Treasury has released a discussion paper Improving access to company losses that provides details on how new company loss carry-back tax rules will be applied.

Currently taxpayers are only allowed to access the tax value of an expense by using it to reduce taxable income in the year it was incurred or, to the extent that the expense results in a loss, by carrying the loss forward and using it to reduce future assessable income. The loss will ultimately have zero tax benefit if it cannot be used to reduce taxable income, for example if the company never returns to a ‘tax profit’ position .

The proposal introduces a loss carry-back measure to allow companies that have paid tax in the past, but are now in a tax loss position, to choose to claim a refund of some of the tax they have previously paid. This will allow companies to utilise the losses sooner and reduce the risk of never being able to use them.

A one year carry-back period will be allowed for the 2012-13 income year, followed by a two year carry-back period from the 2013-14 income year onwards. This means that a loss carry-back refund will be able to be claimed for the 2012-13 income year against tax paid for 2011-12.

From the 2013-14 income year onwards, a loss carry-back refund will be able to be claimed against tax paid for the two years preceding the claim year.

A cap of $1 million will apply in each claim year to the amount of losses that any company can carry-back against taxes paid in previous income years.

The maximum potential refund in any year will be the tax value of the cap. With a $1 million cap and a 30 per cent tax rate, this will be $300,000.