On April 15th the Government announced three tax measures with a clear focus on providing and enabling cashflow for businesses.

The main tax measure that may impact private businesses is the new tax loss “carry back” rule which allows refunds of tax paid in a prior year. The main features of this rule are:

  •  For the 2020 and 2021 tax years, tax losses can be carried back for one year. Therefore, 2021 tax losses can be offset against profit in 2020 or 2020 tax losses can be offset against profit in 2019. A loss carried back will result in the person getting a refund of some, or all, of the tax paid in the prior year. 
  • The losses can be based on estimates or a filed return. 
  • An estimated loss can be made by estimating provisional tax and having any overpaid provisional tax refunded. A provisional tax estimate can be made until the return is filed or the return due date, whichever is earlier.
  • An estimate needs to be reasonable and based on a robust analysis and forecast.
  • If tax losses are overestimated interest will be charged.
  • Shareholder-employees will also be able to re-estimate provisional tax until their return is filed. 
  • For companies, the refund will be limited to the available imputation credits and the company must satisfy the 49% shareholder continuity test in both the loss and profit years.
  • The rules legislated are for the 2020 and 2021 years only. Permanent loss carry back rules will be considered and legislated later in the year.

Action

  • If you expect to have a profit in 2020, and a loss in 2021, you need to have your 2020 income tax return filed before the loss can be offset. Therefore, you may consider organising the return to be filed early to enable you to carry the losses back.
  • If you expect to have a loss in 2020 and a profit in 2019, provided the 2019 is filed, you can estimate the loss in 2020 to enable the loss to be offset against the 2019 profit. Alternatively, to eliminate the risk of having interest charged due to an overestimate of the losses you can file the 2020 tax return early and offset the actual loss. 
  •  We recommend that these rules are factored into your forecasts/ scenario planning and, should you require any assistance, you KPMG team are here to support you.
    You can read our Tax team's full analysis of these changes here.

If you would like more information, please contact your KPMG advisor or your local KPMG Private Enterprise office.

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