[Question] CC Accumulated Losses

[AmithS]

Hello All,

I am trying to find out the following,

Say you have a cc that is a trading business and the business is sold out of the cc. This cc has accumulated losses over the past few years which has been submitted with SARS. Now you continue to submit all your returns as per normal except they are nil as you are not physically trading (i.e. bringing in money). The intention is to use the cc in a year or two from now for another business.

Can these losses be carried over to the next business as it is the same cc? or will the losses be lost because the business was not trading for a period of time?

Any info appreciated, Thanks,

[Justloadit]

I would think the purpose of selling the CC would be to recoup the losses. However you can not carry the loss to the other business.
If I am not mistaken, and I stand to be corrected here, if you do not trade with in the next financial year, then you may not carry the loss over, so in other words you lose the access to the loss in the balance sheet.

You must also be careful with a CC running at a loss, with out some form of surety to cover the loss, as this may be viewed as reckless trading, and with the structure of a CC, it is a problem for the member.

[AmithS]

Hi Justloadit,

Thanks for the info, so if I understand you correctly. Even if you continue trading using the same cc, the fact that the business\trade has changed means you cannot make use of the loss?

[BusFact]

Yes I think you have a few issues here (and I also stand to be corrected):

1) No trading for a period (financial year?) means the loss of the assessed loss.
2) Changing the nature of the business might also mean loss of the assessed loss.
3) A business with an assessed loss as its only "asset" will most likely have generated some sort of debt which financed this loss. This could put the business in an insolvent position and expose the directors / members to personal liability.

.... but you might get away with it.

[CLIVE-TRIANGLE]

If the business has no income for a tax year, it forfeits the assessed loss.

Ring fencing is not an issue, but the 12 month no income is.

An assessed loss does not necessarily equate accumulated loss; the company may well have retained income. If it does in fact have an accumulated loss it may well be financed by share capital and / or shareholder loans.

[AmithS]

Hi Clive,

Thanks for the information, can you please advise what you mean by "ring fencing is not an issue" ?

Thanks,

[CLIVE-TRIANGLE]

It is when profits from a particular activity are not allowed to be off-set against profits from another distinctly different activity.