Tax experts warn new rules for loss carry-back scheme could mean fewer companies benefit

Tax experts are frustrated over the Federal Government’s release of a new discussion paper yesterday, which set out new rules for the new loss carry-back scheme that could potentially restrict more businesses from using the benefit.

The scheme was announced as part of this year’s budget, but until now the government hasn’t released any more information about how the benefit can be used.

In theory, the practice will allow businesses to claim a loss in the current year against tax paid in the previous two years.

But Assistant Treasurer David Bradbury released a discussion paper yesterday outlining plans to stop “loss trafficking”, which would stop directors from buying companies which already have losses in order to use the carry-back rules.

But while tax experts say it’s reasonable to have some controls around how the benefit is accessed, they warn some of the new integrity and ownership rules could have the opposite effect.

“One of the more contentious aspects of the paper released yesterday was the suggestion the loss carry-back scheme would have to carry integrity rules around companies accessing the concession,” Institute of Chartered Accountants general manager Yasser El-Ansary told SmartCompany this morning.

“The problem is that these integrity rules look and feel very much like the existing same business test and continuity of ownership test.”

Tax experts believe the rules are very difficult to apply – they essentially dictate that any business accessing the benefit needs to have some consistency in ownership and purpose. The problem is obvious: companies innovate and often change course to stay successful.

“Having appropriate integrity rules is the right thing to do, and we want to make sure it’s applied in the right way. But you don’t want to put a system so complex in place that it becomes convoluted and over-engineered.”

Senior tax counsel at the Tax Institute, Robert Jeremenko, also says the changes are concerning, and “it’s a retrograde step as far as we’re concerned”.

El-Ansary is also concerned the businesses classified as partnerships and other categories won’t be able to access the benefit.

“When we look at the small business sector, they’re structured in other ways, many of them in sole trades or partnerships.”

“If we have the benefit only restricted to companies, you’re only giving the benefit to a very small population.”

Both experts have said they will be making their views known to Treasury.