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BUDGET SPEACH - Assessed Losses

Updated: Apr 3




An assessed loss arises when the tax deductible expenses of a company exceed the income derived by it. Up to now there was no limitation on the the amount or the number of years that a company could carry forward this assessed loss, despite this limitation being practisd in many other countries.

For many company’s (especially those with substantial start-up costs) at least one silver lining to come out of the current economic climate was the fact that any losses incurred in a year could be carried forward to future years of assessment to be set off against future profits when the company became profit again, thereby reducing future taxes.

The budget speech in February 2020 proposed to limit the carry forward of assessed losses to 80% of taxable income from years of assessment commencing after 1 January 2021.

This means for e.g. if a company has an assessed loss balance carried forward, it will have to at least pay tax on 20% of its taxable income, regardless of whether the assessed loss carried forward exceeds taxable income. It is not clear if any balance of the assessed loss may be carried forward to the following year.

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