The private sector is an engine-room of the economy, producing 8 out of every 10 Australian jobs. The 2020-21 budget includes several measures that will give the COVID-hit sector a kick-start and help businesses keep their workers.
An unprecedented decision from this budget is the allowance of businesses to apply tax losses against tax profits from a previous financial year. This measure is called the loss carry-back.
What is the loss carry-back and how does it work?
Under the loss carry-back measure, businesses with an aggregated turnover of up to $5 billion can apply tax losses against tax profits in a previous financial year. The $5 billion threshold covers 99 per cent of businesses, Australia wide.
The initiative allows eligible businesses to carry back tax losses from the 2019/20, 2020/21, or 2021/22-income years to offset previously taxed profits in 2018/19 or later income years.
The new measure essentially backflips the previous arrangement, where businesses normally must return to profit before they can use these losses. This allows businesses doing it tough due to the pandemic to use their losses now and receive a healthier tax return.
For example, under the previous arrangement, if a business made a loss in the FY 2020-2021 and didn’t return to profit until FY 2022-23, they would’ve had to wait two whole years to claim back the loss they made. However, the new claim back measure would allow this business to use its FY 2020-21 loss to amend its tax returns going all the way back to FY 2018-19. Doing so would result in an immediate reimbursement of tax previously paid.
To be eligible, the tax refund requires the amount carried back isn’t more than the earlier taxed profits and that the carry back doesn’t generate a franking account deficit.
It’s estimated that the combination of the loss carry-back and the full expensing measures will create an additional 50,000 Australian jobs.
How can businesses make the most out of the loss carry-back?
BMT Tax Depreciation has analysed this new measure and has found that a tax depreciation schedule will help businesses claim back the maximum amount.
Any business, whether they own the property they operate from or lease it, can benefit from lucrative depreciation deductions. Depreciation is the natural wear and tear of a property and its assets over time and claiming depreciation reduces tax liabilities.
One of the most beneficial features of depreciation is that it’s a non-cash deduction, meaning businesses don’t need to spend any money to claim it. So unlike other losses a business could be experiencing such as a reduction of patronage due to COVID-19 restrictions, the business doesn’t have to make a fiscal loss to claim depreciation.
Therefore, if a business organises a depreciation schedule now, claims the deductions and uses these to amend previous returns they can get a much bigger financial benefit.
Businesses can achieve maximum carry back with BMT
A tax depreciation schedule is the best way to identify all the deductions a business owner can claim. BMT Tax Depreciation has completed schedules for thousands of businesses across the country.
When preparing a schedule, BMT will conduct a site inspection to ensure that everything is claimed, and full compliance is maintained. Their comprehensive commercial schedules include every business incentive available.
To learn more about depreciation and how BMT maximises deductions for business owners, Request a Quote or call 1300 728 726.