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Loss carry-forward and grouping: bad debts and share losses

The Income Tax Act 2007 has been amended to permit a company to carry forward tax losses arising from bad debts or share losses, to offset against later income.

Section IC 12 of the Income Tax Act 2007 has been amended retrospectively to permit a company to carry forward tax losses arising from bad debts or share losses from one year to another, and then use that carried forward loss to offset against the company’s own net income for that later income year.

As originally enacted in the 2007 Act, section IC 12 incorrectly prevented a company from carrying forward tax losses and offsetting those losses against its own net income for a later income year. This outcome differed from the outcome under section IG 2(6) of the 2004 Act.

Section IG 2(6) of the 2004 Act prevented a company from grouping tax losses that arose from bad debts or share losses if the financing of the debt or shares was provided by a group company. However, section IG 2(6) did not prevent the company from carrying forward those losses for use against its own income in future income years.

Section IC 12 has been amended retrospectively to restore the effect of section IG 2(6) of the 2004 Act.