Individual income tax return: Tax loss carryforwards

Tax losses formed in the income tax return of the taxable year 2019 of resident individuals of the ordinary regime cause it to remain open for 5 years.

If there is a transfer to SIMPLE during 2020, such losses may not be offset within such regime.

According to the scheduling system applicable for the taxable year 2019, resident individuals and/or resident unliquidated successions (obliged or not to keep accounting records) could allocate costs and expenses without any limit in their general tax return (either to their labor income that does not come from an employment relationship, to their capital income or to their non-labor income), which could cause such tax return to remain open for 5 years; This could result in such tax return showing a large “net loss”, since costs and expenses are not subject to special limits, which only apply to exempt income and deductions (bearing in mind in any case the defects that the form 210 of taxable year 2019 still has in the Muisca platform, which unfairly prevent showing a true consolidated loss within the general tax return, and for which there is a practical solution).

Now, and according to what is indicated in the fourth paragraph of the version that Article 330 of the Tax Statute -ET- had until December 2019 (before being amended with Article 37 of Law 2010 of December 2019), 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 percentages of compensation established in the current regulations”.

Therefore, and according to article 1.2.1.1.20.6 of DUT 1625 of 2016, after being amended with Decree 2264 of December 2019, it is understood that the compensation of losses obtained by resident individuals would be governed by the rules contained in article 147 of the ET.

“the losses that were obtained in 2016 and previous years have no time limit to be offset, but those obtained in the 2017 and subsequent years may only be offset within the following 12 years”

Therefore, losses that were 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 (see the versions of Article 147 of the ET before and after being amended with Article 88 of Law 1819 of 2016.

In addition, according to what is contemplated in article 117 of Law 2010 of December 27, 2019 (which is a special and independent rule that governs over and above what is established in article 714 of the ET), the income tax returns (timely or extemporaneous) that are filed as of December 27, 2019 and in which one or several of their schedules yield a net loss, will remain open for the Dian for five (5) years.

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

In relation to the above, it is important to keep in mind that the tax losses accumulated until the closing of the taxable year 2019 may be offset within the following years, but only if the taxpayer, within those following years, continues to be a taxpayer belonging to the ordinary regime (liability 05 in the RUT) and has not voluntarily transferred to the simple regime (liability 47 in the RUT); Those who are still under the ordinary regime have until July 31, 2020 to choose to transfer to the simple regime, provided they comply with all the requirements of articles 905 and 906 of the ET. However, even when complying with such requirements, there are cases in which it is not convenient to transfer to such regime).

In effect, when a resident individual taxpayer decides to voluntarily transfer to the simple regime (decision that for the current taxable year must be taken no later than July 31, 2020 and in the following years must be taken no later than January 31 of the respective taxable year; the taxpayer will only take its ordinary gross income (not including those that are not taxed income) and these cannot be affected either with costs or expenses, exempt income or with compensations of losses from previous years.

Therefore, such gross income will end up being fully taxed at the special rates contemplated in the tables of article 908 of the ET (see our Excel tool: Simulator of taxation in the simple regime vs. ordinary regime – taxable year 2020).

“you would do well to think about whether or not it is convenient for you to report net losses in the general schedule of your income tax return for taxable year 2019, since in such case such return will remain open for you for five (5) years”

Having the above clear, if a resident individual taxpayer is still analyzing whether or not he/she will transfer to the simple regime during the taxable year 2020, in such case he/she would do well to think whether it is convenient or not to report net losses in the general tax return of his/her income tax return for the taxable year 2019, since in such case such return will remain open for five (5) years, but such losses cannot be offset in his/her returns of the simple regime.

The above would imply that the losses declared until the end of 2019 can only be used as compensation when in the future he decides to move again from the simple regime to the ordinary regime, or when he is forced to do so due to non-compliance with the requirements and obligations of the simple regime.

Source: Actualícese