Carrying forward losses and part-year rules

Section IP 5 of the Income Tax Act 2007 has been amended retrospectively to ensure that in a year in which a company breaches the shareholder commonality or continuity requirements, section IP 5(2) does not prevent the company’s tax losses from earlier tax years being carried forward to the year in which the breach of commonality or continuity occurs.

Section IP 5 of the 2007 Act incorrectly prevented a company from carrying forward tax losses to a year in which either of the commonality or continuity of ownership rules are breached.

Under the corresponding provisions of the 2004 Act (sections IG 2(2)(b)–(f), (5)), in a part-year situation, a company was permitted to carry forward tax losses arising in one tax year to the next tax year, provided the company satisfied both of the commonality and continuity of ownership rules. Unused tax losses carried forward could then be carried forward to the succeeding tax year or years, until the benefit of those tax losses are fully utilised. For a year in which a company breached the commonality or continuity requirements, tax losses arising from earlier years may be carried forward to the year of breach and the benefit utilised for the part-year before the breach.

Section IP 5 has been amended retrospectively to restore the effect of the corresponding provisions of the 2004 Act.