Example – Restricted to tax paid previously
DEF Pty Ltd (DEF) had taxable income of $250,000 in the 2018/19 income year and paid $75,000 in income tax during the year. DEF is a large business and has a tax rate of 30% and its franking account balance is $600,000 at the end of the 2020/21 income year.
DEF will have the following tax losses because of COVID-19:
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2019/20 income year – $300,000
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2020/21 income year – $600,000
Although the tax offset could be $270,000 ($900,000 x 30%), when DEF lodges its 2020/21 income tax return, the refund will be restricted to $75,000 as that is how much tax was paid in 2018/19.
Therefore, DEF will carry back $250,000 in tax losses to claim a refund of $75,000 ($250,000 x 30%) and the remaining unutilised losses of $650,000 ($900,000 - $250,000) will be carried forward to the following income year and can be deducted in future years subject to the company satisfying the tax loss provisions.
Example – restricted to franking account balance
XYZ Pty Ltd (XYZ) had taxable income of $1,000,000 in the 2018/19 income year and paid $300,000 in income tax during the year. XYZ is not a base rate entity and its tax rate is 30% and its franking account balance is $150,000 at the end of the 2020/21 income year.
XYZ will have the following tax losses because of COVID-19:
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2019/20 income year – $300,000
-
2020/21 income year – $600,000
Although the tax offset could be $270,000 ($900,000 x 30%), when XYZ lodges its 2020/21 income tax return, the refund will be restricted to the franking account balance of $150,000.
Therefore, XYZ can carry back $500,000 in tax losses to claim a refund of $150,000 ($500,000 x 30%) and the remaining unutilised losses of $400,000 ($900,000 - $500,000) will be carried forward to the following income year and can be deducted in future years subject to the company satisfying the tax loss provisions.
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