The Minerals Resource Rent Tax Repeal and other Measures Bill 2014 (“the Bill”) received Royal Assent on 5 September 2014 and became law. IMPORTANTLY, the Bill included the repeal of the loss carry-back tax offset provisions, with an effective date of 30 September 2014. The loss carry-back tax offset was originally enacted through the Tax and Superannuation Laws Amendment (2013 Measures No.1) Act 2013, which received Royal Assent on 28 June 2013 and was seen to be good chance for businesses to “smooth out” their income tax liabilities over a period of years rather than just rely on the carry forward loss provisions. So much for a good idea. It was squashed before it got going!!
What are the Loss-Carry Back Tax Offset Provisions?
Essentially, the loss carry-back tax offset provisions permitted a company to apply current year tax losses to recover tax paid in prior years. The provisions enabled a company to ‘carry back’ up to $1m of tax losses incurred in the 2012/13 year to recoup tax paid for the 2011/12 year. The provisions commenced for the 2012/13 year.
What does the Repeal mean for a Company?
The repeal of the loss-carry back tax offset provisions applies from the start of the 2013/14 year but the operation of the provisions for the 2012/13 income year is preserved. For example, a choice to carry back a loss for the 2012/13 income year can still be made or changed to the extent that it could have been made or changed had the provisions not be repealed.
However, companies that claimed the loss carry-back tax offset before the repeal took effect and that are now no longer eligible have been or are likely to be contacted by the Australian Taxation Office (“ATO”) about their circumstances. The ATO may remove the claimed offset from the affected assessment and send the company a Notice of Amended Assessment. In many instances, the amount now claimed by the ATO may be significant, particularly for a company in the SME space, and may have a significant impact on the financial health of the company. In some instances, the company may not have sufficient assets to pay the assessed amount and may then be insolvent!
A Recent Example which lead to Voluntary Liquidation!
We were recently contacted by an a professional whereby their SME client had claimed the loss carry-back tax offset under the old law and subsequently received a Notice of Amended Assessment from the ATO as a result of the repeal. In this particular instance, in the period between the company lodging its income tax return and receiving the Notice of Amended Assessment, the company wound down its operations and ceased to trade. At that time, it had no other creditors.
Upon receiving the Notice of Amended Assessment, and given that the company had ceased trading, it did not have sufficient funds in which to pay the amount of the Notice of Amended Assessment now owing to the ATO. The advisor subsequently contacted us and the director of the company ultimately placed the company into a creditor’s voluntary liquidation in order to deal with the amount owed to the ATO.
Such examples may be limited, but are out there and it is important that directors get the right advice.
What should you do if you receive a Notice of Amended Assessment?
If you have received a Notice of Amended Assessment due to the repeal of the loss carry-back tax offset provisions, you may wish to contact Jones Partners to obtain the appropriate advice from a Registered Liquidator regarding the company’s options, irrespective of whether the company is continuing to trade or has ceased to trade.
Want to Know More?
Please go to the following ATO link where you can find more information including worked examples