Losses & Relief Flashcards
What is rule in set-off and carry-forward of losses, are they allowed?
- Set-off always allowed with some exceptions where not allowed, CG & Spec. business;
- C/F not allowed with some exceptions where allowed
What is intra-head and inter-head loss and if adjustment allowed
- Inter-head means more than two business under one head of income or more than two streams (like exports opted as NTR and local) – Always allowed:
- Inter-head – Allowed except CG & Speculation business
Which Heads’ income is available to absorb loss in the same year (When more than one heads of income of tax payer)
All Heads’ income available except Salary & IFP
When there is income available to, How many losses do compete against each other to eat this income?
Biz loss (normal), IFOS, IFP
What does Set-off means
Set-off against other heads
How many Heads of Income allowed and how many C/F allowed in numbers
3 Set-off and 3 c/f
What are two incomes where tax has to be paid in all cases
Income from salary and Income from property (as these income are not available for adjustment of losses from other heads)
What are two different types of business losses? If total loss of a year is provided how to bifurcate both
- due to dep 2. Due to other expenses.
To bifurcate first deduct dep/amm, remaining will be other expenses loss
What is 1+6 rule for C/F of business loss and what are three exceptions
- Business loss other than Hotels (Co+resident) – 6 years life;
- Exceptions –
- 1 Hotels (Co+resident) 1+8 years from TY July 2021
- Industrial undertaking in specific zone (2nd Sch PIV) – unlimited,
- UAD – unlimited life
C/F business loss of previous more than 1 year (other than UAD), What is order of adjustment
Earliest year is adjusted first
Can current year loss due to UAD be adjusted against other heads income?
Yes except against salary, IFP
Loss Calculation for the Head of Business Income
- While calculation, we will not (look into or) consider losses until we have calculated taxable income.
Income xxxx
Less expenses other than dep/amm (xxxx)
Income/Loss before dep/amm xxxx
Dep/amm xxxx
Taxable Income xxxx
This is to categorise loss b/w biz loss & UAD
- If loss (current year) Look for incomes available for settlement with loss (including loss due to expenses and depreciation) same year (other than property, salary income).
- Unsettled business loss c/f separately business loss and UAD. To bifurcate first deduct dep/amm, remaining will be other expenses loss.
- For C/F losses
Biz Loss
- C/f loss s/o against Biz Income only
- 6 years after year of loss (7 yrs), preference over UAD
- More than 1, set-off earliest 1st
UAD
- against Biz Income only
- IF TI >=10M, 50% of BALANCE INCOME (TI-Biz loss)
- IF TI <10M, adjust fully, no limit
- Unlimited years
What is Order of adjustment when there is C/F business loss containing both UAD loss and other than UAD loss
- Income
- Less: exp. other than Dep/Amm
- Net
- Adjust B/F losses other than UAD
- Net
- Adjust CY Dep/Amm
- Net
- If net above 10m, Adjust UAD= 50% of Net (in 7)
- Balance if Loss C/F
Which losses can be absorbed by Business Income
(1) IFOS
(2) Income from property
(3) Business loss (only) under group relief from sub, associate
Order of adjustment when there is C/F business loss (containing both UAD loss and other than UAD loss) and business loss under group relief
- Income
- Less: exp. other than Dep/Amm
- Net
- Adjust B/F losses other than UAD
- Net
- Loss u/group relief
- Net
- Adjust CY Dep/Amm
- Net
- If net above 10m, Adjust UAD= 50% of Net (in 7)
Balance if Loss C/F
Group Taxation 59AA vs Group relief 59B
Group Taxation is single family/Company, one return; group relief not single taxation, for loss sharing among family (Mother & Sisters)
Important points of Group taxation 4? Holding %age?; Loss prior available? Foreign Co.s eligible?
- 100% owned groups only
- Annual option, every year to be taken
- Losses prior to group formation can not be availed
- Local Co.s
In Group taxation – Who will carry loss in the year of group formation 231D (5)
Holding Co
What if option of group taxation opted and thereafter divestment of shares happens (Q1 group, Q3 divestment) 231D (8)
Group taxation inapplicable
What if a group has more than one subsidiaries, who will be part of group taxation 231D
only those who opted for it
In the case of group formation, how WH tax will be handled if group comprises Pvt & public Co.s?
231D – all Companies will follow provisions applicable to holding
In the case of group taxation if subsidiaries will file tax returns?
yes separately for record purposes
Group Relief Who/What group models/What are minimum shareholding requirements?
How much?
Which businesses? i
n what direction (Rishta)?
