Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020 (92 of 2020)
Schedule 2 Temporary loss carry back
Part 1 Main amendments
Income Tax Assessment Act 1997
2 Before Division 164
Insert:
Division 160 - Corporate loss carry back tax offset for 2020-21 or 2021-22 for businesses with turnover under $5 billion
Table of Subdivisions
Guide to Division 160
160-A Entitlement to and amount of loss carry back tax offset
160-B Loss carry back choice
Guide to Division 160
160-1 What this Division is about
A corporate tax entity can choose to "carry back" a tax loss it had for 2019-20, 2020-21 or 2021-22 against the income tax liability it had for 2018-19, 2019-20 or 2020-21.
The entity gets a refundable tax offset for 2020-21 or 2021-22 that is a proxy for the tax the entity would save if it deducted the loss in the income year to which the loss is "carried back".
The refundable tax offset:
(a) is capped at the entity's franking account balance; and
(b) is only available for losses for years for which the entity's turnover was less than $5 billion.
Subdivision 160-A - Entitlement to and amount of loss carry back tax offset
Table of sections
160-5 Entitlement to loss carry back tax offset
160-10 Amount of loss carry back tax offset
160-5 Entitlement to loss carry back tax offset
An entity is entitled to a *tax offset (the loss carry back tax offset ) for the *current year if the following conditions are satisfied:
(a) the current year is:
(i) the 2020-21 income year; or
(ii) the 2021-22 income year;
(b) the entity is a *corporate tax entity throughout the current year;
Note: See also section 160-25.
(c) any or all of the following income years were *loss years:
(i) the 2019-20 income year;
(ii) the 2020-21 income year;
(iii) if the current year is the 2021-22 income year - the 2021-22 income year;
(d) the entity had an *income tax liability for any or all of the following income years:
(i) the 2018-19 income year;
(ii) the 2019-20 income year;
(iii) if the current year is the 2021-22 income year and the 2021-22 income year was a loss year - the 2020-21 income year;
(e) any of the following requirements are satisfied for the current year and each of the 5 income years before the current year:
(i) the entity has lodged its *income tax return for the year;
(ii) the entity was not required to lodge an income tax return for the year;
(iii) the Commissioner has made an assessment of the entity's income tax for the year;
(f) the entity makes a *loss carry back choice for the current year in accordance with Subdivision 160-B.
Note 1: The entity can be entitled to only one loss carry back tax offset for 2020-21. However, that offset has 2 components: one relating to 2018-19 and one relating to 2019-20: see section 160-10.
Note 2: The entity can be entitled to only one loss carry back tax offset for 2021-22. However, that offset has 3 components: one relating to 2018-19, one relating to 2019-20 and one relating to 2020-21: see section 160-10.
Note 3: The loss carry back tax offset is a refundable tax offset: see section 67-23.
160-10 Amount of loss carry back tax offset
(1) The amount of the entity's *loss carry back tax offset for the *current year is the lesser of the following amounts:
(a) the sum of the *loss carry back tax offset components for:
(i) the 2018-19 income year; and
(ii) the 2019-20 income year; and
(iii) if the current year is the 2021-22 income year - the 2020-21 income year;
(b) the entity's *franking account balance at the end of the current year.
Meaning of loss carry back tax offset component
(2) For the purposes of working out the amount of the entity's *loss carry back tax offset for the *current year, the entity's loss carry back tax offset component for an income year is:
(a) if the entity does not, in its *loss carry back choice for the current year, *carry back any *tax losses to the income year - nil; or
(b) otherwise - so much of the entity's *income tax liability for the income year as does not exceed:
(i) if, in its loss carry back choice for the current year, the entity carries back only one tax loss to the income year - the amount worked out at step 3 of the following method statement in relation to the tax loss; or
(ii) if, in its loss carry back choice for the current year, the entity carries back tax losses for 2 or 3 *loss years to the income year - the sum of the amounts worked out at step 3 of the following method statement in relation to each of those tax losses.
Method statement
Step 1. Start with the amount of the *tax loss the entity *carries back to the income year.
Step 2. Reduce the step 1 amount by the entity's *net exempt income for the income year.
