at item 3, MNO Co completes the following labels which are relevant to making and changing its loss carry back choice for the 2020–21 income year
- label C Tax loss in 2020–21 carried back to 2019–20 with $10,000
- label L Net exempt income 2019–20 with $0
- label P Income tax liability for 2019–20 with $15,000
- label S Opening franking account balance with $3,000
- label T Closing franking account balance with $3,000
- label X Loss carry back tax offset with $3,000
- at item 4, MNO Co
- prints X in the Decrease box at label A because it is decreasing the total amount of tax losses carried back as a result of its change in loss carry back choice
- writes $10,000 at label B, which is the difference between the original amount of $20,000 and the new amount of $10,000
- at item 5, MNO Co
- prints X in the No change box at label A as there is no change in total tax losses deducted in the 2020–21 income year
- leaves label B and C blank
- MNO Co is not required to complete item 6
- at item 7, MNO Co
- prints X in the No change box at label A as there is no change in the amount of taxable/net income or loss for the 2020–21 income year
- leaves label B, C and D blank
- at item 8, MNO Co
- prints X in the Increase box at label A as there is an increase in tax losses carried forward to later years from the 2020–21 income year
- writes the difference of $10,000 at label B
- writes the new amount of tax losses carried forward to later years of $10,000 at label C.
MNO Co completes the Loss carry back change in choice schedule 2022 as follows:
- at item 1, MNO Co selects E as it is changing the loss carry back choice due to the change to its loss carry back choice for the 2020–21 income year
- at item 2, MNO Co prints X in the No box because it has not lodged a company tax return for a subsequent year
- at item 3, MNO Co completes the following labels which are relevant to making and changing its loss carry back choice for the 2021–22 income year
- label C Tax loss in 2020–21 carried back to 2019–20 with $10,000
- label F Tax loss in 2021–22 carried back to 2019–20 with $30,000
- label L Net exempt income 2019–20 with $0
- label P Income tax liability for 2019–20 with $15,000
- label S Opening franking account balance with $3,000
- label T Closing franking account balance with $12,000
- label V Tax rate 2020–21 with 30%
- label X Loss carry back tax offset with $12,000
- at item 4, MNO Co:
- prints X in the Increase box at label A because it is increasing the total amount of tax losses carried back as a result of its change in loss carry back choice
- writes $10,000 at label B, which is the difference between the original amount of $30,000 and the new amount of $40,000
- at item 5, MNO Co:
- prints X in the No change box at label A as there is no change in total tax losses deducted in the 2021–22 income year
- leaves label B and C blank
- MNO Co is not required to complete item 6
- at item 7, MNO Co
- prints X in the No change box at label A as there is no change in the amount of taxable/net income or loss for the 2021–22 income year
- leaves label B, C and D blank
- at item 8, MNO Co
- prints X in the No change box at label A as there is still no losses to be carried forward to later years from the 2021–22 income year
- leaves label B and C blank.