Tax Loss Claim Against Prior Year Profits

Applying Current Year Losses Against Prior Year Tax Liabilities

Legislation not yet passed, but imminent, is intended to allow companies to utilise a current year tax loss against a tax liability paid in a previous income year.
The legislation is intended to apply from 1st July 2012.
There are a number of conditions that will need to be met before the tax offset is able to be used. In summary these are:

   . The taxpayer is a corporate entity or an entity that is taxed like a company.
   . The entity has a tax loss from the current year or carried forward from the preceding year.   
   . The entity has an unutilised tax liability for the preceding income year or the year before that.
   . The entity has lodged all its tax returns for the current year and each of the previous five income years.
   . The entity has a positive franking account balance at the end of the current year and,
   . The entity does not fail the specific loss carry-back integrity rule. The entity must meet either the continuity of ownership or same business test.

In most cases the legislation will apply when an entity carries back a tax loss that is made in the current income year. From 2014 income year onwards, losses claimed can be claimed against tax liabilities of either of the two previous income years. However, in the 2013 income year it will only be possible to claim current year losses against the company's tax liability for the 2012 income year.

There are some losses that are not eligible under the loss carry-back rules. In summary these are:

   . Capital losses
   . Losses that are created when a company has excess franking credits for an income year.
   . In some situations losses transferred between companies in the same foreign banking group.
   . In some situations where losses are transferred to the head company of a consolidated group by an entity joining the group.