Enhanced Carry-Back Relief System

Enhanced Carry-Back Relief System

Measures Introduced in Budget 2020

Impact

Action Required

The existing carry-back relief scheme will be enhanced for the Year of Assessment ("YA") 2020. Under the enhanced scheme, unabsorbed capital allowances and trade losses (“qualifying deductions”) for the YA 2020, subject to conditions, may be carried back up to three immediate preceding YAs. The amount of carry-back allowed will be capped at S$100,000.

There is no need to wait for the actual tax filing for YA 2020 to elect for the carry-back relief. There is an option to elect for the carry-back relief before the actual tax filing to carry back the estimated qualifying deductions.

Businesses not in a tax paying position for the YA 2020 can benefit from the carry-back relief scheme.

The carry-back relief scheme for YA 2020 will be beneficial if the business:

1. is in a tax loss position in YA 2020 (An important point to note is that accounting profits do not necessary equate to tax paying position and vice versa. It is advisable to prepare a draft tax computation to assess the tax position of the business in YA 2020); and
   
   
2. was in a tax paying position in any or all of the YAs from YA 2017 to YA 2019.

As it is possible to elect for carry-back relief based on estimated qualifying deductions, business can receive the tax refund upfront instead of waiting for the actual tax returns to be assessed by the Inland Revenue Authority of Singapore (“IRAS”). This should help with the cash flow for businesses that have been profitable in the past 3 YAs but went into the red in YA 2020. However, this will benefit smaller businesses the most as the amount of qualifying deductions that can be carried back is capped at S$100,000.

The tax refund will be processed within 3 months from the date the election for carry-back relief is made.

Businesses should review their tax position for YA 2020 (financial year 2019) as well as those in YA 2017 to YA 2019.  

If eligible and beneficial to elect for the carry-back relief scheme, the application for tax refunds must be made to the Inland Revenue Authority of Singapore any time before the filing of the tax return for YA 2020.