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Exposure draft legislation and explanatory material for company loss carry-back

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David Bradbury MP Assistant Treasurer

Minister Assisting for Deregulation

The Hon Brendan O’Connor MP Minister for Housing

Minister for Homelessness

Minister for Small Business

Joint Media Release

Exposure Draft Legislation And Explanatory Material For Company Loss Carry-Back

The Assistant Treasurer David Bradbury and Minister for Small Business Brendan O’Connor today released for consultation exposure draft legislation and explanatory material to introduce company loss carry-back into the business tax system.

The exposure draft legislation and explanatory materials have been prepared following consultation on the discussion paper, Improving access to company losses, which closed on 6 August 2012.

“Allowing carry-back will encourage businesses to invest and adapt, and will mean companies in the slow lane can use their tax losses now — when they need to — rather than in the future when their businesses are performing better,” said Mr Bradbury.

“As part of loss carry-back, from 1 July 2012, companies will be able to carry back up to $1 million worth of losses to get a refund of tax paid in the previous year. From 1 July 2013, companies will be able to carry back up to $1 million worth of losses against tax paid up to two years earlier.

“In its first 4 years, it is estimated that this major tax reform will provide much-needed assistance to nearly 110,000 companies adapting to the challenges of an economy in transition, helping them ride out difficult times and invest for the future, helping to boost their productivity.”

Mr O’Connor said the majority of the companies to benefit would be small businesses.

“Small business is the engine room of the Australian economy, employing almost five million Australians and contributing more than 20 per cent of GDP,” Mr O’Connor said.

“The Gillard Government is determined to create the environment in which small businesses not only survive, they thrive.

“Loss carry-back, along with the instant asset tax write-off and trebling the tax free threshold, will help small businesses which are not feeling the benefits of the mining boom.”

The introduction of the loss carry-back tax reform implements another recommendation of Australia's Future Tax System review and continues the Government’s commitment to tax reform.

Loss carry-back received strong and widespread support at the Government's successful Tax Forum last year and was developed further in close consultation with business representatives and tax experts through the Business Tax Working Group, which recommended the measure in its Final Report on the Tax Treatment of Losses.

The outcomes of the consultation process and additional independent advice through the Tax Design Advisory Panel on the design of this important measure concluded that integrity provisions should be used to discourage the development of tax planning opportunities.

The exposure draft legislation released today includes a minor amendment to the definition of ‘tax benefit’ in the general anti-avoidance rule known as Part IVA so it can apply to loss carry-back in the same way as it can for all other deductions. It also includes integrity rules that mirror the rules used for the carrying forward of losses to set out how the rules are proposed to work for loss carry-back.

Some submissions argued for applying different rules for loss carry-back than loss carry-forward but the consultation did not result in a sufficiently developed alternative.

As a result, the Assistant Treasurer will also oversee targeted consultation to identify and further develop alternative integrity rules for loss carry-back prior to legislation

being introduced into Parliament. If this consultation can identify a simpler approach that adequately addresses integrity risks, the Government will adopt it.

“I thank participants in the consultation that have developed alternative ideas that could form the basis of a simplified integrity rule. Further development of these ideas could also provide useful insights into how to simplify the loss integrity rules more generally,” said Mr Bradbury.

The Government encourages comment and feedback on the exposure draft legislation as part of the consultation process and invites interested stakeholders to provide their input.

The exposure draft legislation and explanatory material on the measure can be obtained from Consultation will close on 19 September 2012.

23 August 2012

Media contact: Justin Koek 0400 126 939