Income tax return: Tax loss carryforwards and simple filing in 2019

Tax losses formed in the income tax return for the taxable year 2018 of resident individuals will cause it to remain open for 12 years. In addition, if the natural person transfers to SIMPLE during 2019, such losses cannot be used by way of compensation.

According to the scheduling system applicable for the taxable year 2018, resident individuals and/or resident illiquid successions (obliged or not to keep accounting) could allocate costs and expenses in three different schedules (of labor income, capital income and non-labor income), causing any of said schedules to yield a “net loss” (since costs and expenses are not subject to special limits, which only apply to exempt income and deductions).

“the losses obtained in 2016 and prior years, as well as the losses obtained in 2017 and subsequent years, may be compensated”.

In this order of ideas, and according to what is indicated in the fourth paragraph of the version that Article 330 of the ET had until December 2018 (before being amended with Law 1943 of 2018), the losses obtained in 2016 and prior years, as well as the losses obtained in 2017 and subsequent years, may be offset in the “following taxable periods, taking into account the limits and compensation percentages established in the current regulations“.

Therefore, it is understood that the compensation of losses obtained by resident individuals would be governed in practice by the rules contained in article 147 of the ET and article 1.2.1.1.20.6 of DUT 1625 of 2016. Therefore, losses obtained in 2016 and prior years have no time limit to be offset, but those obtained in 2017 and subsequent years may only be offset within the following 12 years.

In addition, in accordance with the provisions of Article 714 of the ET (after being amended with Article 277 of Law 1819 of 2016), the returns filed as from January 2017, and in which one or more of their items show a net loss, will remain open for the Dian during the same period of time that the taxpayer has to offset such losses. The above implies, for example, that if in the income tax return of the taxable year a tax loss is liquidated, such return would remain open for the Dian during the following 12 years.

Consequences of declaring tax losses and then transferring to the new simple regime

In relation to the above, it is important to keep in mind that the tax losses that end up accumulated until the closing of the taxable year 2018 may be offset within the following years, but only if the taxpayer, within those following years, continues to belong to the ordinary regime and has not voluntarily transferred to the new simple regime, which are still unregulated. It is important to keep in mind that only taxpayers that comply with all the requirements of articles 905 and 906 of the ET may transfer to such regime. However, even when complying with such requirements, there are cases in which it is not convenient to transfer to such regime.

Indeed, when a resident individual taxpayer decides to voluntarily transfer to the new simple regime (decision that for the current taxable year must be taken no later than July 31, 2019, and in the following years must be taken no later than January 31 of the respective taxable year; see article 909 of the ET), the taxpayer will only take its ordinary gross income (not including those that are not taxed income), and these cannot be affected with costs or expenses, exempt income or with compensations of losses from previous years. Therefore, taxpayers will be fully taxed on such gross income at the special rates contemplated in the tables of article 908 of the ET.

Having the above clear, if a resident individual taxpayer is planning, for example, to transfer to the new simple regime during the taxable year 2019, he would do well to think whether or not it is convenient for him to report net losses in any of his ordinary income tax returns of his tax return for the taxable year 2018, since in such case such return would remain open for 12 years, but such losses cannot be offset in his returns of the simple regime.

“the losses declared up to the end of 2018 can only be used as compensation when the future decides to move again from the simple regime to the ordinary regime”.

The above would imply that the losses declared until the end of 2018 can only be used by way of compensation when the future decides again to move from the simple regime to the ordinary regime (note: to go deeper into the subject of the preparation and filing of the income tax return taxable year 2018 for all types of natural persons, whether resident or non-resident, obliged or not to keep accounting, be sure to listen to the 6 hours of online conference recorded on June 11, 2019 by Dr. Diego Guevara, researcher of actualícese.com. The purchase of such online conference will allow interested persons to also send their questions to be solved in a virtual consultation to be held on Saturday, July 27, 2019).

Source: Actualícese