What is a Capital Loss Carryover?

Loss carry-over refers to a type of tax concession that taxpayers who pay income tax incurred operating losses in one tax year and were allowed to offset the profits in other tax years.

Loss carryover

Annual loss carryover

The reasons for allowing the carry-over of losses are roughly as follows:

1. The production and operation of an enterprise is a continuous process, and there is no absolute termination date. To calculate the enterprise's

There are two basic ways to allow loss carryover:

Loss carry forward allows carry forward

That is, it is made up with the profits of the previous year, and the income tax paid in the previous year is refunded accordingly; if the profits of the previous year are not offset, it can be carried forward, and it can be made up with the profits of the subsequent years, and the tax payable in the subsequent years will be reduced accordingly The amount of income. Countries adopting this method, for example, Canada stipulates 3 years forward and 7 years later; the United States stipulates 3 years forward and 5 years later; Indonesia 5 years forward and 8 years later.

Loss carry forward is only allowed to carry forward

Countries adopting this method, such as Argentina, require 10 years of postponement, while France, Brazil, and Thailand provide 5 years of postponement; UK, New Zealand, and Singapore stipulate that they can be carried forward indefinitely. The advantage of this approach is that it can avoid tax refund procedures and is beneficial to national fiscal revenue. However, the enterprise will still bear the tax of the previous year in the case of loss, and if it fails due to the loss, it will not be able to obtain the tax that should be reduced by the loss carry forward. Therefore, comparing the two methods, the first method is more reasonable. China's current income tax laws all stipulate that taxpayers incurring annual losses can be made up with the income of the next tax year; if the income of the next tax year is insufficient to make up, they can be made up year by year, but the maximum cannot exceed 5 years. Therefore, the Chinese tax law adopts the second method, which is to carry forward the losses of the enterprise for 5 years.