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Suffered a tax loss? Here's how you can use it to your advantage

by , 03 July 2015
Suffering a tax loss can negatively impact your company in a huge way.
Let's say this year you spent thousands of Rands on advertising your business. But generated an income which was less than what you spent on advertising. The difference is your tax loss.
You'll shrink your tax bill and benefit from the loss by setting it off against your taxable income in the future. This then lowers your total taxable income.
Read on as I show you two more ways you can make your tax loss benefit you...

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Do you qualify for a tax loss?

You first need to see if you qualify for a tax loss before you can benefit from it.
If you answer 'YES' to these two questions, you'll qualify for a tax loss.

1.       Have you been carrying on a trade?

(A trade refers to every profession, trade, business or venture. It also includes the use of any copyright, design, patent or trademark.)
 
2.       Did you earn an income during the year in which you traded?

You must've earned some income during the trading year to claim a tax loss.

In fact, to really cash in on the loss, make sure you carry on trade both in the year you incurred the loss as well as in the year you're trying to deduct it. This is preserving the loss.

Read on to find out the two benefits of a tax loss.

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Two ways you can benefit from a tax loss

1. You'll bring forward the balance of your loss from the previous tax year. And deduct it from the current year's trading income. This way, you'll decrease your tax payable and maximise your profit.
 
Example
During the 2014 tax year, Acme (Pty) Ltd. incurred a loss of R45 000. 2015 was much better for Acme and it generated a profit of R50 000. Its 2015 tax calculation is:
 
Profit for 2015:                                                                     R50 000
Less: Assessed loss brought forward from 2014:              R45 000
Taxable income:                                                                 R5 000
 
 
2. Are you involved in more than one trade? You can deduct the losses from one trade against the income from the other, even if the industries are unrelated. You'll decrease the tax payable and maximise business profits.
 
Example
Sipho bought a rental property during 2014. The property incurred a rental loss of R12 000 for the same year. The ring-fencing provisions don't yet apply to Sipho. His taxable income is calculated as follows:
 
Salary:                                 R350 000
Less: rental loss                 R12 000
Taxable income                 R338 000
 

So once you've identified that you have a tax loss and SARS will allow it, you can carry it forward. So there you have it, I've shown you how you can easily make your tax loss benefit you.

P.S. Are you ready for your SARS tax audit? That's why we compiled How to survive a SARS tax audit, the essential resource that gives you everything you need to adequately and efficiently prepare for an audit. Click here to find out more.



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