Losses & Relief

Question 1

What is rule in set-off and carry-forward of losses, are they allowed?

Answer 1

• Set-off always allowed with some exceptions where not allowed, CG & Spec. business;
• C/F not allowed with some exceptions where allowed

Question 2

What is intra-head and inter-head loss and if adjustment allowed

Answer 2

• 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

Question 3

Which Heads’ income is available to absorb loss in the same year (When more than one heads of income of tax payer)

Answer 3

All Heads’ income available except Salary & IFP

Question 4

When there is income available to, How many losses do compete against each other to eat this income?

Answer 4

Biz loss (normal), IFOS, IFP

Question 5

What does Set-off means

Answer 5

Set-off against other heads

Question 6

How many Heads of Income allowed and how many C/F allowed in numbers

Answer 6

3 Set-off and 3 c/f

Question 7

What are two incomes where tax has to be paid in all cases

Answer 7

Income from salary and Income from property (as these income are not available for adjustment of losses from other heads)

Question 8

What are two different types of business losses? If total loss of a year is provided how to bifurcate both

Answer 8

1. due to dep 2. Due to other expenses.

To bifurcate first deduct dep/amm, remaining will be other expenses loss

Question 9

What is 1+6 rule for C/F of business loss and what are three exceptions

Answer 9

• Business loss other than Hotels (Co+resident) – 6 years life;
• Exceptions –

1. 1 Hotels (Co+resident) 1+8 years from TY July 2021
2. 2. Industrial undertaking in specific zone (2nd Sch PIV) – unlimited,
3. 3. UAD – unlimited life

Question 10

C/F business loss of previous more than 1 year (other than UAD), What is order of adjustment

Answer 10

Earliest year is adjusted first

Question 11

Can current year loss due to UAD be adjusted against other heads income?

Answer 11

Yes except against salary, IFP

Question 12

Loss Calculation for the Head of Business Income

Answer 12

1. 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

1. 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).
2. Unsettled business loss c/f separately business loss and UAD. To bifurcate first deduct dep/amm, remaining will be other expenses loss.
3. 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 1^st

UAD

• against Biz Income only
• IF TI >=10M, 50% of BALANCE INCOME (TI-Biz loss)
• IF TI <10M, adjust fully, no limit
• Unlimited years

Question 13

What is Order of adjustment when there is C/F business loss containing both UAD loss and other than UAD loss

Answer 13

1. Income
2. Less: exp. other than Dep/Amm
3. Net
4. Adjust B/F losses other than UAD
5. Net
6. Adjust CY Dep/Amm
7. Net
8. If net above 10m, Adjust UAD= 50% of Net (in 7)
9. Balance if Loss C/F

Question 14

Which losses can be absorbed by Business Income

Answer 14

(1) IFOS
(2) Income from property
(3) Business loss (only) under group relief from sub, associate

Question 15

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

Answer 15

1. Income
2. Less: exp. other than Dep/Amm
3. Net
4. Adjust B/F losses other than UAD
5. Net
6. Loss u/group relief
7. Net
8. Adjust CY Dep/Amm
9. Net
10. If net above 10m, Adjust UAD= 50% of Net (in 7)

Balance if Loss C/F

Question 16

Group Taxation 59AA vs Group relief 59B

Answer 16

Group Taxation is single family/Company, one return; group relief not single taxation, for loss sharing among family (Mother & Sisters)

Question 17

Important points of Group taxation 4? Holding %age?; Loss prior available? Foreign Co.s eligible?

Answer 17

1. 100% owned groups only
2. Annual option, every year to be taken
3. Losses prior to group formation can not be availed
4. Local Co.s

Question 18

In Group taxation – Who will carry loss in the year of group formation 231D (5)

Answer 18

Holding Co

Question 19

What if option of group taxation opted and thereafter divestment of shares happens (Q1 group, Q3 divestment) 231D (8)

Answer 19

Group taxation inapplicable

Question 20

What if a group has more than one subsidiaries, who will be part of group taxation 231D

Answer 20

only those who opted for it

Question 21

In the case of group formation, how WH tax will be handled if group comprises Pvt & public Co.s?

