Add a tax loss

Overview

TaxLab has full tax loss tracking functionalities and deals with tax losses utilisation, subvention payments and intra-group loss offsets.  

Tax losses are used on an aged basis. If there are any tax losses being carried forward, the software uses the losses to the extent it can be used, then carries forward the balance. The software also automatically converts any imputation credits received into tax losses if the calculation is in a net loss position.

Add a tax loss transaction

If this is a first year calculation and there are tax losses carried forward from a prior year, you need to manually create a new net loss transaction. Any tax loss to carry forward will be included in next year’s calculation when the calculation is rolled over.

1. From the income tax calculation, select the Workpapers tab > Tax Losses.
2. Select New.
3. Select the transaction type. The options will display to choose from depending on the type of entity you're working in:
   • Net loss
   • Converted imputation credits
   • Tax loss received
   • Subvention payment made
   • Continuity breach (forfeit losses)
   • R & D tax loss cash out
   • Utilisation of loss balance brought forward
   • Tax loss made available (transfer the tax loss to another entity)
   • Subvention payment received
   • Converted imputation credits made available
4. Enter the amount as a positive number.
5. Optional: Add a note explaining why you added the transaction.
6. Select Save.

Transfer a tax loss

If the entity is a member of a group, and the other group members exist as entities in the software, you can transfer the loss to another member of the group.

1. From the income tax calculation, select the Workpapers tab > Tax Losses.
2. Select New. 
3. Enter the Date of the transfer. 
4. Select the Loss year. This should reflect the year that the loss was originally generated. 
5. Select the Transaction type as "Tax loss made available" transaction type. The Linked entity drop-down list will become enabled, and you can select the entity you want to transfer the tax loss to.
6. Optional: Add a note explaining why you added the transaction.
7. Select Save. The corresponding transaction will automatically be recorded in the other entity.

If you are transferring losses that were generated over multiple years to another entity, then add separate loss transactions showing the year the loss was originally generated. If you are transferring converted imputation credits to another entity, select Converted imputation credits made available when selecting the transaction type.

The transferred losses will be transmitted to IR when the tax return is filed; you will not need to separately advise them of the transaction.

Continuity breaches

• Add a tax loss transaction for the continuity breach. This will ensure that you have the correct tax loss balance to be rolled forward to next year.
• The IR4 form does not have a box for entering loss continuity breach. Therefore the tax return is unable to reflect the continuity breach.
• You need to advise IR using secure mail about the loss continuity breach and IR will update the loss records for the taxpayer.
• The tax return transcript reflects the IR4 form and does not include the loss continuity breach in the taxable income / loss.

R&D tax loss cash out

• Add a tax loss transaction for the R&D tax loss cash out. This will ensure that you have the correct tax loss balance to be rolled forward to next year.
• The IR4 form does not have a box for disclosing the R&D tax loss cash out. Therefore the tax return is unable to reflect it.
• Apply for the R&D loss tax credit and IR will re-assess the losses when they process the cash out.
• The tax return transcript reflects the IR4 form and does not include the R&D tax loss cash out.

Troubleshooting

No IR4 disclosure to show a reduction to loss brought forward balance

If you want to show a reduction of the tax loss balance brought forward on the IR4 form, e.g. reductions for R&D tax credits or continuity breaches, you will be unable to. The IR4 form asks for the amount of tax losses brought forward (Box 25A). If there is any reduction to tax losses other than losses made available (Box 27) or subvention payments (Box 27A), there is no field to disclose these. You will need to contact IR directly via secure mail to advise, and IR will update the records manually.

What's next?

The imputation credit account workpaper

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