Unutilised Items (Capital Allowances, Trade Losses & Donations)

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 if the company continues to carry on the same trade or business for which capital allowances are given.

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.

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.

Waiver of Shareholding Test

Your company may apply for a waiver of the shareholding test under Section 37(16) of the Income Tax Act 1947 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.

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

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.
   
   

   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.