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). 

Updated! 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) (“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, 533KB) for more information on the Loss Carry-back relief for YA 2020.

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 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 system will be 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 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; 
  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 for YA 2020, the carry-back shall be made in the following order:
    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).

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, 760KB).

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 (third YA for YA 2020) 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 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 2016 and its first YA upon incorporation is YA 2017. Assume that Company A qualifies for the Tax Exemption Scheme for New Start-Up Companies for YAs 2017 to 2019 and that Company A has unutilised current year trade losses of $100,000 for YA 2019.

Company A's tax computation for YA 2018 is as follows:

Tax computation for YA 2018

 
 

$

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 40%)(680.00)
 Net tax payable1,020.00 

Company A's current year unutilised trade losses of $100,000 for YA 2019 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 2019 and YA 2020 are as follows:

Tax computation for YA 2019

 
 

$

Adjusted trade losses

(100,000)

  
 Unutilised losses carried forward(100,000) 
  

Tax at 17%

NIL 

 

Tax computation for YA 2020

 
 

$

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 25%)(2,018.75) 
 Net tax payable6,056.25 

 

  Tax payable
 $
YA 20181,020.00
YA 2019NIL 
YA 20206,056.25 
Total tax to be paid7,076.25 

Since Company A has elected for the Carry-Back Relief in YA 2018, its unutilised current year trade losses of $100,000 for YA 2019 will be carried-back to YA 2018 for set-off against assessable income arising from YA 2018.

Company A's tax computations for YAs 2018, YA 2019 and YA 2020 are as follows:

Tax computation for YA 2018

 
 

$

Assessable income

120,000
 Less: Losses carried back from YA 2019(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 2019

 
 

$

Adjusted trade losses

(100,000)

Less: Losses carried back to YA 2018

 (100,000)

 Unutilised losses carried forwardNIL 
  

Tax payable at 17%

NIL

 

Tax computation for YA 2020

 
 

$

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 25%)4,143.75
 Net tax payable12,431.25

 

  Tax payable
 $
YA 2018NIL
YA 2019NIL 
YA 202012,431.25
Total tax to be paid12,431.25 

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. This tax computation and the revised tax computation(s) for the relevant preceding YA(s) should be submitted when companies e-File their Form C. The Form C e-Filing service for a given YA will be made available in Jun of each year. Companies that wish to make the claim cannot use Form C-S. Please note that the election is irrevocable.

Updated! Administrative Requirement for the Carry-Back Relief for YA 2020
Companies electing for the carry-back based on the estimated amount of QD under the current carry-back relief system or the enhanced carry-back relief system need to take note of the following election timeframe and requirements:

When to make the election Anytime before the filing of the Income Tax Return for YA 2020
How to make the election

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

1) Election Form (PDF, 120KB) 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 2020.

*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 the YA 2020.

Once submitted, IRAS will not accept any revision to the estimated QD until the actual filing of the income tax return. Companies are not required to submit another carry-back relief election form when submitting the YA 2020 income tax return. Instead, companies are required to indicate the actual QD in the YA 2020 Form C and tax computation.

New! Where the actual QD at the time of filing the YA 2020 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-Services at myTax Portal.

Companies who had made an election after the Budget 2020 announcement but before 8 May 2020 are allowed to make a one-time revision to the election for the enhanced carry-back relief to the current carry-back relief by submitting a covering letter and the relevant documents mentioned in the e-Tax Guide on Enhanced Carry-back Relief System (PDF, 533KB) via the “Submit Document” e-Services at myTax Portal.

To re-submit the revised tax computations and revised election form via the “Submit Documents” e-Services at myTax Portal, you are required to call the Corporate Tax Helpline or send an email to ctmail@iras.gov.sg (with subject header “Request to Activate Revised Filing for YA 2020 Loss Carry-Back Relief”, including the company’s full name and tax reference number) for IRAS to activate the revised filing request of the company 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).