What are Unutilised Items (Capital Allowances, Trade Losses & Donations)

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

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 trade losses for a particular YA arise when the company has insufficient or no income from other sources to set-off business losses incurred during that YA.

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

Your company with unutilised items (capital allowances, trade losses and donations) may:

  • Carry forward its unutilised capital allowances, trade losses and donations to set-off the income of future YAs;
  • Carry back its current year unutilised capital allowances and trade losses to set-off income earned in the immediate preceding YA; or
  • Transfer its current year unutilised capital allowances, trade losses and donations to related companies through Group Relief.

You can refer to the Basic Corporate Income Tax Calculator to prepare your tax computation and Form C-S/ Form C-S (Lite)/ Form C and to work out the amount of unutilised capital allowances, trade losses and donations you can carry forward to future YAs/ carry back to the immediate preceding YA/ transfer to related companies through Group Relief.

Carry-Forward of Unutilised Items

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 Years of Assessment (YAs) (for example, donations made in YA 2016 can be carried forward until YA 2021. Any balance of the donations not deducted by YA 2021 is disregarded).

Qualifying Conditions

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.

Unutilised Capital Allowances Unutilised Trade Losses Unutilised Donations
Company must satisfy the shareholding test. Company must satisfy the shareholding test. Company must satisfy the shareholding test.
There must be no change in the company's principal activities during the relevant dates. - -

Shareholding Test

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

Step 1

Identify the 2 relevant dates.

Relevant Dates for Unutilised Capital Allowances

First Date: Last day of the YA in which the capital allowances arose.
Second Date: First day of the YA in which the capital allowances are to be deducted.

Relevant Dates for Unutilised Trade Losses/ Donations

First Date: Last day of the year in which the trade losses or donations were incurred.
Second Date: First day of the YA in which the trade losses or donations are to be deducted.

Example 1: Relevant Dates for Unutilised Capital Allowances
YA: 2016
Basis Period: 1 Oct 2014 to 30 Sep 2015
Capital Allowances Arose in: YA 2016
Capital Allowances to be Deducted in: YA 2021
Relevant Dates for Shareholding Test: 31 Dec 2016 (last day of YA 2016) and 1 Jan 2021 (first day of YA 2021)
Example 2: Relevant Dates for Unutilised Trade Losses/ Donations
YA: 2016
Basis Period: 1 Oct 2014 to 30 Sep 2015
Trade Losses/ Donations Incurred in: YA 2016
Trade Losses/ Donations to be Deducted in: YA 2021
Relevant Dates for Shareholding Test: 31 Dec 2015 (last day of year 2015) and 1 Jan 2021 (first day of YA 2021)

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 2 relevant dates are 50% or more, there is no substantial change in shareholders and their shareholdings (meaning that the company satisfies the shareholding test). Otherwise, it is regarded as having a substantial change in shareholders and their shareholdings.

Example 1: No Substantial Change in Shareholders and Shareholdings

Company A wishes to claim its unutilised capital allowances and trade losses brought forward from YA 2016 against its assessable income for YA 2021. Company A's basis period is 1 Oct 2014 to 30 Sep 2015.

Shareholders Number of Shares as at 31 Dec 2015 Number of Shares as at 31 Dec 2016 Number of Shares as at 1 Jan 2021
A 15 10 10
B 45 50 -
C 40 40 40
D - - 50
Total 100 100 100
Unutilised Capital Allowances

The shareholding test is satisfied, as explained in the table below.

Relevant Dates for Claiming Unutilised Capital Allowances Common Shareholders on Both Relevant Dates % of Shareholding of Common Shareholders
Last day of the YA in which the capital allowances arose:
31 Dec 2016
Shareholder A and Shareholder C 50%
[(10 + 40) / 100]
First day of the YA in which the capital allowances are to be deducted:
1 Jan 2021
Shareholder A and Shareholder C 50%
[(10 + 40) / 100]

There is no substantial change in the shareholders of the company as the common shareholders A and C hold at least 50% of the total number of shares in the company as at the relevant dates. The company can therefore claim the unutilised capital allowances for YA 2016 against its income for YA 2021, provided there is no change in the company's principal activities during the 2 relevant dates.

Unutilised Trade Losses

The shareholding test is satisfied, as explained in the table below.

Relevant Dates for Claiming Unutilised Trade Losses Common Shareholders on Both Relevant Dates % of Shareholding of Common Shareholders
Last day of the year in which the trade losses were incurred:
31 Dec 2015
Shareholder A and Shareholder C 55%
[(15 + 40) / 100]
First day of the YA in which the trade losses are to be deducted:
1 Jan 2021
Shareholder A and Shareholder C 50%
[(10 + 40) / 100]

There is no substantial change in the shareholders of the company as the common shareholders A and C hold 50% or more of the total number of shares in the company as at the relevant dates. The company can therefore claim the unutilised trade losses for YA 2016 against its income for YA 2021.

Example 2: Substantial Change in Shareholders and Shareholdings

Company B wishes to claim its unutilised capital allowances and trade losses brought forward from the YA 2016 against its assessable income for YA 2021. Company B's basis period is 1 Jan 2015 to 31 Dec 2015.

