What is carry-back:
Singapore is the only country applied carry back relief in the tax system in Asia Pacific. The reason behind that the carry-back relief first introduced effectively back in Year of Assessment (YA) 2006 is to help small business cope with cash-flow problems especially during downturn period.
Main Features of Carry-Back Relief:
If a company incurred of current unutilised capital allowance (CAs) and trade losses, while the company paid the tax for their last YA previously. These unutilised CAs and loss are allowed to carried back, and capped at $100,000 as a “Qualifying Deduction” to the previous YA and against the tax amount that the company paid in previous years in order to get the cash back from IRAS.
Condition for claiming Carry-Back Relief:
Normally, the company wish to claim Carry-Back Relief are required to fulfil the following general conditions for claiming the carry-back relief:
- Same Business Test: This means that the company will not be able to carry back the unabsorbed CA granted for the first basis period that you commenced a trade, business or profession. However, the company allowed to carry back the trade loss incurred for that period as the same business test does not apply to trade loss.
- Shareholding Test: If the company fulfil the Same Business Test, it also required to satisfy the Shareholding Test for claiming Qualifying Deduction. This test is computed by the change of the percentage of the shareholding of a company that is held by the same persons as at the relevant dates. If the change of percentages of shareholding by the same persons is more than 50%, it means that the company will not be eligible for claiming the Carry-Back Relief. While, if the company does not fulfil this condition, the company may apply Waiver of Shareholding Test, which allowed the company still claim the Carry-Back Relief if it granted.
Then vs Now:
Before Year of 2020, the carry-back relief are only allowed to be carried back to one preceding year. While, due to the outbreak COVID-19 pandemic in 2020, most of the small businesses experience financial crisis for surviving as majority of business operations in Singapore slow down and negatively impact trading income critically. Therefore, IRAS introduced temporarily enhancement on carry-back relief, which allow the business to carry back their unutilised CAs and loss up to 3 YAs immediately preceding YA2020, remaining capped at $100,000. With this enhancement, there are some updates on the administration on ordering YAs for claiming the carry back relief, as followed:
- Firstly, to the third YA immediately preceding YA 2020;
- Secondly, if there are remaining balance of Qualifying Deduction, it will be carrying back to the second YA immediately preceding YA2020;
- Finally, the remaining balance of the Qualifying Deduction will be carried back to the YA immediately preceding YA 2020. If there is any excessing of Qualifying Deduction will not be allowed to carry forward to the following YAs of YA 2020.
Administrative Requirements for the Carry-Back Relief:
If the company wish to claim the carry-back relief under an estimated amount of Qualifying Deduction will required to indicate the election when filling up the income tax form “Form C” with the following timeframe:
| When to make the Election: | How to Make the Election: | Other Conditions: |
| Any time before the filling of the income tax return for YA 2020. |
Companies will be required to submit: · Election Form for the Estimated CAs and Trade Loss; · Revised Tax Computation for all the 3 YSs immediately preceding YA 2020 |
Supporting documentation required must be submitting: · Income Tax Return · Financial accounts (Both of audited or non-audited) · Tax Computation · Also, must have filled a Nil Estimated Chargeable Income (ECI) for YA 2020, except for the companies with the annual revenue that not more than $5M with Nil (ECI) |
Conclusion:
Refund of tax after the carry-back relief will be processed by IRAS within 3 months from the date the election for carry-back relief is made. Refund will be made after deducting other outstanding tax liabilities. As the company or taxpayer will be able to receive the tax refund before the actual filing date, which can help the cash flow of the majority small business that with profitable in the past 3 YAs but suffering economic crisis or financial issues for running business in 2020 due to the COVID-19 pandemic. While, from our insight, as we are not able to when the COVID-19 pandemic will be ceased, the government might be suggested to either increase the cap of the amount of qualifying deduction or enhance the carry back to more than 3 YAs preceding of YA 2020. This is because some of the small business might not have been profitable in all the past 3 YAs preceding YA2020 but might profitable in the YAs before the past 3 YAs. This might able to help more local small businesses to stand over the financial crisis of COVID-19.