In previous financial years, there was no limitation on utilizing an assessed loss against current year taxable income.
A new proposal was enacted in terms of the Taxation Laws Amendment Act of 2021 and came into effect for years of assessment ending on or after 31 March 2023.
It only applies to companies that have incurred an assessed loss in a previous year of assessment and states that the set off-of such assessed loss carried forward against current year taxable income may not exceed the higher of R1 million or 80 percent of the current year taxable income before the application of the set-off.
The rule does not apply to assessed capital losses, which in most cases remain fully available for set-off against capital gains.
If the current year’s taxable income before the set-off of the assessed loss is R1 million or less, then the assessed loss brought forward may be fully set off against the taxable income.
If the current year’s taxable income calculation results in an assessed loss before taking into account an assessed loss carried forward from the previous year of assessment, then the rule does not apply.
Examples to illustrate:
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