Tax and SARS knowledge base
Using assessed losses after a company loss
How are assessed losses used by a company after a loss-making year?
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Direct answer
An assessed loss is a result under tax law, not the loss shown in financial statements. SARS Interpretation Note 33 explains the section 20 assessed-loss framework for companies, including the relevance of trade and income from trade. A company must calculate taxable income for the relevant year, retain the SARS assessment and apply current rules before using an assessed-loss balance against later taxable income.
The cleanest approach is to keep a continuous assessed-loss schedule from each ITR14 assessment to the next return. The schedule should explain the opening balance, current-year taxable result, allowances and adjustments, limitations considered and closing balance.
What this means in practice
The financial statements and tax computation have different purposes. Accounting depreciation, provisions, capital items, exempt amounts and prior-period adjustments can make the accounting loss differ substantially from taxable income. The SARS assessment, not the management-account result, is therefore a key record.
An assessed-loss schedule must be reconciled every year, including years when the company does not expect to pay tax. Keep the filed ITR14, assessment, tax computation, financial statements and a copy of the law or advice used for material restrictions. If a business was acquired, restructured, stopped trading or has changed its activities, flag the fact for specialist review before using a balance.
Avoid a mechanical "opening loss plus this year's loss" spreadsheet. The calculation should follow current rules and distinguish assessed loss from other tax attributes. A spreadsheet that cannot be tied to assessments is not a reliable return working paper.
Step-by-step
- Obtain every relevant SARS assessment.
Collect the current and prior ITA34C or equivalent company assessments, filed ITR14s and tax computations. Build a timeline that identifies each financial year and any amended assessment.
- Reconcile accounting profit or loss to taxable income.
Start with the financial statements and prepare a tax bridge for non-deductible expenses, exempt income, allowances, capital items and other tax adjustments. Document each adjustment.
- Confirm the assessed-loss balance.
Match the calculated opening balance to SARS records. Investigate discrepancies before the return is filed. Do not override the SARS assessment merely because an internal schedule says a different amount.
- Check current restrictions and facts.
Review current section 20 rules and obtain advice on any applicable limitation, trade, restructuring, ownership-change or anti-avoidance issue. This matters especially after a restructuring or a year in which income is unusual.
- Apply the balance in the current calculation.
Prepare the period-specific calculation and reconcile it to the ITR14. Clearly label assumptions and calculations requiring review. Have a second person review a material balance before submission.
- Preserve the updated schedule.
File the return, assessment and working papers together. Roll the closing tax balance forward only after recording the final assessment position.
Documents and records to keep
Keep financial statements, trial balances, tax reconciliations, ITR14s, SARS assessments, assessed-loss schedules, correspondence, restructuring records, ownership documents, specialist advice and evidence of trade activities. Preserve amended assessments and notes explaining how they changed the balance.
Important limits and exceptions
This guide does not calculate or guarantee use of an assessed loss. Current legislation can limit or affect how a balance is used. A profitable accounting year can still have a tax loss, and an accounting loss can coexist with taxable income.
Do not use an old balance without reconciling it to SARS assessments. Do not assume a loss survives a change in ownership, business activity or group structure without reviewing current law and full facts.
When to get tailored advice
Get advice before using a material balance, amending an assessment, selling shares, buying a loss company, ceasing a trade or completing a restructuring. Advice is also appropriate where SARS and the company schedule do not agree.
TaxProof can help reconstruct and reconcile the assessed-loss file. We cannot confirm the legal use of a balance without current facts and law.