An assessed loss carried forward can only be set off against the higher of 80% of your taxable income or R1 million. The balance carries forward indefinitely. The practical effect is that a company sitting on large accumulated losses can still pay tax in a profitable year — which catches out businesses that assumed their losses would shelter them.
The restriction applied from years of assessment commencing on or after 1 April 2022, and it is the single most commonly missed factor in provisional tax estimates.
The rule
| Set-off limit | The higher of 80% of taxable income or R1 million |
| Balance | Carries forward indefinitely |
| Applies to | Companies |
| From | Years of assessment commencing on or after 1 April 2022 |
The R1 million floor is what makes this workable for small companies. A company with taxable income of R900,000 can offset the full amount, because R1 million is higher than 80% of R900,000. The restriction only bites once taxable income exceeds R1.25 million — the point at which 80% of taxable income overtakes R1 million.
Worked examples
Example 1: below the bite point
Taxable income before losses R900,000. Assessed loss brought forward R3,000,000.
80% of R900,000 = R720,000
R1 million is higher, so the limit is R1,000,000
Loss available is R3,000,000, but taxable income is only R900,000
Set-off: R900,000. Taxable income: nil. Tax: nil.
Loss carried forward: R2,100,000
No tax. The restriction does not bite here.
Example 2: above the bite point
Taxable income before losses R4,000,000. Assessed loss brought forward R6,000,000.
80% of R4,000,000 = R3,200,000
R1 million is lower, so the limit is R3,200,000
Set-off: R3,200,000
Taxable income after set-off: R800,000
Tax at 27%: R216,000
Loss carried forward: R6,000,000 − R3,200,000 = R2,800,000
The company has R6 million of accumulated losses and still pays R216,000 of tax. Before the restriction, it would have paid nothing.
Example 3: exactly at the threshold
Taxable income R1,250,000.
80% = R1,000,000
R1 million floor = R1,000,000
Identical. R1.25 million is the point where the percentage takes over from the floor.
Above R1.25 million of taxable income, the restriction is live. Below it, the R1 million floor generally protects you.
Why this matters most for provisional tax
This is where the restriction does real damage, because it turns a nil provisional estimate into a penalty.
The scenario: a company has R5 million of accumulated losses and a good year. The owner reasons that the losses cover it, estimates nil taxable income for the second provisional payment, and pays nothing.
On assessment, the 80% restriction leaves R800,000 of taxable income, R216,000 of tax — and a 20% underestimation penalty because the second estimate was below 80% of final taxable income, plus interest at 10.25% per annum.
The fix: apply the restriction when you prepare the estimate, not when you file the return. See what is provisional tax.
Where an assessed loss comes from
An assessed loss arises where allowable deductions exceed income in a year of assessment.
Common causes in a genuine trading business:
Start-up years before the business reaches scale
A large capital allowance year, particularly under section 12E where a qualifying Small Business Corporation writes off manufacturing assets 100% in year one
A bad year — lost contract, market shock, major bad debt write-off
A significant once-off cost
Remember the loss is a tax figure, not an accounting one. Accounting depreciation is replaced by wear and tear, entertainment and fines are added back, and provisions are generally not deductible. See what business expenses are tax deductible.
How to keep a loss alive
An assessed loss carries forward indefinitely — but it can be forfeited.
The trading requirement. Broadly, a company must have carried on a trade during the year of assessment and derived income from that trade to carry the loss forward. A company that ceases trading entirely risks losing the accumulated loss.
The practical implication: a dormant company with a large accumulated loss should take advice before simply going quiet. Keeping the entity alive without any trade may not preserve the loss.
Change of ownership. Anti-avoidance provisions exist to prevent loss trading — buying a shell company for its accumulated losses. Where a change of shareholding is accompanied by a change in the nature of the business, the loss may not be available. If you are buying or selling a company with meaningful accumulated losses, this needs specific attention in the transaction.
Keep the records. You need to be able to substantiate the loss years later, sometimes long after the staff involved have gone. Assessments, tax computations and financial statements for every loss year should be kept indefinitely rather than for the ordinary five-year period.
Individuals are different
The 80% restriction applies to companies.
Individuals face a different provision — section 20A ring-fencing, which can ring-fence losses from certain trades carried on by individuals in the top tax bracket where the trade has made losses in a defined pattern of years. Where it applies, the loss cannot be set off against other income such as salary, only against future income from that same trade.
The two provisions are frequently confused. If you are an individual with a loss-making side business or rental property, see how is rental income taxed for the ring-fencing point.
Frequently asked questions
Can a company carry forward a tax loss in South Africa? Yes, indefinitely. However, since years of assessment commencing on or after 1 April 2022, the amount that can be set off in any year is limited to the higher of 80% of taxable income or R1 million, with the balance carried forward.
How does the 80% assessed loss rule work? The set-off is capped at the higher of 80% of taxable income or R1 million. Because of the R1 million floor, the restriction only starts to bite once taxable income exceeds R1.25 million. Below that, the floor generally allows a full set-off.
Can a company with losses still pay tax? Yes. A company with R6 million of accumulated losses and R4 million of taxable income can only offset R3.2 million, leaving R800,000 taxable and R216,000 of tax at 27%.
Do assessed losses expire in South Africa? They do not expire with time, but they can be forfeited. Broadly, a company must carry on a trade and derive income from it during the year to carry the loss forward, so a company that ceases trading risks losing the accumulated loss.
What happens to assessed losses when a company is sold? Anti-avoidance provisions exist to prevent buying companies for their losses. Where a change of shareholding is accompanied by a change in the nature of the business, the loss may not be available. This needs specific attention in any transaction involving meaningful accumulated losses.
Does the 80% rule apply to individuals? No. The 80% restriction applies to companies. Individuals are subject to section 20A ring-fencing, which can prevent losses from certain trades being set off against other income where the taxpayer is in the top bracket and the trade has made losses in a defined pattern of years.
How does the assessed loss restriction affect provisional tax? Significantly. A company assuming its accumulated losses cover a profitable year may estimate nil and pay nothing, then find on assessment that the restriction leaves taxable income — triggering a 20% underestimation penalty plus interest. The restriction must be applied when preparing the estimate, not when filing the return.
Apply the restriction before the estimate, not after
The 80% rule turns an assumption into a penalty. A company that estimates nil because it has losses, and finds on assessment that it did not, pays the tax plus 20% plus interest.
Smartbook applies the restriction when preparing provisional estimates, tracks the accumulated loss balance year on year, and keeps the supporting computations that substantiate it.
Last reviewed: 26 July 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. The trading requirement and anti-avoidance provisions relating to assessed losses are technical and fact-specific — take advice before relying on a general position, particularly in a transaction. Worked examples are illustrative.
Primary sources: SARS — Budget 2026 Frequently Asked Questions · SARS — Income Tax · SARS — Interpretation Notes