Before the Year of Assessment (YA) 2006, Singapore's corporate tax regime allows companies to either carry forward their unutilised capital allowances (CAs) and trade losses to offset future incomes (i.e. loss carry-forward) or transfer these unutilised CAs and trade losses to related companies (i.e. group relief). However, these schemes may not provide adequate or timely support to smaller businesses that run into cash flow problems, particularly during a cyclical downturn of the economy.
To address the needs of smaller businesses, a one-year carry-back of current year unutilised CAs and trade losses was introduced with effect from YA 2006. The main features of the scheme are:
- Only current year unutilised CAs and trade losses are allowed to be carried back for one YA immediately preceding that YA in which the CAs are granted or the trade losses incurred.
- An aggregate amount of $100,000 of current year unutilised CAs and trade losses can be carried back.
- The carry-back system will be available to all businesses, including sole proprietors and partnerships.
- The company has to meet the substantial shareholding test and same business test in order to qualify for the scheme. This is similar to the requirements for the carry forward of unutilised CAs and trade losses.
- The carry-back relief will be given only if the company has made a claim for it. Please refer to the section below on how to claim the loss carry-back relief.
- Section 10E companies are not allowed to carry-back their losses and CAs. This is consistent with the treatment for loss carry-forward and group relief schemes, where Section 10E companies are also excluded.
To find out more details on this system, you may refer to the e-Tax Guide, Carry-back Relief System
Enhanced carry-back relief for YA 2009 and YA 2010
As announced in the 2009 Budget Statement, the loss carry-back relief scheme will be temporarily enhanced for YAs 2009 and 2010.
This measure is intended to help businesses which are making losses in this recession with their cashflow. The enhancements are as follows:
- Current year qualifying deductions will be carried back up to three YAs immediately preceding that YA in which the capital allowances were granted or the trade losses were incurred;
- The order of setoff of qualifying deductions to the three immediate preceding YAs will be first to the third YA, followed by the second YA, and then the YA immediately preceding the YA in which the capital allowance were granted or the trade losses were incurred. Example: YA 2009's unutilised trade losses will be first offset against income derived in YA 2006, followed by YA 2007 and YA 2008.
- The limit on the aggregate amount of current year qualifying deductions that can be carried back will be increased from $100,000 to $200,000.
Companies have to meet the substantial shareholding test and same business test in order to qualify for the scheme.
For details, please refer to e-Tax Guide, Enhanced Carry-back Relief System (263KB)
Companies claiming Tax Exemption Scheme for New Start-Up Companies
A company that qualify for the
Tax Exemption Scheme for New Start-Up Companies should take note that the qualifying deductions (i.e. current year unabsorbed capital allowance and/or unabsorbed trade losses) for YA 2009 and 2010 will be first used to set-off against its assessable income for the third YA immediately preceding the YA of loss. After deducting the loss carry-back relief, if the chargeable income is nil, the company will not be able to enjoy the benefit given under the Tax Exemption Scheme for New Start-Up Companies for that particular YA. If there is chargeable income, Tax Exemption Scheme for New Start-Up Companies can be claimed up to the first $100,000 for that particular YA and a further 50% exemption is given on the next $200,000 of the chargeable income (from YA 2008 onwards).
Please ensure that the Enhanced Carry-Back Relief System is beneficial to your company before making an election for this scheme. Once an election for the Enhanced Carry-Back Relief System has been made, this election is irrevocable.
The example below shows how the election for the Enhanced Carry-Back Relief System for Years of Assessment 2009 and 2010 may affect your tax positions should your company qualify for the tax exemption scheme for new start-up companies.
Example:
Company A was incorporated in year 2004 and its first YA upon incorporation is YA 2005. Assume that Company A qualify for the Tax Exemption Scheme for New Start-Up Companies for YAs 2005 to 2007. Company A’s tax computation for YA 2007 is shown as follows:-
| Tax computation for YA 2007 |
|
|
$
|
| Assessable income |
120,000
|
| Less: Tax exemption for new start-up companies |
(100,000)
|
| Chargeable income after exempt amount |
20,000
|
| Tax payable at 20% |
4,000
|
Assume that Company A has unabsorbed current year trade losses of $100,000 for YA 2010.
