Resisting Temptation: Utilisation Of Assessed Losses

In the current economic environment impacted by COVID-19, many corporate taxpayers have been negatively impacted and, in many instances, operating losses suffered have translated directly into assessed losses for tax purposes. In addition, businesses that were already in distress prior to the advent of COVID-19 and are now also suffering operational losses, could result in an increase in an existing assessed loss balance being brought forward from a prior year of assessment.

In these circumstances and because South Africa does not have a system of "group-taxation", it might be tempting to combine a profitable businesses with a not-so-profitable businesses (typically, the would benefit from having an assessed loss for tax purposes). The question that often arises is whether there are any negative tax consequences of such a transaction that could result in an adverse tax outcome and potential penalties and interest.