Loss Carry-Back Relief

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). 

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.

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 (1.37 MB).

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).

Example

Company A was incorporated in year 2014 and its first YA upon incorporation is YA 2015. Assume that Company A qualifies for the Tax Exemption Scheme for New Start-Up Companies for YAs 2015 to 2017 and that Company A has unutilised current year trade losses of $100,000 for YA 2017.

Company A's tax computation for YA 2016 is as follows:

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

The Form C e-Filing service for a given YA will be made available in Jun of that year. For example, the company may e-File its YA 2019 Form C and elect to claim loss carry-back relief for YA 2019 starting from Jun 2019 to 15 Dec 2019 (the e-Filing due date).