On 18 July the Assistant Treasurer released a discussion paper on "Improving access to company losses", which is the loss carry-back measure announced just prior to the Budget this year.

While most of the details in the paper were expected, the inclusion of a proposed integrity measure akin to the current Continuity of Ownership and Same Business Tests was surprising. The Tax Institute advocated strongly in our submissions to the Business Tax Reform Working Group for these tests to be simplified if they are going to continue to be relevant.

Our submission on the 18 July discussion paper was lodged on 6 August. In it we say that we are broadly supportive of the Government's announced policy intention to introduce a limited loss-carry back.

As we have noted previously, in our view a limited loss carry-back is a positive step towards helping substantial numbers of businesses face increasingly uncertain conditions.

Nevertheless, we are concerned by the proposals in relation to the suggested suite of integrity rules that must be satisfied before a loss may be carried-back. Our concern stems from two factors:

• The current Continuity of Ownership Test and Same Business Test despite being familiar, are nevertheless complex, unwieldy and costly to apply and should therefore be limited in application rather than extended, at least in the longer term; and
• The integrity risk underpinning the supposed need for integrity rules in this context is overstated. To the extent that integrity rules are considered necessary to curb 'trafficking' in defunct companies laden with prior year income and franking credits (and other such behaviours), an extension of the current Part IVA should in our view provide sufficient protection.

Robert Jeremenko

Robert Jeremenko is Senior Tax Counsel of The Tax Institute.

The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.