Business losses can be offset against your other income
If you incur business losses after deducting the allowable expenses against your gross profit, the business losses and any capital allowances claimed can be used to offset against your other income such as employment, interest, rental income and income from your other businesses in the same year.
Carrying business loss and capital allowances forward
If your other income is not sufficient to offset your business loss, you can carry forward the unabsorbed business losses and capital allowances to the next year to offset against the income of that year.
However, if your business ceases, you can only carry forward unabsorbed business losses but not unabsorbed capital allowances to the next year.
The above treatments do not apply to car rental companies and private car instruction businesses. Any unabsorbed business losses and capital allowances can be carried forward as a deduction against income derived from the same business in subsequent Years of Assessment (YA). If the business ceases, any unabsorbed losses and capital allowances of the said business will be disregarded.
Transfer of business losses and capital allowances between spouses
A married couple can transfer the excess business losses and capital allowances between each other if there is any remaining amount that cannot be completely offset against the income of the respective spouse for a particular year.
If you and your spouse wish to transfer the excess qualifying deductions between each other, both of you must make an election by submitting a letter to IRAS, giving your names, identification numbers and signatures.
You must make the election on a year-to-year basis. Once the election is made it cannot be changed.
You have to make the election to transfer the excess qualifying deductions between each other not later than 30 days from the date of your or your spouse's Notice of Assessment (NOA), whichever is later.
You may refer to the IRAS Circular on change to assess the income of a husband and wife as a separate individuals (118KB) for more details.
Carry-back of business losses and capital allowances
From YA 2006, current year unutilised trade losses and capital allowances can be carried back for one YA immediately preceding the year of assessment in which trade loss and capital allowance arose.
The main features of the scheme are:
- The loss and capital allowance for the current year can only be carried back for one YA immediately preceding the YA relating to the year in which the loss was incurred or capital allowance granted.
- The maximum amount of loss and capital allowance to be carried back is capped at $100,000.
- The loss carry-back feature is available to all businesses, including sole-proprietors and partners of a partnership (including a limited liability partnership).
You must submit the Election Form (63.5KB) together with your income tax return for the current year of assessment or within 30 days from the date of your individual notice of assessment for the current year of assessment.
You can refer to the circular 'Carry-back Relief System' (429KB) for more details.
Enhancement of Carry-back Relief System for YA 2009 and YA 2010
As announced in the Budget 2009 Statement, unutilised trade losses and capital allowances for YA2009 and YA2010 can be carried back and set-off against Assessable Income of 3 immediate preceding YAs, subject to a cap of $200,000.
For more details and examples, please refer to IRAS Circular 'Enhanced Carry-back Relief System' (263KB).
To claim carry-back relief in YA 2009 and YA 2010, you can submit the new Election Form (69KB) before or during the filing of your income tax return for the relevant YA or within 30 days from the date of your individual notice of assessment for the relevant YA. For YA 2010, the new election form can only be submitted after the end of the accounting period for the trade, business, profession or vocation.
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