Unutilised Items (Losses, Capital Allowances and Donations)

In a particular Year of Assessment (YA), a company may have tax deductions/ capital allowances/ donations that could not be fully utilised as there was insufficient income to setoff against.

Unutilised losses for a particular YA arise when the company has insufficient or no income from other sources to setoff business losses incurred during that YA.

Unutilised capital allowances for a particular YA arise when the capital allowances claimed in that YA cannot be fully utilised due to insufficiency of income or business losses incurred during that YA.

Unutilised donations for a particular YA arises when allowable donations made during the YA is more than the income for that YA.

Subject to qualifying conditions, unutilised capital allowances and trade losses can be carried forward indefinitely while unutilised donations can be carried forward for up to 5 YAs*. For more information on donations, please refer to Donation and Tax Deduction. 

The unutilised capital allowances, trade losses and donations can only be deducted against future income if companies satisfy the Shareholding Test. The company is said to have satisfied the shareholding test when there is no substantial change in its shareholders and their shareholdings as at the relevant dates.

Unutilised capital allowances can only be deducted against future income subject to an additional condition that there is no change in the company's principal activities during the relevant dates.

Shareholders refer to shareholders of the ultimate holding company (where applicable).To determine whether there is substantial change in shareholders:

Step 1:
Identify the two relevant dates (as explained above).

Step 2:
Identify the shareholders that have shareholdings on both relevant dates.

Step 3:
Identify the total number of shares held by these shareholders on each relevant date.

Step 4:
Express the shares owned by these shareholders collectively as a percentage over the total number of shares on each relevant date.

If the percentage of shareholding of the common shareholders as at these two relevant dates are 50% or more, there is no substantial change in shareholders and their shareholdings. Otherwise, it is regarded as having a substantial change in shareholders and their shareholdings.

The company may apply for waiver of the shareholding test if there is a substantial change in the shareholders of the company.

To grant the waiver, the Comptroller of Income Tax has to be satisfied that the substantial change in shareholders is not for deriving any tax benefit or obtaining any tax advantage.

If the company satisfies the qualifying conditions explained in the preceding paragraphs, it may claim the unutilised items (losses, capital allowances and donations) brought forward from previous YAs. To claim unutilised losses, capital allowances and donations brought forward, you must 

1. Fill in the unutilised amount brought forward from previous YA(s) and the unutilised amount to be carried forward in your Income Tax Return. For details, please refer to Guidance on Completing Form C-S/ C; and
2. Show, in the tax computation, the claim for unutilised losses, capital allowances and donations brought forward and the computation of the unutilised amount to be carried forward for subsequent YAs.

Order of Claiming the Deductions

When claiming, the amounts must be deducted against the current year income in the following order:

1. Unutilised capital allowances* (starting with the capital allowances from the earliest YA)
2. Current year capital allowances*
3. Unutilised losses from previous years* (starting with the losses from the earliest YA)
4. Unutilised donations from previous years (starting with the donations from the earliest YA, subject to a maximum of 5 years before the current YA)
5. Current year donations

* To claim against trade income first before income from other sources

Companies may also carry back  current year unutilised capital allowances and trade losses to set off the income from the immediate YA preceding that YA in which the capital allowances were granted and trade losses were incurred, subject to a maximum cap of $100,000.

For example, YA 2019 capital allowances and trade losses can be carried back to setoff YA 2018's income, subject to a cap of $100,000.

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. The number of YAs to which unutilised CAs and trade losses from YA 2020 can be carried back will be increased from one YA 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 enhanced carry-back relief based on an estimate of the current year unutilised CAs and trade losses for YA 2020.

For more details, please refer to Loss Carry-Back Relief.

From YA 2003, companies may transfer current year unutilised trade losses, capital allowances and donations of one company from the assessable income of another company in the same group.

For more details, please refer to Group Relief.