Your company can only carry a loss forward if there has been “shareholder continuity” through the “continuity period”. This happens if at least 49% of voting shares do not change hands throughout the year the loss was made as well as the year it will offset income.
If you want to carry losses forward for several years in a row you will have to check shareholder continuity for each year.
If one of the shareholders of your company is another company you may have to work out the voting interests of the people who own the shareholding company. You will not have to do this if your company has more than 25 non-associated shareholders or if the shareholding company holds less than 10% of your company.
If your company doesn’t meet the shareholder continuity test it generally will not be able to carry a loss forward. However, if a shareholding change occurs part-way through a year you may be able to claim the loss. To do this you need to make a part-year offset by filing a companies income tax return for the period up to the shareholding change. You will need to provide adequate accounts for the part-year.
Shares with different voting rights
If your company has shares with different voting rights you will have to calculate each shareholder’s voting interest based on their “shareholder decision-making rights”. The four issues a shareholder may have decision-making rights in are:
- the constitution of the company
- a variation in the capital of the company
- the appointment of a director.
Shares may be worth 25%, 50% or 75% of shares that allow voting on all 4 issues.
Calculating voting interests
Bike City Limited has two hundred shares on issue. One hundred “A” shares are held by Wendy. The “A” shares give Wendy the right to vote in all decisions the company makes. Wendy's father Bill has one hundred “B” shares. Bill's “B” shares only give him the right to vote on company decisions related to dividends.
Someone’s voting interest is:
(% of the company’s shares they hold giving the right to vote on dividend decisions + % constitution + % capital + % director) ÷ 4
Wendy's voting interest is:
(50 + 100 + 100 + 100) ÷ 4
= 350 ÷ 4
Bill's voting interest is:
(50 + 0 + 0 + 0) ÷ 4
= 50 ÷ 4