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Managing losses with the new carry-back scheme

Managing losses with the new carry back scheme

The IRD has introduced a temporary loss carry-back scheme to provide financial support to businesses expecting to make a loss in the 2020 or 2021 income years.

Under the temporary loss carry-back scheme, businesses can carry losses made in 2020 (or predicted to make in 2021) back to the preceding income year to offset them with the previous year’s profits. Businesses doing so will receive a refund of some or all of the tax paid in that previous year.

In addition to incurring a loss in 2020 (or expected to in 2021) and having made a profit in the previous year, businesses also need to meet certain conditions throughout both the loss year and preceding year to be eligible for the scheme:

  • The company maintained a 49% common ownership.
  • The group retained a 66% common ownership.
  • The business has a sufficient imputation credit balance to cover any refunds.

Businesses receiving an automatic income tax assessment in the year the loss was made, with income sourced solely from any one of the following, will not be eligible for the scheme:

  • salaries,
  • NZ Superannuation,
  • income-tested benefits,
  • taxable Māori authority distributions,
  • benefits under an employee share scheme,
  • interest or dividends, or
  • schedular payments.

The IRD encourages businesses looking to use the loss carry-back scheme to register online through their income tax account in myIR. Refunds of overpaid tax from claiming a loss under the carry-back scheme will be issued quicker for claims made through myIR.

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