Private companies need to hold their breath

Private Matters, May 2012

Private companies need to hold their breathThe Federal Budget appears to favour private companies; however the gains are unlikely to be reaped until late 2013.

The recent Federal Budget announced that loss carry-back rules will come into effect, but not until 2012/13. This means that companies will not benefit until late 2013 or 2014, because it is the loss businesses make in 2012/2013 that can be carried back and applied as an offset in the 2013 tax return.

Deloitte Private Tax partner David Pring believes these measures are positive for private companies, yet expressed concern that the measures would not provide benefit to companies until the end of 2013.

The measures will allow companies to carry back up to $1 million of losses incurred in the 2013 year against profits in the 2012 year. In the 2014 year $1 million of losses can be carried back to either the 2012 or 2013 year.

“Private companies have again been told to wait for these benefits. Simply put, business owners will receive their benefits in their 2013 return which is not due for lodgement and payment until December 2013 or February 2014,” Mr Pring said.

“Basically, this policy won’t impact companies for at least eighteen months and I am sure businesses would prefer to have seen an introduction that applies to 2012 losses claimed in their 2012 return.

“The loss carry-back will be limited to the balance of a company’s franking account, which will limit the benefit to those companies that have not paid out prior year profits,” he said.

Other Budget announcements impacting private companies were:

  • Companies with less than $2 million turnover lose the expected 1% tax cut, which was to apply from 1 July, 2012
  • Small businesses with turnovers of less than $2 million, will get the $6,500 instant asset write-off which will increase their after-tax profits
  • All companies will need to determine the impact of the carbon tax on their business from 1 July, 2012.

“This Budget is all about returning to surplus in line with the Government’s political objectives. Any further company tax savings will need to be determined by further consultation with the Business Tax Working Group,” added Mr Pring.