The Australian Taxation Office (ATO) has announced that Treasury Laws Amendment (2021 Measures No. 5) Act 2021 has received royal assent, allowing corporate tax entities to make a change to a loss carry back choice. In relation to this, the ATO has published updated guidance on the Loss carry back tax offset, including that an entity wanting to change a loss carry back choice must notify the ATO using an approved form.

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Loss carry back tax offset

Loss carry back provides a refundable tax offset that eligible corporate entities can claim:

• after the end of their 2020–21 and 2021–22 income years
• in their 2020–21 and 2021–22 company tax returns.

Eligible entities get the offset by choosing to carry back losses to earlier years in which there were income tax liabilities. The offset effectively represents the tax the eligible entity would save if it was able to deduct the loss in the earlier year using the loss year tax rate. As it is a refundable tax offset, it may result in a cash refund, a reduced tax liability or a reduction of a debt owing to the ATO.

The eligible entity does not need to amend the earlier income years to claim the offset.

If an entity does not choose to carry back a loss, the loss may be carried forward to use in a later income year.

The law has recently been amended to allow a loss carry back choice to be changed. An entity wanting to change a loss carry back choice must notify us using an approved form. Further information about the approved form and how to change a choice will be available soon.

Loss carry back is intended to interact with temporary full expensing, encouraging new investment which may result in tax losses. Where the choice to carry back tax losses results in a tax refund, this will increase business cash flow.