Shareholders Number of Shares as at 31 Dec 2015 Number of Shares as at 31 Dec 2016 Number of Shares as at 1 Jan 2021
A 30 30 30
B 30 70 10
C 40 - -
D - - 60
Total 100 100 100
Unutilised Capital Allowances

The shareholding test is not satisfied, as explained in the table below.

Relevant Dates for Claiming Unutilised Capital Allowances Common Shareholders on Both Relevant Dates % of Shareholding of Common Shareholders
Last day of the YA in which the capital allowances arose:
31 Dec 2016
Shareholder A and Shareholder B 100%
[(30 + 70) / 100]
First day of the YA in which the capital allowances are to be deducted:
1 Jan 2021
Shareholder A and Shareholder B 40%
[(30 + 10) / 100]

There is a substantial change in the shareholders of the company as the common shareholders A and B hold less than 50% of the total number of shares in the company as at 1 Jan 2021. The company cannot claim the unutilised capital allowances for YA 2016 against its income for YA 2021.

Unutilised Trade Losses

The shareholding test is not satisfied, as explained in the table below.

Relevant Dates for Claiming Unutilised Losses Common Shareholders on Both Relevant Dates % of Shareholding of Common Shareholders
Last day of the year in which the trade losses were incurred:
31 Dec 2015
Shareholder A and Shareholder B 60%
[(30 + 30) / 100]
First day of the YA in which the trade losses are to be deducted:
1 Jan 2021
Shareholder A and Shareholder B 40%
[(30 + 10) / 100]

There is a substantial change in the shareholders of the company as the common shareholders A and B hold less than 50% of the total number of shares in the company as at 1 Jan 2021. The company cannot claim the unutilised trade losses for YA 2016 against its income for YA 2021.

Waiver of Shareholding Test

Your company may apply for a waiver of the shareholding test under Section 37(16) of the Income Tax Act for unutilised trade losses and Section 23(5) for unutilised capital allowances if the substantial change in the shareholders of the company is due to the following:

  • Genuine commercial reasons not for the purpose of deriving any tax benefit or obtaining any tax advantage
  • Nationalisation
  • Privatisation of government-owned enterprise
  • Stocks of the company or that of its holding parent company being publicly listed and traded in a recognised Stock Exchange

To apply for a waiver of the shareholding test, your company must submit the following information via myTax Mail:

  • Date of the substantial change in shareholders or takeover
  • Details of the reasons (both commercial and non-commercial) leading to the substantial change in shareholders or takeover
  • Advantages derived by the takeover company
  • Details of the net worth of the applicant
  • The price paid by the takeover company for the shares of the applicant and the basis on which such price was determined
  • Reason why the share price does not commensurate with the net worth of the applicant
  • Future plans of the applicant and whether such plans are implemented. If not, give reasons
  • Whether any activities of the takeover company or any other company under common control have been or will be transferred to the applicant. If so, furnish details
  • Whether future expansion of the associated companies under common control has been or will be diverted to the applicant. If so, furnish details
  • A chart showing the group structure before and after the substantial change in shareholders

A timely application makes it easier for the company to retrieve relevant records to support its application for the waiver of the shareholding test. As such, the company may submit the application for a waiver of the shareholding test even if it is not in the position to utilise the unutilised items.

Administrative Procedures

To claim unutilised capital allowances, trade losses and donations brought forward from previous YA(s), your company must:

  • Fill in the unutilised amount brought forward from previous YA(s) and the unutilised amount to be carried forward in its Corporate Income Tax Return.
  • Show, in the tax computation, the claim for unutilised capital allowances, trade losses and donations brought forward and the computation of the unutilised amount to be carried forward to subsequent YAs.

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 trade losses from previous years* (starting with the trade 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

FAQs

  1. There is no substantial change in the shareholders of my company. Why hasn’t IRAS allowed my claim for unutilised capital allowances?

    Your company must satisfy 2 conditions to make use of unutilised capital allowances arising in previous YAs:

    1. There is no substantial change in shareholders and their shareholdings as at the relevant dates; and
    2. There must be no change in principal activities as at the relevant dates.

    Hence, your company's unutilised capital allowances may have been disregarded by IRAS because it did not satisfy the second condition.

  2. Must a company be in a profit position before it can submit an application for a waiver of the shareholding test?

    No, the application for a waiver of the shareholding test can be submitted when a substantial change in shareholders occurs.

Loss Carry-Back Relief for Unutilised Items

Companies may carry back current year unutilised capital allowances and trade losses arising in a Year of Assessment (YA) to set-off the income from the immediate preceding YA, subject to a cap of $100,000.

For example, YA 2020 capital allowances and trade losses can be carried back to set-off YA 2019's income, subject to a cap of $100,000.

Learn more about Loss Carry-Back Relief.

Group Relief for Unutilised Items

Companies may transfer current year unutilised capital allowances, trade losses and donations of 1 company from the assessable income of another company in the same group.

Learn more about Group Relief.