Carrying back a loss to a prior year may impact other rights and obligations. It is important to take this into account when deciding whether to carry-back a loss.
Impact on donation tax credits
If you have claimed a donation tax credit in the year you are carrying a loss back to, your taxable income after the carry-back must not be lower than the donations you claimed the donation tax credit for. For example, if you donated $1000 to charity, any loss carry-back cannot reduce your taxable income to below $1,000.
Working for Families
A loss carry-back does not affect your family income, so will not change your Working for Families payments - unless any child support you receive or pay changes.
A loss carry-back does not affect your adjusted net Income, so will not change your student loan repayments unless any child support you receive or pay changes.
If you receive or pay child support, the amount of child support may be affected by a loss carry-back, as with any other change to income.
Shareholder-employee salaries paid
Where profits have been distributed by way of shareholder-employee salaries, this cannot be reversed to take advantage of a loss carry-back.
Profits paid out as a dividend
Where profits have been distributed by way of a dividend, this cannot be reversed to take advantage of a loss carry-back.
Subvention payment made
Where a subvention payment has been made this cannot be reversed to take advantage of a loss carry-back.
If a loss company is within a wholly-owned group of companies, the amount that can be carried back is only the amount that cannot be offset against profits within its wholly-owned group in the loss year.
Time bar rule when loss carry-back used
Legislation allows both the loss year and the preceding year to be reassessed at the same time, even if the preceding year is time barred.
Any tax you have overpaid because of a loss carry-back will be offset against any amounts due within that income tax period, and the balance refunded to you. Your refund will not be applied to any outstanding debt you have with Inland Revenue.
Use of Money Interest
If you carry back more loss than you have available resulting in underpaid tax, use-of-money interest will apply. You cannot use the COVID-19 use of money interest relief provision when any tax is underpaid because of a loss carry-back.
We acknowledge the uncertain economic environment so we have allowed more time for provisional tax re-estimation and the ability to re-estimate multiple times. We expect you to use your normal business processes to estimate the losses as accurately as practically possible. You are expected to keep sufficient records to support your tax position.
Residential rental property deductions
When your deductible rental expenses are more than your rental income you’ll be left with excess deductions. These excess deductions cannot be included in any loss you carry-back.