Key takeaways
Tax losses can be carried forward for no more than 5 accounting periods. When transfers are delayed, older losses may expire before there are profits to use them against. In this example, a 2-year delay causes losses of THB 80 million to expire, CIT rises by THB 16 million as a result of the expiry, and the cash gap increases by THB 200 million.
Introduction
Revenue from condo sales is usually recognised on the ownership transfer day, which falls at the end of the project cycle. Before that, the company incurs substantial overhead and interest, giving rise to a tax loss carry-forward under the Revenue Code. Net tax losses can be set against profits for no more than the next 5 accounting periods. If transfers are delayed, the earliest losses may expire before they can be used.
1. Legal framework
Losses not fully used within the next 5 accounting periods can no longer be used. For a project that takes 4–6 years to develop, this limit is a real constraint. The conditions for carrying losses forward should be checked against the company's own circumstances.
2. Scenario: a 2-year delay
Example (hypothetical figures, in THB million): The original plan was to start transfers in 2028, but they are postponed to 2030.
| Loss year | Loss | Usable until end of | Status when transfers start in 2030 |
|---|---|---|---|
| 2023 | 20 | 2028 | Expired |
| 2024 | 60 | 2029 | Expired |
| 2025 | 100 | 2030 | Usable |
| 2026 | 120 | 2031 | Usable |
| 2027 | 150 | 2032 | Usable |
| 2028 (added by the delay) | 60 | 2033 | Usable |
| 2029 (added by the delay) | 60 | 2034 | Usable |
Expired losses: 80 (2023 and 2024)
3. Effect on CIT
Assume profit before loss carried forward of 800 under the plan. If transfers are delayed, the additional interest of 80 capitalised in WIP reduces profit to 720.
| Item | As planned | Delayed, no expired losses (for comparison) | Delayed, with expired losses |
|---|---|---|---|
| Profit before loss carried forward | 800 | 720 | 720 |
| Usable loss carried forward | (450) | (570) | (490) |
| Taxable profit | 350 | 150 | 230 |
| CIT 20% | 70 | 30 | 46 |
The direct effect of the expired losses is an increase in CIT of 80 × 20% = 16. Total CIT may be lower than under the original plan because of the additional losses, but profit after tax actually falls considerably, because overhead and interest are real costs.
4. Three areas of impact
4.1 Financial statements
WIP stays on the balance sheet for longer without generating revenue. Equity falls because of the additional overhead of 120, which may affect NAV and bank covenants. Management should also assess net realisable value under TAS 2 and whether the deferred tax asset can be used under TAS 12.
4.2 Cash flow
Under the plan for 2028–2029, assume transfer proceeds of 2,000 are received, SBT of 66 (3.3%) and CIT of 30 are paid, leaving a net 1,904. If transfers are delayed, there are no transfer receipts in the same period, and overhead of 120 and interest of 80 must still be paid. This creates an additional cash gap of 200 that must be funded.
4.3 Summary of tax and cost effects
| Item | As planned | 2-year delay | Difference |
|---|---|---|---|
| Usable losses | 450 | 490 | 40 |
| Expired losses | 0 | 80 | 80 |
| Additional overhead | 0 | 120 | 120 |
| Additional interest in WIP | 0 | 80 | 80 |
| Total CIT | 70 | 46 | (24) |
These figures show that looking at CIT alone can be misleading. Profit after tax and total cash should be considered as well.
5. Risk mitigation measures
5.1 Plan to transfer pilot units in the year losses are close to expiry
If the building is complete and the condominium has been registered, transferring some units early in the critical year may generate profit to absorb the old losses. For example, profit of 20 in 2028 would fully use the 2023 loss and reduce CIT by 4. However, this is possible only when the transfer conditions are met, and COGS must also be taken into account.
5.2 Plan tax together with advisers
Transactions between group companies to generate revenue must have a business rationale, use market prices and comply with transfer pricing principles. They should not be undertaken merely to use up losses.
5.3 Loss expiry dashboard
- Track annual tax losses and their expiry dates
- Reconcile with the tax returns filed
- Review quarterly together with the transfer plan
- Notify management in advance before losses expire
Conclusion
Every year of project delay increases the risk of losses expiring and widens the cash gap at the same time. Tax planning should be done alongside the actual transfer schedule, and a tax adviser should be consulted before acting in any specific case.