Budget 2020: Kate Carnell welcomes potential ‘loss carry-back’ provision to boost small business cashflow

The Morrison government is reportedly considering a scheme which would allow businesses to claim back tax paid on last year’s profits, to be announced in tomorrow night’s budget.

The Sydney Morning Herald reports this year’s late budget could include a so-called loss carry-back provision.

It would mean a business that was profitable last year can claim back some of the taxes paid on that profit, to help offset losses incurred this year.

Such a scheme would serve to acknowledge the unusually tricky circumstances COVID-19 has brought to businesses and act as something of a stabiliser, helping support businesses that are typically profitable, but making a loss temporarily.

According to Australian small business and family enterprise ombudsman Kate Carnell, it’s a COVID-19 policy encouraged by the OECD.

Indeed, similar schemes are already in place in New Zealand, the US, the UK, Germany, Austria and Japan.

And, it’s not a completely alien concept to Aussie policymakers either.

A loss carry-back scheme was briefly introduced in 2012 under the Gillard government, in response to the global financial crisis, but was scrapped a year later.

Back in 2012, the Institute of Public Accountants (IPA) said the measure would benefit some 110,000 Aussie businesses.

Speaking to SmartCompany, Carnell says, today, that number could be even bigger.

“That was the GFC. This is a whole league worse than that,” she says.

We don’t have any details yet. But, in theory, in order to be eligible for the loss carry-back scheme, all you have to have done is made a profit last year, and a loss this year.

“There will be lots and lots of businesses that make a loss this year,” she says.

Already, Carnell notes that businesses can carry a loss forward, balancing it off against tax paid on future profits.

“This is just doing the opposite,” she says.

“You can carry back the loss and get a refund on the money you paid.”

Ultimately, it’s simply a way of boosting cashflow for those businesses that are struggling. Particularly those that were profitable before the COVID-19 crisis, and may well have continued to be in different circumstances.

“It doesn’t help anyone who hasn’t made a profit,” Carnell says.

“But, a lot of businesses that have really got a future, they’ve been profitable in previous years … it’s just this year, with the coronavirus, they’re in a whole lot of trouble,” she explains.

“They’re businesses that will probably be profitable again.”

When asked whether she would like to see this become a permanent policy, Carnell doesn’t go that far.

“It’s an expensive thing to do.”

But, she doesn’t necessarily see it as a one-off, either.

“I think it needs to be in place until the economy is back on track. I don’t think that’s going to happen in 12 months,” she explains.

“It should be in place until the economy is back into growth, and unemployment is down to under 6%.”

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