Forward step … the budget had good news on business investment timing.
The strategy: To work out whether I can benefit from the proposed ''carry-back'' provisions.
The carry-what provisions? The government announced in this month's budget that it will provide new tax relief to businesses in the form of a loss carry-back. This means that instead of having to carry forward any losses your business makes to offset against future profits, you will be able to ''carry back'' up to $1 million of losses each year to get a refund of tax paid in the previous year. According to IPAC Securities, this means that from 2013-14, businesses will be able to carry back losses of up to $1 million and recoup tax previously paid of up to $300,000 a year.
How will that work? The devil is in the detail and, so far, we haven't seen any detail. The government has said it will issue a discussion paper on the proposal before it is implemented.
However, IPAC says it will only apply from 2013-14, at which stage businesses will only benefit if they incur a loss in the 2012-13 year.
Peter Bembrick, a tax partner with HLB Mann Judd, says it won't benefit companies with existing losses, which makes it hard to plan for. But, in theory, once it's fully up and running, a business that made a $1 million profit and paid $300,000 in tax one year and a $500,000 loss the following year could be eligible for a tax refund of up to $150,000. If it made a $700,000 loss the following year, it could claim a refund of the remaining $150,000.
However, if it made a profit that year, it would lose the ability to claim that remaining tax back later.
Bembrick says there's uncertainty about how franked dividends will be treated. He says the working group that recommended this measure said a company would need to have kept the franking credits within the company to get the refund. If it paid all its profits out as fully franked dividends and then claimed a refund, it would have a debit against its franking account.
The tax office, he says, has penalties for companies that ''over-frank'' and go into deficit.
This will be one of the issues addressed in the discussion paper.
Will it apply to all small businesses? Bembrick says this measure isn't targeted specifically at small businesses - though the $1 million limit will be worth much more to a small business than a company like BHP. IPAC says the proposal, as it has been announced, will only apply to companies, not trusts, partnerships or sole traders.
The government says the measure is designed to give business access to losses when they need it most, rather than waiting for future income. It believes this will encourage innovation, flexibility and future investment as losses generated by businesses investing in their future - whether by buying equipment or investing in training and development, for example - will be able to be offset against past profits.
However, Bembrick says small businesses will probably initially get much more benefit from another budget measure that will allow them an immediate write-off on the purchase of depreciable assets worth up to $6500.
At the moment, the limit is $1000 - anything costing more must be depreciated over several years.
''If you're looking to spend on new equipment for your business, it's certainly better to wait until July if it's in that price range,'' he says.