Together with the reduction in the Income Tax rate (from 28% to 27%), SARS implemented a limitation on the usage of a tax loss brought forward. This will apply to all companies with a year end from 31 March 2023, and therefore most companies will only see the impact of this when submitting their 2024 tax returns on 28 February 2024.
Do I completely lose the tax loss benefit?
No, but your usage is limited to the maximum of 80% of the current year’s profit, if the loss brought forward is more than R1million. If the loss is less/equal to R1million the full tax loss can be utilised.
What happens to the unused portion of the tax loss?
This is carried over to the following year and can be used against future profits.
Example 1:
Tax loss brought forward is R2 000 000
Profit for the year is R900 000
Tax loss to be utilised is R900 000 (loss utilised is less than R1mil)
No tax will therefore be paid
Loss carried forward will be R1 100 000
Example 2:
Tax loss brought forward is R1 100 000
Profit for the year is R1 000 000
Tax loss to be utilised is R1 000 000 (loss utilised is less/equal to R1mil)
No tax will therefore be paid
Loss carried forward will be R100 000
Example 3:
Tax loss brought forward is R2 000 000
Profit for the year is R2 000 000
Tax loss to be utilised is R1 600 000 (80% of R2mil)
Tax will therefore be paid on R400 000 at 27%
Loss carried forward will be R400 000
Example 4:
Tax loss brought forward is R3 000 000
Profit for the year is R2 000 000
Tax loss to be utilised is R1 600 000 (80% of R2mil)
Tax will therefore be paid on R400 000 at 27%
Loss carried forward will be R1 400 000
Example 5:
Tax loss brought forward is R1 500 000
Profit for the year is R4 000 000
Tax loss to be utilised is R1 500 000 (80% of R4mil, limited to the loss)
Tax will therefore be paid on R2 500 000 at 27%
No loss will be carried forward