Note: Do not reduce the step 1 amount by the entity's net exempt income to the extent the net exempt income has already been utilised: see section 960-20.
Step 3. Multiply the step 2 amount by the *corporate tax rate for the *loss year.
Example: Company A (which is not a base rate entity) has at the end of the 2020-21 income year:
(a) a tax loss of $900,000 for that year and a franking account balance of $280,000; and
(b) for the 2018-19 income year - an income tax liability of $120,000 and net exempt income of $5,000; and
(c) for the 2019-20 income year - an income tax liability of $210,000.
Company A chooses to carry back $405,000 of its tax loss for the 2020-21 year to the 2018-19 year and $495,000 of that loss to the 2019-20 year.
Company A's loss carry back tax offset for the 2020-21 year is $268,500, worked out as follows:
(a) an offset component for the 2018-19 income year of $120,000, calculated by starting with the $405,000 carried back, reducing that at step 2 by $5,000, and multiplying the result by 30%;
(b) an offset component for the 2019-20 income year of $148,500, calculated by starting with the $495,000 carried back and multiplying the result by 30%.
The sum of the 2 components is $268,500 (which is less than Company A's $280,000 franking account balance at the end of the 2020-21 year). If that sum had exceeded that balance, the amount of the offset would have been limited under paragraph (1)(b) of this section to that balance.
Income tax liability for the 2018-19 or 2019-20 income year already utilised
(3) Subsection (4) applies in relation to applying paragraph (2)(b) to work out the entity's *loss carry back tax offset component for the 2018-19 or 2019-20 income year (the gain year ) as part of working out the entity's entitlement to a *loss carry back tax offset for the 2021-22 income year.
(4) Disregard so much of the entity's *income tax liability for the gain year as has previously been included (as part of working out the entity's entitlement to a *loss carry back tax offset for the 2020-21 income year) in a *loss carry back tax offset component.
Foreign residents
(5) Paragraph (1)(b) does not apply if the entity was a foreign resident (other than an *NZ franking company) for:
(a) if the entity *carries back an amount to the 2018-19 income year - more than half of the 2018-19 income year; and
(b) if the entity carries back an amount to the 2019-20 income year - more than half of the 2019-20 income year; and
(c) if the *current year is the 2021-22 income year and the entity carries back an amount to the 2020-21 income year - more than half of the 2020-21 income year.
Subdivision 160-B - Loss carry back choice
Table of sections
160-15 Loss carry back choice
160-20 Entity must have had turnover less than $5 billion for loss year
160-25 Entity must have been a corporate tax entity during relevant years
160-30 Transferred tax losses, income tax liabilities etc. not included
160-35 Integrity rule - no loss carry back tax offset if scheme entered into
160-15 Loss carry back choice
(1) If the *current year is the 2020-21 or 2021-22 income year, the entity may make a loss carry back choice for the current year that specifies the following:
(a) if the current year is the 2021-22 income year:
(i) how much of the entity's *tax loss (if any) for the 2021-22 income year is to be *carried back to the 2020-21 income year; and
(ii) how much of the entity's tax loss (if any) for the 2021-22 income year is to be carried back to the 2019-20 income year; and
(iii) how much of the entity's tax loss (if any) for the 2021-22 income year is to be carried back to the 2018-19 income year;
(b) in any case:
(i) how much of the entity's tax loss (if any) for the 2020-21 income year is to be carried back to the 2019-20 income year; and
(i) how much of the entity's tax loss (if any) for the 2020-21 income year is to be carried back to the 2018-19 income year;
(c) in any case - how much of the entity's tax loss (if any) for the 2019-20 income year is to be carried back to the 2018-19 income year.
(2) The choice under subsection (1) must be made in the *approved form by:
(a) the day the entity lodges its *income tax return for the *current year; or
(b) such later day as the Commissioner allows.
160-20 Entity must have had turnover less than $5 billion for loss year
The entity cannot *carry back an amount of a *tax loss for an income year unless the entity:
(a) was a *small business entity for the income year; or
(b) would have been a small business entity for the income year if:
(i) each reference in Subdivision 328-C (about what is a small business entity) to $10 million were instead a reference to $5 billion; and
(ii) the reference in paragraph 328-110(5)(b) to a small business entity were instead a reference to an entity covered by this section.
