Business Losses and Unutilised Capital Allowances

To reduce the amount of tax you have to pay, you can use your trade/business losses and unutilised or unabsorbed capital allowances to offset your taxable income.

Trade Losses and Capital Allowances

When you incur trade/business 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 Forward Unutilised Losses and Allowances

When your other income is not sufficient to off-set your trade loss, you can carry forward the unutilised/unabsorbed trade losses and capital allowances to subsequent years to offset against the income of those years until the trade losses are fully utilised.

Should your business ceases, you can carry forward unabsorbed trade losses but not unabsorbed capital allowances to the following year.

Exception for Car Rental and Private Car Instruction Businesses

The above treatments do not apply to car rental companies and private car instruction businesses. Any unabsorbed trade losses and unabsorbed capital allowances can be carried forward as a deduction against income derived from the  same business  in subsequent Years of Assessment (YA).

Should business ceases, any unabsorbed losses and unabsorbed capital allowances of the said business will be disregarded.

Transfer of Losses and Allowances Between Spouses

Effective YA 2005 to YA 2015 

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.

Effective YA 2016

To simplify the individual income tax system, married couples can no longer transfer qualifying deductions and deficits between each other (including under the loss carry-back scheme) effective Year of Assessment (YA) 2016. 

As a transitional concession, qualifying deductions incurred by a married couple in and before YA2015 will still be allowed for inter-spousal transfers up till YA2017, subject to existing rules.

Any unabsorbed trade losses or capital allowances may still be carried forward to future years to be set-off against the future income of the taxpayer, until the amount is fully utilised, subject to existing rules.

Similarly, any unutilised donations may be carried forward to future years to be set-off against the future income of the taxpayer, up to a maximum of five years.  

For more details, please refer Change to Assess the Income of a Husband and Wife as Separate Individuals  (258KB, e-Tax Guide).

 

 

Carrying Back Losses and Allowances

Effective 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.

  1. 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.
  2. The maximum amount of loss and capital allowance to be carried back is capped at $100,000.
  3. The loss carry-back feature is available to all businesses, including sole-proprietors and partners of a partnership (including a limited liability partnership).

To claim, submit the Election Form (60KB) 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.

For more details, please refer to 'Carry-back Relief System'  (818KB).

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