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02 October 2020

Loss carry back scheme would boost otherwise profitable businesses

The Australian Small Business and Family Enterprise Ombudsman Kate Carnell says formerly profitable small businesses impacted by the COVID crisis would get a much-needed cash flow boost if loss carry-back tax provisions are re-introduced.

The Ombudsman’s comments follow media reports the Federal Government is considering an OECD recommendation to implement a loss carry-back provision for usually profitable businesses that will report a loss this year due to the pandemic-induced economic downturn.

“This is a tax initiative that would result in tangible benefits for small businesses that would have otherwise been profitable if not for harsh trading restrictions and lockdowns,” Ms Carnell says.

“It effectively allows a small business that has paid tax on profits in previous years to claim back that tax offset a loss in the current year.

“This has been adopted by other countries such as the US, Japan, New Zealand, Germany and Belgium and was previously introduced for a short time by the Gillard Government.

“When it was first introduced in 2012, the Institute of Public Accountants (IPA) said the loss carry-back measure would benefit 110,000 Australian businesses.

“Unfortunately the provision was scrapped in 2013 with the repeal of the Mineral Resource Rent Tax, despite being recommended by the Henry Tax Review.

“While we haven’t seen the detail on this proposal as yet, the OECD is recommending Australia introduce the loss carry-back provision to mitigate the damage inflicted on businesses that were previously profitable.

“Generally speaking, the Federal Government has an opportunity to implement tax reforms now that will support the small business sector grow and hire to restart the economy.

“Our COVID-19 Recovery Plan outlines a number of additional recommendations to build economic confidence, including a range of taxation reforms.”