Losses in Companies

Basics about Tax Losses
In general, if the annual allowable deductions exceed annual gross income for any income year, the taxpayer has achieved a net loss. A taxpayer who has a net loss for an income year is entitled to carry forward that loss to the immediately succeeding year as an available net loss to be written off against future income.

The taxpayer cannot set off net losses in excess of the income for that succeeding year. Once the income has been extinguished by the carry forward loss, any remaining losses can be carried forward to the next years.

There is no time limit set on when a net loss can be carried forward and if the losses are incurred in two or more income years and carried forward, then they are deducted or set off in the order in which they have arisen.

Company Loss Carry Forward Rules Changed
From 1992 to 1993 income years, new rules applied concerning the carry forward of company losses and imputation credits in the offset and grouping of those company losses.

The requirement for companies seeking to carry forward a loss to a later income year used to be 40%, but it is now 49% minimum continuity.

The minimum shareholding commonality for grouping of company losses is now 66% - was previously 66.667%.

Loss carry forward can now be done either by payment or election. Previously, only specified companies with 100% common ownership could offset losses by election.

The shareholder continuity for carry forward of imputation credits, dividend withholding payment credits and branch equivalent account tax credits is 66% - it was previously 75%.

Losses Carried Forward by Companies
A company taxpayer who has incurred a net loss in an income year can only carry forward the whole or part of that loss to any income year where there is a group of persons,

  1. Whose total minimum voting rights in the loss company, in the period from the beginning of the year of the loss to the end of the carry forward, are equal to or greater than 49% and;

  2. The total minimum market value interest in the loss company, in a continuity period, are equal to or greater than 49% where at any time during that continuity period a market value circumstance exists for the loss company.

The minimum voting interest of any person in the loss company in a continuity period is equal to the lowest voting interest or market value interest in the loss company which that person has during that period.

The shareholder continuity requirements for a group of persons are measured by looking at the continuity of minimum voting interests during the period involved.