Loss Carry-Back Relief

Companies may carry-back unutilised capital allowances (CAs) and trade losses arising in a Year of Assessment (YA) to reduce the amount of taxes payable in an immediately preceding YA.

Background of the scheme

To help small businesses cope with cash-flow problems especially in cyclical downturns, a one-year carry-back of current year unutilised CAs and trade losses was introduced effective YA 2006. 

The Loss Carry-Back Relief complements the existing policy of companies being able to carry forward their unutilised CAs and trade losses to setoff future incomes (i.e. loss carry-forward) or transfer unutilised CAs and trade losses to related companies (i.e. group relief). 

Main Features of Loss Carry-Back Relief

  1. Current year unutilised CAs and trade losses (collectively referred to as "Qualifying Deductions" or "QD") can be carried back for one YA immediately preceding that YA in which the CAs are granted or the trade losses incurred;
  2. The maximum amount of QD that can be carried back is $100,000;
  3. The QD will be deducted in the following order:
    1. Current year's unutilised CAs, if any;
    2. Current year's trade losses, if any.
  4. The carry-back system will be available to all businesses, including sole proprietors and partnerships;
  5. 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;
  6. The carry-back relief will be given only if the company makes a claim. Please refer to the section below on how to claim the loss carry-back relief; and
  7. A company can elect to carry back its QD after transferring its loss items under the group relief system, if applicable.

Specific Exclusions for Loss Carry-Back Relief

  1. Section 10E companies are not allowed to carry-back their QD. This is consistent with the treatment under the loss carry-forward and group relief schemes, where Section 10E companies are also excluded.
  2. Companies that carry on a trade where the income is wholly exempt from tax (e.g. pioneer trade) are not allowed to carry back the QD relating to that trade for deduction against other exempt or non-exempt income.
  3. Companies that carry on specific types of activity or trade where there are rules restricting the deduction of QD only against such trade and activity, or restricting the carry-forward of the QD (e.g. finance leasing income taxable under Section 10D of the Income Tax Act or income from hiring out motor cars taxable under Section 10H) are not allowed to carry back the QD.

For details, please refer to Carry-back Relief (e-Tax Guide, 746KB).

Loss Carry-Back Relief and Tax Exemption for Start-Ups

Companies that qualify for the Tax Exemption Scheme for New Start-Up Companies should note that the qualifying deductions (i.e. current year unutilised capital allowance and/ or unutilised trade losses) will be first used to setoff against its assessable income for the YA immediately preceding the YA of loss. This means that, when the chargeable is nil after deducting the loss carry-back relief, 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.

When there is chargeable income after deducting the loss carry-back relief, the company can claim Tax Exemption Scheme for New Start-Up Companies 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 Loss Carry-Back Relief is beneficial to your company before making a claim. Elections made are irrevocable.

Example

Company A was incorporated in year 2013 and its first YA upon incorporation is YA 2014. Assume that Company A qualifies for the Tax Exemption Scheme for New Start-Up Companies for YAs 2014 to 2016 and that Company A has unutilised current year trade losses of $100,000 for YA 2016.

Company A's tax computation for YA 2015 is as follows:

Tax computation for YA 2015

 
 

$

Assessable income

120,000

Less: Tax exemption for new start-up companies

 

 First $100,000 @ 100% (100,000)
 Next $20,000 @ 50% (10,000)

Chargeable income after exempt amount

10,000

Tax payable at 17%

1,700.00

 Less: Corporate Income Tax Rebate ($1,700 x 30%)(510.00)
 Net tax payable1,190.00 

Company A's current year unutilised trade losses of $100,000 for YA 2016 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 YA 2016 and YA 2017 are as follows:

Tax computation for YA 2016

 
 

$

Adjusted trade losses

(100,000)

  
 Unutilised losses carried forward(100,000) 
  

Tax at 17%

NIL 

 

Tax computation for YA 2017

 
 

$

Adjusted trade profit

200,000

 Less: Unutilised losses brought forward(100,000) 
Chargeable income before exempt amount100,000
 Less: Exempt amount 
 First $10,000 x 75%(7,500) 
 Next $90,000 x 50%(45,000) 
 Chargeable income after exempt amount47,500 
  

Tax at 17%

8,075.00

 Less: Corporate Income Tax Rebate ($8,075 x 50%)(4,037.50) 
 Net tax payable4,037.50 

 

  Tax payable
 $
YA 20151,190.00
YA 2016NIL 
YA 20174,037.50 
Total tax to be paid5,227.50 

Since Company A has elected for the Carry-Back Relief in YA 2015, its unutilised current year trade losses of $100,000 for YA 2016 will be carried-back to YA 2015 for set-off against assessable income arising from YA 2015.

Company A's tax computations for YAs 2015, YA 2016 and YA 2017 are as follows:

Tax computation for YA 2015

 
 

$

Assessable income

120,000
 Less: Losses carried back from YA 2016(100,000) 
 20,000 

Less: Tax exemption for new start-up companies

 (20,000)

Chargeable income after exempt amount

NIL

  

Tax payable at 17%

NIL

 

Tax computation for YA 2016

 
 

$

Adjusted trade losses

(100,000)

Less: Losses carried back to YA 2015

 (100,000)

 Unutilised losses carried forwardNIL 
  

Tax payable at 17%

NIL

 

Tax computation for YA 2017

 
 

$

Adjusted trade profit

200,000

Less: Unutilised losses brought forward

NIL 

 Chargeable income before exempt amount200,000 
 Less: Exempt amount 
 First $10,000 @ 75%(7,500)
 Next $190,000 @ 50%(95,000)

Chargeable income after exempt amount

97,500

  

Tax payable at 17%

16,575.00

 Less: Corporate Income Tax Rebate ($16,575 x 50%)8,287.50
 Net tax payable8,287.50

 

  Tax payable
 $
YA 2015NIL
YA 2016NIL 
YA 20178,287.50
Total tax to be paid8,287.50 

Claiming Loss Carry-Back Relief

To claim loss carry-back relief, companies should indicate the election in their Income Tax Return, Form C, and the tax computation for the relevant YA. Companies that wish to make the claim cannot use Form C-S.

Companies that wish to claim the carry-back relief before it files its Income Tax Return for the relevant YA should submit the Election Form for Companies for Carry-Back of Capital Allowances and Trade Losses (614KB).

RATE THIS PAGE

  • Strongly Disagree
  • Strongly Agree

Information is easy to understand.

Information is useful.

Information is easy to find.

 
Please email us if you would like us to respond to your enquiries.