Business making losses

Business losses can be offset against your other income

If you incur trade losses after deducting the allowable expenses against your gross profit, the trade 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 trade loss, you can carry forward the unabsorbed trade losses and capital allowances to  subsequent years to offset against the income of those years until the trade losses are fully utilised.

However, if your business ceases, you can only carry forward unabsorbed trade 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 trade 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

From YA 2005, a married couple can transfer the excess trade 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.

To opt for the transfer, both of you must make an election by submitting a letter to IRAS, giving your names, identification numbers and signatures. You can refer to the sample of the Election Form (555KB).

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 spouse's or your Notice of Assessment (NOA), whichever is later.

Refer to the following illustration to see how the election can reduce your spouse's assessable income.

Illustration 1:

In this illustration, the couple's income information for the Year of Assessment (YA) 2012 are as follows:

As the husband has opted to transfer his trade loss, rental deficit and unutilised donations to his wife for the YA2012, her Assessable income is reduced as shown below:

You can also refer to 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 following illustration on one year carry-back relief system and the circular 'Carry-back Relief System' (818KB) for more details.

Illustration 2:

Mr A has elected to carry back his business loss of $70,000 and capital allowance (CA) of $35,000 from his sole-proprietorship for the Year of Assessment (YA) 2012. He also has rent income of $24,000 assessable in YA2012.

Unabsorbed losses and capital allowances (CA) available for carry back to YA2011 are as follows:

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 (63KB) 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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