General information about the loss carryback
Any loss from operating (!) income arising when preparing the tax return for 2020 and that could be carried forward into 2021 after being offset against other positive income may be offset against positive taxable assessed income in 2019 upon application. It can also be offset against positive assessed income in 2018, subject to certain conditions. Any losses that are not carried back are included in the tax loss carryforward as per the usual rules.
In terms of timing, the measures for early loss recognition are as follows:
- Up to the 2019 tax return: Retroactive reduction of income and corporation tax prepayments for 2019 (“early COVID-19 reserve”)
- For or after the 2019 tax return: Reduction of the 2019 tax burden via the COVID-19 reserve as a special deduction item (“early loss carryback” from 2020)
- For or after the 2020 tax return: Reduction of the 2019 and 2018 tax burden due to the loss carryback.
1. Reduction of prepayments for 2019
If the 2019 tax return has not yet been submitted, it may be possible under certain conditions to apply for a retroactive reduction of the income or corporation tax prepayments for 2019 (!) with a view to having a rapid effect on liquidity.
2. COVID-19 reserve
A COVID-19 reserve, as it has been dubbed, can already be claimed for tax purposes off book when preparing the financial statements for 2019 even before losses for 2020 have been determined with a view to improving liquidity, provided that tax prepayments for 2020 were zero or only the minimum amount for corporation tax was prescribed. The allocation to the reserve constitutes a tax-deductible operating expense. The COVID-19 reserve amounts to as much as 30 percent of profits in 2019 if losses are expected and without the need to provide any further proof of loss. It rises to as much as 60 percent of 2019 profits if the amount of losses expected in 2020 is shown to be plausible by means of diligently prepared estimates. As is the case with the loss carryback, it is capped at a maximum of EUR 5 million.
If the operating income in 2019 increases following a tax audit (e.g. in 2022), the current prevailing opinion is that an application can be made to increase the COVID-19 reserve for 2019.
3. Loss carryback
3.1 Loss carryback to 2019
Any remaining operating losses for 2020 after adding the COVID-19 reserve in 2020 can be carried back to 2019, following an application, up to a maximum of EUR 5 million. The 75% set-off limit that normally applies to losses carried forward does not apply to the loss carryback.
The prevailing opinion is that a maximum of EUR 5 million in losses from 2020 can be “brought forward” to 2019 by means of the COVID-19 reserve and the loss carryback. For example, if the COVID-19 reserve amounts to EUR 4 million, a maximum loss carryback of EUR 1 million is possible.
If you generate a loss from operating income in 2020 that can be carried back (e.g. as a young entrepreneur), you can even deduct it in 2019 or 2018 if your only income in 2019 or 2018 was from employment or from renting and leasing, for example.
It may be worth considering refraining from making full use of the maximum amount of the loss carryback in order to make it possible to offset foreign taxes, for example. Given that it has not yet been clarified when taxpayers have any right at all to choose whether to claim only part of the potential loss carryback, the ability to make use of this tip currently remains uncertain. Another prevailing opinion is that if the loss carryback was not claimed or fully utilised in 2019, no carryback can be made to 2018 either.
3.2 Loss carryback to 2018 or carryforward to 2021
Losses from 2020 within the maximum amount of EUR 5 million that could not be deducted in the 2019 assessment (because a loss was also made in 2019, for example) can be carried back to 2018, following an application, up to a maximum of EUR 2 million.
Losses from 2020 not deducted by way of loss carryback to 2019 and 2018 can be carried forward and deducted from 2021 onwards as per the usual rules.
3.3 Retrospective loss carryback
If no loss carryback was applied for during the 2020 assessment, the prevailing opinion is that an application may still be submitted at a later date if, for example, it turns out that no profits will be generated in subsequent years either. It is possible to submit a retrospective application for the loss carryback until the end of the time limit set for the year in which the loss is to be carried back. This means that carryback to 2019 can be claimed until the deadline relating to corporation/income tax for 2019 has expired. The deadline for 2018 is due to expire earlier, unless the authorities take action to extend it, etc.
3.4 No transfer of the loss carryback
Both the loss carryforward and the loss carryback are a strictly personal right and can only be used for the same taxpayer as a general rule. There are special rules for loss carry-forwards during company reorganisations.
This means that, where no other special rules are in place, only the individual incurring the loss is entitled to a carryback. The only exception here is when a transfer is made to heirs taking over the business responsible for the loss at its carrying amount following the death of the individual by way of individual or universal succession.
It is NOT possible to transfer the loss carryback to different taxpayers in the course of reorganisations.
Please note that a company reorganisation can therefore eliminate the right to loss carryback.
4. Special rule for groups of companies and different business years
Special rules apply to groups of companies, one of which in particular is that the volume of losses that can be carried back is increased. As regards the group parent and each foreign group member with unlimited or specifically limited tax liability in Austria in the respective year, the group parent is entitled to a loss carryback of EUR 5 million for 2019 and EUR 2 million for 2018, i.e. for one group parent and one group member EUR 10 million for 2019 and EUR 4 million for 2018.
Where a different business year is used, there is an option to carry back the 2019/2020 loss or the 2020/2021 loss for 1 or 2 years, respectively.