160-25 Entity must have been a corporate tax entity during relevant years
(1) If the *current year is the 2020-21 income year:
(a) the entity cannot *carry back an amount of a *tax loss to the 2018-19 income year unless the entity was a *corporate tax entity throughout:
(i) the 2018-19 income year (disregarding any period when the entity was not in existence); and
(ii) the 2019-20 income year; and
(b) the entity cannot carry back an amount of a tax loss to the 2019-20 income year unless the entity was a corporate tax entity throughout the 2019-20 income year (disregarding any period when the entity was not in existence).
Note: The entity must be a corporate tax entity throughout 2020-21: see paragraph 160-5(b).
(2) If the *current year is the 2021-22 income year:
(a) the entity cannot *carry back an amount of a *tax loss to the 2018-19 income year unless the entity was a *corporate tax entity throughout:
(i) the 2018-19 income year (disregarding any period when the entity was not in existence); and
(ii) the 2019-20 income year; and
(iii) the 2020-21 income year; and
(b) the entity cannot carry back an amount of a tax loss to the 2019-20 income year unless the entity was a corporate tax entity throughout:
(i) the 2019-20 income year (disregarding any period when the entity was not in existence); and
(ii) the 2020-21 income year; and
(c) the entity cannot carry back an amount of a tax loss to the 2020-21 income year unless the entity was a corporate tax entity throughout the 2020-21 income year (disregarding any period when the entity was not in existence).
Note: The entity must be a corporate tax entity throughout 2021-22: see paragraph 160-5(b).
160-30 Transferred tax losses, income tax liabilities etc. not included
(1) The entity cannot *carry back an amount of a *tax loss for an income year, to the extent that the loss:
(a) was transferred to or from the entity under Division 170 or Subdivision 707-A (about certain company groups); or
(b) exceeds the amount that would be the entity's tax loss for the year if section 36-55 (about excess franking offsets) were disregarded.
(2) For the purposes of this Division, disregard the *income tax liability of the entity for an income year to the extent that it consists of an income tax liability of a *subsidiary member of a *consolidated group or *MEC group that is taken to be an income tax liability of the entity because of section 701-5 (the entry history rule).
160-35 Integrity rule - no loss carry back tax offset if scheme entered into
No loss carry back tax offset if scheme entered into
(1) The *corporate tax entity cannot *carry back an amount of a *tax loss to an income year (the gain year ) if:
(a) there is a *scheme for a disposition of *membership interests, or an *interest in membership interests, in:
(i) the corporate tax entity; or
(ii) an entity that has a direct or indirect interest in the corporate tax entity; and
(b) the scheme is entered into or carried out during the period:
(i) starting at the start of the gain year; and
(ii) ending at the end of the *current year; and
(c) the disposition results in a change in who controls, or is able to control, (whether directly, or indirectly through one or more interposed entities) the voting power in the corporate tax entity; and
(d) another entity receives, in connection with the scheme, a *financial benefit calculated by reference to one or more *loss carry back tax offsets to which it was reasonable, at the time the scheme was entered into or carried out, to expect the corporate tax entity would be entitled; and
(e) having regard to the relevant circumstances of the scheme, it would be concluded that a person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the corporate tax entity to get a loss carry back tax offset.
Relevant circumstances
(2) For the purposes of paragraph (1)(e), the relevant circumstances of the *scheme for a disposition include the following:
(a) the extent to which the *corporate tax entity continued to conduct the same activities after the scheme as it did before the scheme;
(b) if the corporate tax entity continued to use the same assets after the scheme as it did before the scheme - the extent to which those assets were assets for which equivalents were not readily available at the time of the scheme;
(c) the matters referred to in subsection 177D(2) of the Income Tax Assessment Act 1936 (applying paragraph 177D(2)(d) as if the reference in that paragraph to Part IVA of that Act were instead a reference to this section).
Application of this section to non-share equity interests
(3) This section:
(a) applies to a *non-share equity interest in the same way as it applies to a *membership interest; and
(b) applies to an *equity holder in the same way as it applies to a *member.