The Minister of Finance announced in the 2022 budget speech that there will be a limitation on the utilisation of assessed losses that were carried forward from previous years. The amendment will be effective for companies with years of assessment ending on or after 31 March 2023.

In the past companies were in most instances able to utilise 100% of their assessed losses against taxable income, resulting in no tax liability for that year. The amendment will limit the utilisation of assessed losses for companies to the higher of R1 000 000 or 80% of taxable income.

The impact is illustrated in the following examples:

Example 1
Assessed loss carried forward from previous year: R 3 000 000
Taxable income: R 2 000 000
Higher of R1 000 000 or (R 2 000 000 x 80% = R 1 600 000)
The company will be able to utilise R1 600 000 of the assessed loss against taxable income.
The remaining assessed loss of R 1 400 000 will be carried forward to the next year.

Example 2
Assessed loss carried forward from previous year: R 1 500 000
Taxable income: R 2 000 000
Higher of R1 000 000 or (R 2 000 000 x 80% = R 1 600 000)
The company will be able to utilise the full assessed loss of R1 500 000 against taxable income.

Example 3
Assessed loss carried forward from previous year: R 980 000
Taxable income: R 1 200 000
Higher of R1 000 000 or (R 1 200 000 x 80% = R 960 000)
The company may utilise the full assessed loss of R 980 000.
Companies who are in an assessed loss position for a specific year (before the utilisation of the assessed loss)
will not be affected. The 80% limitation is only applicable where a taxable profit was made during the year.

Smaller companies that earn a taxable income of below R1 000 000 for a specific year will also not be affected.

We strongly advise taxpayers to consider the effect of this change when submitting future tax returns and especially when estimating their provisional tax liability. Feel free to contact your nearest PKF representative should you require further clarity or assistance.

Author:

Sharon Bensch CA(SA) RA
Partner
PKF VGA
Sharon@vg-a.co.za

Disclaimer:
The information provided herein may not be construed as legal and/or tax advice. Professional advice should be sought with reference to specific background facts before any action is taken based on the information contained herein. We hereby disclaim any responsibility should any person act upon the contents of this publication without due consultation.

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