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Corporate Tax Guide: Claiming Loss Carry-Back Relief in Singapore

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As you’re probably aware by now, the government of Singapore allows businesses to carry forward their unspent capital allowances and trade losses across future taxable incomes

Now, as it turns out, the benefits don’t stop there. It just so happens that companies in Singapore can also do the reverse. Yes, that’s right - the Inland Revenue Authority of Singapore (IRAS) gives businesses the option of carrying back their untapped allowances through a program called Loss Carry Back Relief. 

In this article, we’ll walk you through the entire process of applying for Loss Carry Back Relief in Singapore. 

What is Loss Carry-Back Relief?

Loss Carry-Back Relief is a program that gives companies the chance to transfer back unexpended capital allowances and trade losses accumulated in a specific Year of Assessment (YA). In other words, you get to use your trade losses and capital allowances to reduce your previous year’s taxable income, and consequently, minimize the accompanying tax bill. 

The whole point of this system is to give businesses much-needed assistance when they’re experiencing cash-flow problems. By carrying back their trade losses and tax allowances, they get to survive through cyclical downturns.

It’s worth noting, though, that since it was introduced in 2006, the Loss Carry-Back Relief program has only been stretching as far back as one year. That means companies have only been applying their allowances and trade loss carrybacks to their immediately preceding YA. 

Thankfully, things changed in 2020, when the government announced through the annual budget that loss carry back reliefs would accommodate three preceding years of assessment. As such, you can have your YA 2020’s capital allowances and trade losses carried back to YA 2019, YA 2018, and YA 2017. 

This new approach is known as Enhanced Carry-Back Relief. But, it doesn’t completely do away with the one-year carry back program. Rather, it gives businesses two options - you could either settle for the one year loss carry back relief, or proceed with the three-year program - based on your current year’s estimates of the capital allowances and trade losses. 

Main Features of Loss Carry-Back Relief

The following conditions apply to Singapore’s Loss Carry-Back Relief program: 

  • The benefits are only granted when you make a claim. That means you have to fill in an application to qualify. 
  • Even after transferring your company’s losses through the Group Relief program, you can still carry back applicable losses to preceding years of assessment. 
  • The Loss Carry Back Relief program is open to all types of businesses - not just companies. Even partnerships and sole proprietorships have the right to apply for the benefits. 
  • Just like we’ve seen with the carry forward schemes, all companies are required to meet the same business test and substantial shareholding test conditions to qualify for carry backs. 
  • When it comes to offsetting the preceding year’s taxable income, the IRAS will make deductions in the following order; it’ll first deduct the current year’s unspent capital allowances from the preceding year’s (or years’) taxable income, before proceeding to the trade loss deductions. 
  • You can choose to carry back the current year’s capital allowances and trade losses to one year of assessment, or across three years of assessment. For instance - capital allowances and losses for YA 2020 can either be carried back and applied to YA 2019, or alternatively, carried back across YA 2019, YA 2018, and YA 2017. 
  • If you choose to proceed with 2020’s Enhanced Carry-Back Relief scheme, the IRAS will make deductions across the preceding three YAs as follows:

    1. First, the carried back capital allowances and trade losses will be applied to the third preceding year’s payable taxes. So, assuming we’re carrying back from YA 2020, the deductions will first be applied to YA 2017.

    2. Once that is done, the remaining capital allowance and trade losses will be applied to the second preceding year of assessment - in this case, YA 2018.

    3. Then finally, the rest of the allowances and trade losses will be used to offset the immediately preceding year’s taxable income- in this case, YA 2019. 
  • Any extra capital allowances and trade losses that are not carried back can be pushed forward to be deducted from taxable incomes in the future. It all depends on how the company meets the shareholding test and the same business test conditions. 

Specific Exclusions for Loss Carry-Back Relief

Now, make no mistake about it. The Loss Carry-Back Relief program is not for everyone. It excludes the following businesses: 

  • Section 10E companies, which according to Singapore’s Income Tax Act, happen to be engaged in the business of making investments. The act leaves them out of not only the Loss Carry Back Relief program, but also Group Relief and Loss Carry Forward schemes.
  • Companies that are engaged in businesses where the resultant income is entirely exempted from taxation. The act bars them from transferring back trade losses from such business activities and then using them to offset other exempted or non-exempted income. 
  • Companies engaged in particular classes of trade whose capital allowances and trade losses are restricted against carry-backs and carry-forwards. The Income Tax Act, for instance, makes it impossible to carry back allowances and losses from finance leasing and motor leasing income. 

Loss Carry-Back Relief and Tax Exemption for Start-Ups

If your new business is fortunate enough to qualify for Singapore’s Tax Exemption Scheme for Start-Up Companies, you can expect that the carried back capital allowance and trade losses will initially be applied to the third preceding year’s taxable income. 

Consequently, if the deductions reduce the third preceding year’s taxable income to nil, you won’t be able to take advantage of that specific YA’s tax exemption scheme benefits. 

Case in point - when a startup company carries back its trade losses from YA 2020 and then used them to reduce its YA 2017 chargeable income to nil, it won’t be able to capitalize on YA 2017’s tax exemption benefits. 

But, if you’re still left with taxable income after making the carry-back deductions, you can go ahead and claim that YA’s exemptions under the Tax Exemption Scheme for New Start-Up Companies. 

How to Claim Loss Carry-Back Relief

The procedure for claiming loss carry-back relief is as follows: 

  • The IRAS requires you to apply for loss carry-back relief while submitting your company’s Income Tax Return Form C. You should also indicate your selected carry back system (one year or three years).
  • You should be able to e-file your company’s Form-C via IRAS’s myTax portal in June of each year. 
  • Once you submit that along with the corresponding YA financial accounts and tax computation, the system will direct you to the “Submit Document” page, where you’ll find an option for “Revised TC and supporting schedules for Loss-Carry back relief and Income not previously reported”. 
  • Using that, you can go ahead and e-file your amended tax computations for the preceding YAs. 

That’s all it takes. 

How To Save Yourself The Trouble

On the bright side, you don’t have to do all the heavy lifting by yourself. Wealthbridge is here to save you the hassle of dealing with all these technical tax processes. We’ll take care of them on your behalf while you worry about running the business. 

Get in touch with us today to find out more. Besides, our consultations are completely free of charge. 

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