A temporary loss carry-back scheme has been introduced to support customers in the current uncertain economic environment. The commentary to the Bill can be found here.
Businesses expecting to make a loss in either the 2020 year or the 2021 year can use that loss to offset profits they made the year before. In other words, they can carry the loss back one year to the preceding income year. This can be done before the loss year return is filed.
You must let Inland Revenue know if you are going use the loss carry-back scheme. You can do this in the ‘I want to’ section of your income tax account in myIR.
There are two ways to claim your loss carry-back:
- Include the carried back loss in your tax return – IR will automatically refund any overpaid tax.
- Ask for a refund of any provisional tax you have paid for 2020 if you are going to carry back a loss from 2021.
IR can refund some or all of the tax already paid for the preceding year before the loss year has finished by enabling customers to estimate their loss. Refunds will be processed a lot faster if you use myIR.
You do not need to rush to re-estimate your 2020 provisional tax. You can re-estimate up until when your return is filed or due. This gives more time to work out any estimated loss for the 2021 income year.
Shareholder employees of companies electing into the loss carry-back scheme also have up until when their return is filed or due to re-estimate their provisional tax.
If you do not elect to carry your loss back, it will still be available to carry forward as normal.
If you elect to carry back only part of the loss now, you can carry back the remainder anytime later in the year up until your return is due. Any balance remaining can be carried forward.
Eligibility for loss carry-back
Multi-rate portfolio investment entities are not eligible.
You are not eligible if you receive an automatically calculated income tax assessment in the year the loss was made because your only income was from:
- salary or wages
- NZ Superannuation
- schedular payments
- income-tested benefits
- interest or dividends
- taxable Māori authority distributions
- benefits under an employee share scheme.
You need to:
- have incurred, or expect to incur a loss in the 2020 or the 2021 tax year
- made a profit and paid tax in the year before the loss was made.
Companies need to also meet these conditions to be eligible:
- The company has maintained 49% common ownership throughout the loss year and preceding year.
- The group has retained 66% common ownership throughout the loss year and preceding year.
- You have a sufficient imputation credit account balance to cover any refund.