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ATO Assistant Commissioner Andrew Watson this week reminded businesses having a hard time as a result of COVID-19 that they have a range of options open to them including claiming a deduction for losses.

He said: “We know some small business owners are under incredible amounts of stress and facing uncertainty like never before. We understand your tax obligations may not be at the top of your list of things to do. So if you need some extra help with your tax and super affairs, I urge you to contact your registered tax professional or the ATO. We’re here to help.”

The ATO anticipates that in 2019-20 and 2020-21, a number of businesses are likely to make a loss due to COVID-19, possibly for the first time.

“If you find yourself in this boat, you may be able to claim a deduction for the loss. It’s crucial that you keep proper records to ensure you can claim the deduction you’re entitled to,” Mr Watson said.

Sole traders and individual partners in a partnership who meet certain conditions can offset current year losses against other assessable income (such as salary or investment income) in the same income year. Otherwise, they can defer the loss or carry it forward and offset it to a future year when the business next makes a profit.

Businesses that are set up under a company structure that have made a tax loss in a current year can generally carry forward that loss for as long as they want and claim a deduction for their business in a future year.

There are some deductions that can’t be used to create or increase a tax loss, such as donations or gifts and personal super contributions.

Mr Watson also acknowledged that some businesses may need to close their doors – either temporarily or permanently – due to COVID-19, particularly in Victoria.

Businesses that are closing temporarily are encouraged to do their best to keep up with tax and super obligations, and to reach out to their registered tax professional if they need additional time or support.

“If you have to close your business permanently as a result of COVID19 or for any other reason, there’s a few things you’ll need to do, like lodge any outstanding activity statements and instalment notices, make GST adjustments on your final activity statement and lodge final tax returns – so we can finalise your account and issue any refunds that might be owed to you.”

“After you’ve finalised your tax affairs, don’t forget to cancel your ABN, and GST registration if you have one. If you need help doing this, ask your registered tax professional or call us,” Mr Watson said.

“You’ll also need to keep your business records for at least five years after the end of the financial year you sell or close your business in.”

To help businesses navigate through these difficult times, the ATO is offering a series of webinars:

  • Tax support for small business
  • Considering your small business viability
  • Closing your small business

Contact your local TaxAssist Accountant for help and advice with any of the above.

Last updated: 6th October 2020

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