Add or transfer a tax loss

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

Tax losses are utilised on an aged basis. If there are any tax losses being carried forward, the system uses the losses to the extent it can be used, then carries forward the balance. The system 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. In the entity’s income tax return, click the Workpapers tab > Tax Losses.
2. Click the New button.
3. Select the transaction type:
   • 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.
5. Add a note explaining why you made this transaction.
6. Click Save.

Transfer a Tax Loss

If the entity is a member of a group, and the other group members are added as entities in the system, you can offset the loss to another member (entity) of the group.

When you add the tax loss, select the Tax loss made available transaction type. The To drop-down list becomes available, from which you can select the entity you want to transfer the tax loss to. The Loss year should reflect the year that the loss was originally generated in TaxLab. The 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, use Converted imputation credits made available as the transaction type.

IR4 Disclosure: Reduction to Loss Brought Forward Balance

We frequently get asked how 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.  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.

How to deal with continuity breach?

• 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 myIR 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.

How to deal with 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.