Utilization
When Taxable income (TaxableIncomeAfterLoss) results in a positive amount, you may decide to utilize losses that were deferred in prior periods or years. Optimal loss utilization will result in Taxable Income of 0 by utilizing the amount equivalent to the sum of Taxable Income and Special Deductions, plus any amounts manually entered in the TaxLossCarryforward account(s).
The process is the same for Credits utilization.
Example
If Taxable Income is 80,007, the system could utilize deferred losses up to a total amount of 80,007 in the current period. You could define rules to utilize the deferred losses automatically. You could define several utilization rules against different target loss accounts associated with different detail accounts, for example TaxLoss0001CFS with TaxLossD0001 and TaxLoss0002CFS with TaxLossD0002.
The utilization rule that you specify associates the TaxLossCarryforward account (base descendant of TaxLossesCFSTotal or TaxCreditTotal for credits) with a Detail account (a base descendant of TaxLossesD, or for credits, base descendants of TaxCreditsD) for a group of Entities and a group of Excluded Entities.
After you define the NOL Automation deferral rule and then run Force Calculate, the system will utilize as many losses as are available up to the amount of Total Income + Special Deductions. In this example, the Taxable Income and Current Tax on Taxable Income change to 0 after all the available losses have been utilized.
The Tax Losses schedule now shows a utilized loss of 1,000 for the TaxLossD0001 detail account in the CY Utilization Automated (TLCUtilizationAutomated) Rollforward member for the current year.
The Tax Losses schedule now shows a utilized loss of 79,007 for the TaxLossD0002 detail account in the CY Utilization Automated (TLCUtilizationAutomated) Rollforward member for the current year.
The Temporary Differences schedule now shows the deferred loss under the Automated (CYSys) column for the target TaxLoss0001CFSTaxLoss0002CFS accounts.
The Utilization calculation method aims to first utilize the losses that are expiring soonest. Tax Provision process the utilization rules on a year basis starting with the current year and processing subsequent years in forward chronological order. Starting with the current year, for example 2015, the system processes all losses expiring in that year for the current Entity, Scenario, and Period in ascending Sequence order.
The Utilization and Deferral process are mutually exclusive; only one calculation method can occur at the same time for a specified Entity, Scenario and Period.
The system determines a loss is available to be utilized if there is a positive amount in the TLCAvailable Rollforward member for the year of expiration for the detail account.
You can specify the Percentage for how much of the amount can be utilized into each detail account. The following example shows 100% of the amount utilized
PER:100^ENTITY:LE105^EXCENTITY:^DACC:TaxLossD0002^DAMT:^SEQ:1^UTIL:YESYou must specify either a Percentage or Dollar Amount. If both are specified, the Percentage amount takes precedence.
Note:
In the Utilization process, you must specify a sequence for the rules to be run. You must include at least one sequence number (Sequence 1). If you disable any rules, you may need to adjust the sequence accordingly.
Example 1
Taxable Income + Special Deduction = 28,000
Current year: 2012
Current period: P12
Current entity: LE105
Utilization Rules:
TaxLosses0001CFS PER:100^ENTITY:LE105^EXCENTITY:^DACC:TaxLossD0001^DAMT:^SEQ:1^UTIL:YESTaxLosses0002CFS PER:100^ENTITY:LE105^EXCENTITY:^DACC:TaxLossD0002^DAMT:^SEQ:2^UTIL:YESTable 8-1 Utilization — Example 1
| TaxLossD0001 | TaxLossD0002 | ||||
|---|---|---|---|---|---|
| Year of Expiration | TLCAvailable | Utilization Automated | Year of Expiration | TLCAvailable | Utilization Automated |
| 2012 | 20,000 | -20,000 | 2012 | 5,000 | -5,000 |
| 2013 | 10,000 | -3,000 | 2013 | 10,000 | |
| Total | 30,000 | 15,000 | |||
-
The system starts with the current year (2012) and attempts to utilize available losses in ascending Sequence order. Detail account TaxLossD0001 is first in Sequence 1. The system utilizes 100% of the available loss for 2012 in TaxLossD0001. Available loss is 20,000. The amount utilized is 100% of 20,000. The remaining taxable income is 28,00 - 20,000 = 8,000.
-
Detail account TaxLossD0002 is second in Sequence 2. The system utilizes 100% of the available loss for 2012 in TaxLossD0002. Available loss is 5,000. The amount utilized is 100% of 5,000. The remaining taxable income is 8,00 - 5,000 = 3,000.
-
There are no more utilization rules for LE105. The system advances to the next year, 2013, and attempts to utilize all available losses until there are no more available losses, or there is no more taxable income to be offset.
-
The Total utilized amount will be offset in the Current Provision for the Tax Loss Carryforward accounts.
Example 2
This example shows a utilization rule with different percentages.
Taxable Income + Special Deduction = 28,000
Current year: 2012
Current period: P12
Current entity: LE105
Utilization Rules:
TaxLosses0001CFS PER:50^ENTITY:LE105^EXCENTITY:^DACC:TaxLossD0001^DAMT:^SEQ:1^UTIL:YESTaxLosses0002CFS PER:60^ENTITY:LE105^EXCENTITY:^DACC:TaxLossD0002^DAMT:^SEQ:2^UTIL:YESTable 8-2 Utilization — Example 2
| TaxLossD0001 | TaxLossD0002 | ||||
|---|---|---|---|---|---|
| Year of Expiration | TLCAvailable | Utilization Automated | Year of Expiration | TLCAvailable | Utilization Automated |
| 2012 | 20,000 | -15,000 | 2012 | 5,000 | -5,000 |
| 2013 | 10,000 | 2013 | 10,000 | -4,000 | |
| Total | 30,000 | -15,000 | 15,000 | -9,000 | |
In this example, per the configuration setup, only 50% of the total available amount for the TaxLossD0001 account will be utilized. The total is 30,000 and 50% =15,000.
Per the configuration setup, only 60% of total available amount for the TaxLossD0002 account will be utilized. Total is 150,00 and 60% = 9,000
The maximum amount to utilize across all detail accounts is 24,000.
Therefore, 28000 – 24000 = 4000 is taxable amount remaining in the Current Provision.
-
The system starts with the current year (2012) and attempts to utilize available losses in ascending Sequence order. Detail account TaxLossD0001 is first in Sequence 1. The system utilizes 100% of the available loss for 2012 in TaxlossD0001. Available loss is 20,000. Amount utilized is 50% of 30,000, which is 15,000. 15,000 is less than 20,000, therefore, 15,000 will be utilized. The remaining taxable income is 28,000-15,000=13,000.
-
Detail account TaxlossD0002 is second in Sequence (2). The system utilizes 60% of the total available loss of 15,000, which is 9,000, for 2012 Year in TaxlossD0002. Available loss is 5,000. 5,000 is less than the maximum amount to utilize, therefore 5,000 is utilized. The remaining taxable income is 13,000-5,000=8,000.
-
There are no more utilization rules for LE105. The system advances to the next year, 2013, and attempts to utilize all available losses until there are no more available losses, or there is no more taxable income to be offset.
-
The Total utilized amount will be offset in the Current Provision for the Tax Loss Carryforward accounts.