Scenario 1:
Company A does not elect for the Enhanced Carry-Back Relief System in YA 2010
If Company A does not elect for the Enhanced Carry-Back Relief System in YA 2010, its unabsorbed current year trade losses of $100,000 for YA 2010 may be carried forward for set-off against assessable income of future YAs provided the substantial shareholding test has been met.
Company A’s tax computations for YAs 2007, YA 2010 and YA 2011 are shown as follows:-
| Tax computation for YA 2007 |
Tax Computation for YA 2010 |
Tax computation for YA 2011 |
|
$ |
|
$ |
|
$ |
| Assessable income |
120,000 |
Adjusted trade losses |
(100,000) |
Adjusted trade profit |
200,000 |
| Less: |
Tax exemption for new start-up companies |
(100,000)
|
|
|
Less: |
Unutilised losses brought forward |
(100,000) |
| Chargeable income after exempt amount |
20,000 |
Unutilised losses carried forward |
(100,000) |
Chargeable income before exempt amount |
100,000 |
| |
|
|
|
Less: |
Exempt amount |
|
| Tax payable at 20% |
4,000.00 |
Tax payable at 17% |
Nil |
|
-$10,000 x 75% |
( 7,500) |
| |
|
- $90,000 x 50% |
( 45,000) |
|
Chargeable income after exempt amount |
47,500 |
|
Tax payable at 17% |
8,075.00 |
|
|
Total tax to be paid for YA 2007 & YA 2011 |
12,075.00 |
Scenario 2:
Company A elects for the Enhanced Carry-Back Relief System in YA 2010
Since Company A has elected for the Enhanced Carry-Back Relief System in YA 2010, its unabsorbed current year trade losses of $100,000 for YA 2010 will first be carried-back to YA 2007 for set-off against assessable income arising from YA 2007.
Company A’s tax computations for YAs 2007, YA 2010 and YA 2011 are shown as follows:-
| Tax computation for YA 2007 (Revised) |
Tax Computation for YA 2010 |
Tax computation for YA 2011 |
|
$ |
|
$ |
|
$ |
| Assessable income |
120,000 |
Adjusted trade losses |
100,000 |
Adjusted trade profit/ Chargeable income |
200,000
|
| Less: |
Losses carried-back from YA 2010 |
(100,000) |
Less: |
Losses carried-back to YA 2007 |
(100,000) |
Less: |
Unutilised losses brought forward |
Nil
|
| |
|
20,000 |
Unutilised losses carried forward |
Nil
|
Chargeable income before exempt amount |
200,000
|
| Less: |
Tax exemption for new start-up companies |
( 20,000)
|
|
|
Less: |
Exempt amount
|
|
| Chargeable income after exempt amount |
Nil
|
Tax payable at 17%
|
Nil
|
|
-$ 10,000 x 75% |
(7,500)
|
| |
|
|
|
|
-$190,000 x 50% |
( 95,000)
|
| Tax payable at 20% |
Nil
|
|
|
Chargeable income after exempt amount |
97,500 |
|
Tax payable at 17% |
16,575.00 |
|
|
Total tax to be paid for YA 2007 & YA 2011 |
16,575.00 |
How to claim Carry-Back Relief
Companies can elect to claim for carry-back relief when filing their Income Tax Form (Form C) for the relevant YA. They should indicate the election in Form C and the tax computation, and submit the revised tax computation for the prior YA.
If companies wish to claim the carry-back relief prior to the time of filing its Form C for the relevant YA, they can submit the Election Form for Carry-Back of Capital Allowances & Trade Losses (37KB).
Measures for YA 2009 and YA 2010
Companies wishing to claim the enhanced loss carry-back relief, must submit the new Election Form for Loss Carry-back (For Years of Assessment 2009 and 2010) (53KB). This new form can be submitted any time after the end of a company’s accounting year end but no later than the filing of Form C for the relevant YA.
For companies that have submitted their claims to carry-back YA 2009 qualifying deductions against their YA 2008 assessable income, using the old carry-back election form. A fresh election must be made by 31 Mar 2009 using the new election form if they wish to carry-back their qualifying deductions.
For details, please refer to e-Tax Guide, Enhanced Carry-back Relief System (263KB)