client was in the construction industry and has an assessed loss of in his cc of + - R1 million. He has decided to close his construction business and go into a farming venture. Can he farm in the cc's name and utilise the assessed loss?
Important:
This answer is based on tax law year ending 28 February 2017.
Answer:
It is section 20 of the Income Tax Act that allows for the set-off of assessed losses. In this instance it may well be that there is also a ‘balance of an assessed loss’. Our guidance that follows accepts that the taxpayer will be able to prove that the sole or main purpose was not to utilise the assessed loss or balance of assessed loss – refer to section 103(2) of the Income Tax Act.
Because the taxpayer is a company (as defined in section 1(1) of the Act) an assessed loss and balance of assessed loss can only be set off against income derived from carrying on any trade. The current practice generally prevailing is “that section 20 contains a trade requirement and an income from trade requirement. Both these requirements must be satisfied before an assessed loss may be carried forward.”
Remember also that the company “must have carried on a trade during the current year of assessment. If it fails to do so, it will forfeit the right to carry forward its balance of assessed loss under section 20(1)(a).”
There is nothing in the Income Tax Act that requires of a company to carry on the same trade in order to set off an assessed loss.