Which heads of income?
Can receiver (HC) pay any consideration against receipt of loss?
Is there any limit/Times?
which incomes available to absorb?
What happens with unclaimed loss?
- One Co. in group PLC – 55% shareholding by HC in SC (which is distributing losses); None Co. PLC in group - 75% shareholding by HC in SC (which is distributing losses)
- How much – Assessed Loss according to %age of holding
- Business – Mainly privilege to manufacturing - All businesses except trading; Trading can not claim & cannot surrender (Both)
- To Mother, sisters, Daughter i.e to Holding; associates/other sub. Of HC/Sub. Of sub (HC, Associates, Subsidiary)
- All losses except Capital Losses & Brought forward losses
- HC can transfer Cash = Loss x tax %age
- Times 1+3 (3 years restriction for holding only)
- Only business income of transferee can absorb loss i.e. set-off against business loss only
- Unclaimed loss goes back to transferor for adjustment for total period of 6 years (Say Loss FY 2018; Claimed 2 years 2019, 2020; goes back to transferor for adjustment 2021-24, 4 years)
What are main benefits under group relief scheme 3
- Group can avail losses;
- Cash transfer will not be taxed;
- direct (not through 3rd party) shares transfer (to form group) will not be treated as taxable event as Capital gain
Is there any event where govt. paying back to tax payer i.e. -ve taxation
By not taxing cash transfer event
What if shares are sold/purchased from 3rd party, instead of direct transfer, to form group for group relief
Shares transfer will not be exempt rather taxable event.
Conditions for Group Relief and consequences for breach 6
- Continued ownership for 5 years (as required 55% & 75% min);
- Subsidiary to continue same business for three years;
- (Local Companies) Relief available to locally incorporated Co.s;
- In 75% case if Holding is (Tax) Pvt Co, get listed within 3 years of loss claim;
- BoD approval;
- CoCG compliance
If Holding condition is breached in said 5 years?
offer profits (reversal) equal to claimed
3 years / 3 times limit is for all group Companies or just Holding
Only Holding
Are merger/amalgamation losses adjustable
- In the year of amalgamation; Other than b/f and capital losses;
- New Co. to continue business for 5 years atleast
Can amalgamation losses be C/F
Yes 6 years; UAD for unlimited period
When loss under more than one head on income, what will be order of adjustment against available income
Business loss shall be set-off last
Is there any scenario where Foreign Losses can be set-off against Pakistan source income?
Hotel Companies (registered in Pak) having hotels in Pak, AJK & GB’s; AJK & GB’s losses can be set-off against PSI.
What are commonalities and rules for losses under FSI, Speculation Business, Capital Gains?
- Intrahead-allowed;
- Inter-head settlement not allowed in the year of loss i.e. loss from one head can not set-off against income of other heads;
- All heads’ losses can be C/F; C/F for 1+6 years;
- Earliest year’s to be set-off first
What are rules for loss set-off in Capital gain (securities vs other Capital assets)
3 Points
- Securities loss can not be adjusted against other Capital asset loss;
- Other capital assets loss can be set-off against securities loss;
- C/F for 1+3 years
Can low rate taxed securities’ loss be adjusted against high rate taxed securities?
Yes; High rate & low rate taxation based upon holding period.
Change in Control of entity, What is entity?
What is underlying ownership & change?
When does this change attract S98
- Entity – Co. & AoP
- Underlying – where Shareholder holds shareholding through another person (indirectly), i.e Ultimately shares held by an individual or by govt (as ultimate shareholders can only be individual or Govt)
- S98 – When in AoP/Co there is change in underlying ownership of 50% or more
What are situations where C/F of losses stops and How to overcome
- S98 is applied or
- return not filed within due date (182A1b),
- Succession of business other than by inheritance (59A4) by individuals
Overcome
- Comply S98 conditions – Continue same business until loss fully set-off; Does not engage in new business/investment until loss is set-off (where principle purpose of change is to set-off losses)
- Return (Filed but) not filled within due date even after allowed extensions – one year of CF laspses out of allowed 6 years of C/F. Overcome -File return within due date
- Succession of business other than by inheritance (59A4) by individuals – can not set-off/CF other person’s (whose business is succeeded) loss with his income. No overcome for the situation
Can members of AoP set-off or C/F AoP’s losses against their income
NO sec 59A
Which losses can be C/F and for How many years? Which loss to be set-off first
4 heads losses can be C/F,
- speculation business,
- non-speculation IFB,
- securities,
- Capital assets other than securities