Answer 21

231D – all Companies will follow provisions applicable to holding

Question 23

In the case of group taxation if subsidiaries will file tax returns?

Answer 23

yes separately for record purposes

Question 24

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?

Answer 24

1. 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)
2. How much – Assessed Loss according to %age of holding
3. Business – Mainly privilege to manufacturing - All businesses except trading; Trading can not claim & cannot surrender (Both)
4. To Mother, sisters, Daughter i.e to Holding; associates/other sub. Of HC/Sub. Of sub (HC, Associates, Subsidiary)
5. All losses except Capital Losses & Brought forward losses
6. HC can transfer Cash = Loss x tax %age
7. Times 1+3 (3 years restriction for holding only)
8. Only business income of transferee can absorb loss i.e. set-off against business loss only
9. 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)

Question 25

What are main benefits under group relief scheme 3

Answer 25

1. Group can avail losses;
2. Cash transfer will not be taxed;
3. direct (not through 3rd party) shares transfer (to form group) will not be treated as taxable event as Capital gain

Question 26

Is there any event where govt. paying back to tax payer i.e. -ve taxation

Answer 26

By not taxing cash transfer event

Question 27

What if shares are sold/purchased from 3rd party, instead of direct transfer, to form group for group relief

Answer 27

Shares transfer will not be exempt rather taxable event.

Question 28

Conditions for Group Relief and consequences for breach 6

Answer 28

1. Continued ownership for 5 years (as required 55% & 75% min);
2. Subsidiary to continue same business for three years;
3. (Local Companies) Relief available to locally incorporated Co.s;
4. In 75% case if Holding is (Tax) Pvt Co, get listed within 3 years of loss claim;
5. BoD approval;
6. CoCG compliance

Question 29

If Holding condition is breached in said 5 years?

Answer 29

offer profits (reversal) equal to claimed

Question 30

3 years / 3 times limit is for all group Companies or just Holding

Answer 30

Only Holding

Question 31

Are merger/amalgamation losses adjustable

Answer 31

• In the year of amalgamation; Other than b/f and capital losses;
• New Co. to continue business for 5 years atleast

Question 32

Can amalgamation losses be C/F

Answer 32

Yes 6 years; UAD for unlimited period

Question 33

When loss under more than one head on income, what will be order of adjustment against available income

Answer 33

Business loss shall be set-off last

Question 34

Is there any scenario where Foreign Losses can be set-off against Pakistan source income?

Answer 34

Hotel Companies (registered in Pak) having hotels in Pak, AJK & GB’s; AJK & GB’s losses can be set-off against PSI.

Question 35

What are commonalities and rules for losses under FSI, Speculation Business, Capital Gains?

Answer 35

1. Intrahead-allowed;
2. 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;
3. All heads’ losses can be C/F; C/F for 1+6 years;
4. Earliest year’s to be set-off first

Question 36

What are rules for loss set-off in Capital gain (securities vs other Capital assets)

3 Points

Answer 36

1. Securities loss can not be adjusted against other Capital asset loss;
2. Other capital assets loss can be set-off against securities loss;
3. C/F for 1+3 years

Question 37

Can low rate taxed securities’ loss be adjusted against high rate taxed securities?

Answer 37

Yes; High rate & low rate taxation based upon holding period.

Question 38

Change in Control of entity, What is entity?

What is underlying ownership & change?

When does this change attract S98

Answer 38

1. Entity – Co. & AoP
2. 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)
3. S98 – When in AoP/Co there is change in underlying ownership of 50% or more

Question 39

What are situations where C/F of losses stops and How to overcome

Answer 39

1. S98 is applied or
2. return not filed within due date (182A1b),
3. Succession of business other than by inheritance (59A4) by individuals

Overcome

1. 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)
2. 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
3. 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

Question 40

Can members of AoP set-off or C/F AoP’s losses against their income

Answer 40

NO sec 59A

Question 41

Which losses can be C/F and for How many years? Which loss to be set-off first

Answer 41

4 heads losses can be C/F,

1. speculation business,
2. non-speculation IFB,
3. securities,
4. Capital assets other than securities