Carrying Forward Losses in a Company

[Carmel]

Does anyone know if it's possible to carry forward substantial losses made in a Pty Ltd company, where the business operations of the company changes substantially?

A partner has been involved in an unsuccessful company which has made substantial losses (don't ask). Partner thinks it could be an advantage to maintain the company, & carry forward the losses, & offset them against future profits (eg, wraps for example). The other alternative is formally wind up company & kiss losses goodbye.

I know one can carry forward losses in a company & then offset them against future profits, but does anyone know if this can be done if the business nature of the company changes substantially/completely?

 

[Lotana]

Another option is to sell the company. A $1mil loss can save somebody $300K in taxes. Talk to a business broker.

Cheers,

Lotana

 

[mojo]

If the nature of the business changes substantially you cannot carry foward the losses, sorry. There is no way around it, the accumulated losses are gone.

Of course if you could carry the losses then there would be a market for dud companies to be bought for their losses.

 

[Carmel]

Rats. Thanks, Mojo.

Thought this was the case somehow - I did know some people who *had* carried forward losses in a company, and then offset them against future profits, but they were essentially carrying on the same business. Oh well, nice idea.

 

[NickM]

Carmel
Do not despair

there are 2 tests that govern whether a tax loss can be deducted against income

1. COntinuity of ownership. ie the shares carrying more than 50% of the voting and dividend rights must be beneficially owned by the same shareholders at all times from when the loss was incurred to the end of the income year.

2. Same Business Test.

providing the shareholders havent changed, you will qualify on the first limb.

i would also look at utilising an alternative structure for the wraps or property investment and have the Coy charge a "justifiable" mangement fee.

This advice is general and you should clarify your position with your advisor.

 

[Carmel]

Thanks for suggestions & input, all, much appreciated.

Think it's stuffed though (that's a technical term for down the gurgler). At least 1 shareholder will change, as the 2 parties in original company are parting company, which means that if my partner kept it, the company would both change the nature of business completely *and* at least 1/2 the shareholders & directors would change.... it would be a bit hard to argue the point, I think.

If the only 'asset' in the structure is then a large loss, I don't think there's much of value, to put it mildly. Partner plans to chalk up to experience, draw lessons learned, return to better investments. Sigh.

 

[NickM]

Carmel

i still recommend you have a closer look at it as there may be a way to utilise the losses.


Can the company render a fee or provide services to generate income in the current year ?


NickM

 

[Carmel]

Nick,

Thanks for this suggestion, I really appreciate it. But I don't think it's going to be possible. The 2 parties involved in the company don't want to be in business together at all. It's a real object lesson in fact in the supreme importance of defining & documenting the exit strategy before commencing (not later, whn it's too late).