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 from 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). 

To help businesses with their cash flow, it was announced in Budget 2020 that the Loss Carry-back Relief will be enhanced for YA 2020 as follows:

  1. Businesses may elect to carry back unutilised CAs and trade losses from YA 2020 up to three YAs immediately preceding YA 2020 (i.e. YA 2017, YA 2018 and YA 2019) (“YA 2020 enhanced carry-back relief”)
  2. Businesses may elect for the current or enhanced carry-back relief based on an estimate of the current year unutilised CAs and trade losses for YA 2020.

Please refer to the e-Tax Guide on Enhanced Carry-back Relief System (PDF, 413KB) for more information on the Loss Carry-back relief for YA 2020.

To continue providing support to businesses, it was announced in Budget 2021 that the enhanced carry-back relief will be extended to YA 2021 as follows:   
  1. Businesses may elect to carry back unutilised CAs and trade losses from YA 2021 up to three YAs immediately preceding YA 2021 (i.e. YA 2018, YA 2019 and YA 2020) (“YA 2021 enhanced carry-back relief”)
  2. Businesses may elect for the current or enhanced carry-back relief based on an estimate of the current year unutilised CAs and trade losses for YA 2021.

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 or three YAs (for YA 2020 and YA 2021 enhanced carry-back relief) 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 relief is available to all businesses, including sole proprietors and partnerships;
  5. A company has to meet the substantial shareholding test and same business test in order to qualify for the relief. 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; 
  7. A company can elect to carry back its QD after transferring its loss items under the group relief system, if applicable; and
  8. For the purpose of carrying back the QD under the enhanced carry-back relief, the carry-back shall be made in the following order:

    YA 2020
    1. Firstly, to the third YA immediately preceding YA 2020 (i.e. YA 2017); 
    2. Secondly, where there are QD remaining after (i), the balance will be carried back to the second YA immediately preceding YA 2020 (i.e. YA 2018); and
    3. Finally, where there are QD remaining after (ii) above, the balance will be carried back to the YA immediately preceding YA 2020 (i.e. YA 2019).

    YA 2021
    1. Firstly, to the third YA immediately preceding YA 2021 (i.e. YA 2018); 
    2. Secondly, where there are QD remaining after (i), the balance will be carried back to the second YA immediately preceding YA 2021 (i.e. YA 2019); and
    3. Finally, where there are QD remaining after (ii) above, the balance will be carried back to the YA immediately preceding YA 2021 (i.e. YA 2020).

     

      The excess of QD that are not carried back can be carried forward for deduction against the company’s future taxable income, subject to the meeting of conditions (i.e. shareholding test and/or same business test). 

         

        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 the e-Tax Guide Carry-back Relief System (PDF, 695KB).

        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 (or the third YA under the enhanced carry-back relief scheme) immediately preceding the YA of loss. This means that, when the chargeable income 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(s).

        When there is chargeable income after deducting the loss carry-back relief, the company can then claim exemption under the Tax Exemption Scheme for New Start-Up Companies. 

        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 2017 and its first YA upon incorporation is YA 2018. Assume that Company A qualifies for the Tax Exemption Scheme for New Start-Up Companies for YAs 2018 to 2020 and that Company A has unutilised current year trade losses of $100,000 for YA 2020.

        Company A's tax computation for YA 2019 is as follows:

        Tax computation for YA 2019

         
         

        $

        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 20%)(340.00)
         Net tax payable1,360.00 

        Company A's current year unutilised trade losses of $100,000 for YA 2020 may be carried forward for set-off against its assessable income of future YAs, provided the substantial shareholding test has been met.

        Company A's tax computations for YA 2020 and YA 2021 are as follows:

        Tax computation for YA 2020

         
         

        $

        Adjusted trade losses

        (100,000)

          
         Unutilised losses carried forward(100,000) 
          

        Tax at 17%

        NIL 

         

        Tax computation for YA 2021

         
         

        $

        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

         

          Tax payable
         $
        YA 20191,360.00
        YA 2020NIL 
        YA 20218,075.00 
        Total tax to be paid9,435.00 

        Since Company A has elected for the current Carry-Back Relief in YA 2020, its unutilised current year trade losses of $100,000 for YA 2020 will be carried back to YA 2019 for set-off against assessable income arising from YA 2019.

        Company A's tax computations for YAs 2019, YA 2020 and YA 2021 are as follows:

        Tax computation for YA 2019

         
         

        $

        Assessable income

        120,000
         Less: Losses carried back from YA 2020(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 2020

         
         

        $

        Adjusted trade losses

        (100,000)

        Less: Losses carried back to YA 2019

         (100,000)

         Unutilised losses carried forwardNIL 
          

        Tax payable at 17%

        NIL

         

        Tax computation for YA 2021

         
         

        $

        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

         

          Tax payable
         $
        YA 2019NIL
        YA 2020NIL 
        YA 202116,575.00
        Total tax to be paid16,575.00 

        Claiming Loss Carry-Back Relief

        To claim loss carry-back relief based on the actual QD, companies should indicate the election in their Income Tax Return (Form C) and tax computation. Upon e-Filing of the Form C, the financial accounts and tax computation for the YA, the revised tax computation(s) for the relevant preceding YA(s) should also be submitted separately through the "Submit Document" e-Service found on the "Submit Document" page which companies would be directed to immediately after e-Filing their Form C. The document type "Revised TC and supporting schedules for Loss Carry-back relief and Income not previously reported" should be selected for this purpose. The Form C e-Filing service for a given YA will be made available in Jun of each year. Companies that wish to claim loss carry-back relief cannot use Form C-S. Please note that the election is irrevocable.

        Administrative Requirement for the Carry-Back Relief for YA 2021
        Companies electing for the carry-back based on the estimated amount of QD under the current carry-back relief system or the YA 2021 enhanced carry-back relief system need to take note of the following election time frame and requirements:

        When to make the election Anytime before the filing of the Corporate Income Tax Return for YA 2021
        How to make the election

        Submit the following via ‘Submit Document’ e-Service* at myTax Portal:

        1) Election Form (PDF, 158KB) for Companies for Carry-Back of Estimated Capital Allowances and Trade Losses; and

        2) Revised tax computations for all three YAs (where applicable) immediately preceding YA 2021.

        *Companies are required to combine the election form and the revised tax computations into one PDF document and upload it under the document type ‘Revised TC and supporting schedules for Loss Carry-Back Relief and Income not previously reported’ for YA 2021.

        Once submitted, IRAS will not accept any revision to the estimated QD until the actual filing of the Corporate Income Tax Return. Companies are not required to submit another carry-back relief election form when submitting the YA 2021 Corporate Income Tax Return. Instead, companies are required to indicate the actual QD in the YA 2021 Form C and tax computation.

        Where the actual QD at the time of filing the YA 2021 Corporate Income Tax Return is different from the estimated QD that was submitted earlier, companies are required to resubmit the revised tax computations via the “Submit Document” e-Service at myTax Portal.

        IRAS will review and process the refunds (if any) within 3 months from the date of submission of the election form and the revised tax computation(s).