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You will have a loss for tax purposes if your total deductible expenses are greater than your total income. If you report a loss in your IR3 return in a tax year you can use it to reduce your income in the next tax year. Losses can be carried forward from tax year to tax year until fully used, subject to certain conditions.
How to claim the loss
To claim the loss from a tax year you will have to file an IR3 return the next year. The loss from the previous year is called a "loss brought forward" and there are boxes on the IR3 to enter the amount of the loss. This loss reduces your income and the amount of tax you have to pay.
If you file an IR3 return reporting a loss we will send you a letter which tells you the amount of the loss that can be brought forward. Generally this is the amount that should be entered in the IR3 return the next year. However, this amount will have to be adjusted if you have:
- had an audit or made a voluntary disclosure which changed the amount of loss available;
- used part or all of your loss to pay tax debts or shortfall penalties;
- been declared bankrupt and some or all of the loss relate to debts you have been released from paying.
If the amount of your loss brought forward is greater than your income in the current year, the excess can be carried forward to the next tax year.
If you have a loss from an investment or business activity, any income or deductions are excluded in calculating any student loan adjusted net income. If you have separate business or investment activities which are normally carried out in association with each other, you can offset a loss from one business or investment activity against other like income.
Rory has an overall loss from his landscaping business of $7,500. He has also made a profit from his lawnmowing service of $50,000. The activities are carried out in association with each other, so Rory can claim the $7,500 loss against the $50,000 profit. Rory’s adjusted net income would be $42,500 ($50,000 - $7,500).
If you have unrelated losses in any of the keypoints of your IR3 income tax return you’ll need to advise us of the different amounts by calling 0800 377 774.
Losses brought forward are also excluded when calculating the total adjusted net income in the IR3 return.