To reduce the amount of tax you have to pay, you can use your trade/business losses and unutilised or unabsorbed capital allowances to offset your taxable income.
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Trade losses and capital allowances
When you incur trade/business losses after deducting the allowable expenses against your gross profit, the trade losses and any capital allowances claimed can be used to offset against your other income such as employment, interest, rental income, and income from your other businesses in the same year.
Carrying forward unutilised losses and allowances
When your other income is not sufficient to off-set your trade loss, you can carry forward the unutilised/unabsorbed trade losses and capital allowances to subsequent years to offset against the income of those years until the trade losses are fully utilised.
To carry forward the unabsorbed capital allowances, you must satisfy the same business test. This test determines if a person continues to carry on the same trade, business or profession for which capital allowances were granted. The test is satisfied if the same trade, business or profession is being continued at the point when the unabsorbed capital allowances are utilised.
Should your business ceases, you can carry forward unabsorbed trade losses but not unabsorbed capital allowances to the following year.
Exception for car rental and private car instruction businesses
The above treatment do not apply to car rental and private car instruction businesses. Any unabsorbed trade losses and unabsorbed capital allowances can be carried forward as a deduction against income derived from the same business in subsequent Years of Assessment (YA).
Should business ceases, any unabsorbed losses and unabsorbed capital allowances of the said business will be disregarded.
Carrying back losses and allowances
Effective from Year of Assessment (YA) 2006, current year unutilised trade losses and capital allowances can be carried back for one YA immediately preceding the YA in which trade loss and capital allowance arose.
- The loss and capital allowance for the current year can only be carried back for one YA immediately preceding the YA relating to the year in which the loss was incurred or capital allowance granted.
- The maximum amount of loss and capital allowance to be carried back is capped at $100,000.
- To carry back unabsorbed capital allowances, you must satisfy the same business test. This test determines if a person continues to carry on the same trade, business or profession for which capital allowances were granted. The test is satisfied if the same trade, business or profession is being continued at the point when the unabsorbed capital allowances are utilised.
- The loss carry-back feature is available to all businesses, including sole-proprietors and partners of a partnership (including limited liability partnerships).
To claim, submit the Election Form (PDF, 1.4MB) together with your income tax return for the current YA or within 30 days from the date of your individual notice of assessment for the current YA.
For more details, please refer to 'Carry-back Relief System' (PDF, 845KB).
In Budget 2020, the Minister for Finance announced that for the YA 2020, businesses are allowed to carry back up to $100,000 of current year unutilised capital allowances and trade losses to offset the income for the preceding three YAs - YAs 2017, 2018 and 2019 (enhanced carry-back relief) or for only the immediate preceding YA 2019 (current carry-back relief). The enhancement is part of the Stabilisation and Support Package to help businesses with their cash flow.
In addition, businesses may elect for the enhanced or current carry-back relief based on an estimate of the unutilised capital allowances and losses for YA 2020. This is to allow them to claim an earlier refund to ease their businesses' cash flow.
As announced in Budget 2021, the enhanced carry-back relief is extended to YA 2021. Businesses are allowed to carry back up to $100,000 of current year unutilised capital allowances and trade losses to offset the income for the preceding three YAs - YAs 2018, 2019 and 2020 (enhanced carry-back relief) or for only the immediate preceding YA 2020 (current carry-back relief). In addition, businesses may elect for the enhanced or current carry-back relief based on an estimate of the unutilised capital allowances and losses for YA 2021.
Please refer to the e-Tax Guide on Enhanced Carry-back Relief System (PDF, 528KB) for more information as well as the election form (PDF, 1.38MB) for carry-back relief for YA 2020 and YA 2021.