Federal Budget: The Extension of the Company Loss Carry Back

During the federal budget broadcast, the government announced an extension of one of the stimulus measures which was mentioned about a year ago, which is the company loss carry back. Just as a reminder for what this one is – if you use a company structure and you’ve been profitable (which I hope many of you who run companies are), then you pay tax in the company. 

Let’s say COVID hit and then, all of a sudden, you made a loss, which is unfortunate, but one of the allowances last year was that you’re able to take that loss that you made now, and apply it on previous financial years. So we normally couldn’t do that – the rule is you can carry a loss forward, but you can’t carry a loss back. But a year ago, they said you can carry a loss back now, which is fantastic! You can go and get some of that tax that you paid in previous years back in your pocket. 

So what they’ve announced in their budget is that this stimulus measure is now extended for another financial year. So you can offset losses in 2021 financial year, 2022, 2023, and you can write them back against profits as early as the 2019 financial year. 

The other interesting thing is the full expensing of assets. So let’s say you’ve made $200,000 grand in profit but you want to buy a massive truck because you’re investing in the growth of your business, and that truck is $500,000 and a brand-new one. So you can write off the $500,000 truck, so you’ve made a tax loss of $300,000. So under the company loss carry back rule, you can actually take that $300,000 loss and write that back against your previous profits. So you see how the two can work hand in hand. And even that truck, you might be able to finance so you don’t have that $500,000 cashflow outlay up front. 

So anyway, just food for thought and it’s interesting how these might work together. This is just a slice of a strategy that we use is things like that. So it’s not about knowing just the rules; it’s how you use them in tandem that really makes the big impact.