Your Business Is Profitable Again, But Tax May Still Be Due, Even With Old Losses
Many entrepreneurs, board members and trustees have long shared this understanding around tax losses:
“When the business returns to profit, those past losses will protect us from paying income tax until they are exhausted.”
That understanding is no longer fully correct. Effective March 2023, SARS changed the way companies may use assessed losses from previous years. The impact is simple but far‑reaching, “when a company is profitable, at least part of that profit will now be taxable every year, even if losses from the past still exist”.
This has important implications not only for day‑to‑day business owners, but also for boards and trustees charged with governance, oversight, and fiduciary responsibility.
What changed?
Historically, companies could usually offset all their future profits with accumulated losses. This allowed many businesses to recover, stabilise and grow without paying corporate income tax for several years. However, From 2023, SARS introduced a limit. Companies are now restricted in how much of their profit they can reduce using old losses in any one year. In practical terms, this means that a profitable company can no longer reduce its tax bill to zero indefinitely.
As a rule of thumb, around 20% of a company’s annual profit will now be taxable, even when losses are available.
This rule mainly affects:
- Companies that have moved from recovery into growth
- Established businesses that have carried losses for several years
- Structures where companies sit under trusts or B‑BBEE ownership
- Boards approving asset sales, restructures or significant dividends
Smaller profit years still enjoy some relief, but the era of “no tax until losses are finished” is largely over
Why SARS introduced this limitation?
SARS was concerned that some companies remained operational, profitable and economically active for many years without ever contributing income tax because old losses were continuously carried forward. The new approach ensures that once a company is profitable, it begins contributing tax again, even if only at a minimum level. Boards and trustees need to realise, this is not only about compliance, it directly affects cash‑flow planning, distributions, capital decisions, and sustainability.
How the rule works in everyday language
Each year, SARS looks at the company’s total profit, and allows old losses to reduce most, but not all, of that profit.
In most cases:
- A company may reduce profits by up to 80% using past losses
- The remaining 20% becomes taxable
- Any losses that are not used are rolled forward to future years
There is still protection for smaller companies where profits are relatively low, losses may still fully absorb them. However, once profitability grows, tax exposure returns automatically.
Why asset sales now require closer attention
One of the most important and often misunderstood aspects of this change relates to asset sales.
When a company sells property, shares, or part of a business at a profit, that profit does not sit on its own for loss purposes. Instead, the taxable capital gain is added to the company’s normal business income, creating one total profit figure for the year. This combined figure is then used to apply the loss limitation.
In practice, this means that:
- A profitable asset sale can significantly increase the company’s taxable income
- Only 80% of that combined amount may be reduced using losses
- A portion of the gain will be taxable, even where large losses exist
Boards and trustees that need to approve disposals, exits, restructures or property sales, this creates direct governance and fiduciary considerations.
A simple example
Assume a company:
- Earns R4 million from normal operations, and
- Sells a property at a profit of R2 million
The company’s total taxable profit for the year becomes R6 million.
Even if the company has significant losses from prior years, only R4.8 million may be reduced. The remaining R1.2 million will be taxable.
Many businesses, face a harsh reality as this is the moment when tax appears unexpectedly and often after cash has already been allocated elsewhere.
Why this matters for boards, trustees and owner managers?
This change does not eliminate assessed losses. They still exist and still carry forward. What has changed is the timing of tax payments.
Boards and trustees should be aware that:
- Profitability now almost always triggers tax exposure
- Transactions approved at board level can result in unexpected tax bills
- Cash distributions or reinvestments may need reassessment
- Budgeting and solvency planning should reflect tax earlier than before
Trustees in particularly, where companies sit under trust ownership, this reinforces the need to ensure that tax outcomes do not prejudice beneficiaries or long‑term sustainability.
What should be done now
The key shift is not technical, it is strategic.
Losses should no longer be viewed as a full shield against tax. Instead, they are a partial deferral mechanism that spreads tax liability over time.
Businesses, boards and trustees should:
- Build expected tax payments into cash‑flow forecasts
- Avoid committing surplus cash without understanding tax timing
- Evaluate asset sales and restructuring decisions carefully
- Ensure that governance decisions are taken with full visibility of tax consequences
Early awareness allows for planning. Late awareness leads to pressure.
The takeaway
If a company is profitable, some tax is now unavoidable, even with past losses.
This is not a compliance issue alone, it is a cash‑flow and governance issue. Understanding this shift allows businesses to grow confidently, boards to discharge their duties responsibly, and trustees to protect beneficiaries without surprises.
How Bagaka Group supports this journey
At Bagaka Group, we bridge the gap between tax rules and business reality. We help:
- Entrepreneurs plan growth with clarity
- Boards make informed, defensible decisions
- Trustees understand tax risk within structures
- Businesses avoid surprises and protect cash flow
If your organisation has carried losses, is returning to profit, or is considering asset sales or structural changes, this conversation is worth having before decisions are made.
