Business Reorganizations: Transfer of Losses & Depreciation Subject to Conditions in Income Tax Act Section 47

In business reorganizations where a firm or proprietor transitions to a company, or a private or unlisted public company transitions to a limited liability partnership, the accumulated losses and unabsorbed depreciation of the predecessor entity are transferred to the successor entity. This transfer is subject to compliance with specific conditions outlined in section 47 of the Income Tax Act. If these conditions are not met, the previously set off losses or depreciation allowances are considered taxable income for the successor entity in the year of non-compliance, as per sections 72A(6) and 72A(6A).