NOL VS NOLCO
NET OPERATING VS NET OPERATING LOSS
LOSS CARRYOVER
Both exists when the allowable deductions of a company
exceeds its gross income at a certain taxable period.
A company or individual It is when the company or
can either carry it back to individual opted to carry it
the preceding years or over to cover for the future
carry it over to the tax liabilities as properly
potential tax liabilities. assed.
Who can claim NOLCO?
Accordingly these are the individuals/entities who can claim the NOLCO privilege
1. An individual (including estates or trusts) engaged in business and trade or in the exercise
of his or her profession.
2. Domestic and foreign corporations subjected to normal income tax (examples are
manufacturers and traders)
3. Corporations subject to preferential tax rates under the code on their taxable income.
*Preferential tax rates are rates that are significantly lower or less than the normal rate of
duty
Essential Requisites for the deductibility of NOLCO
It is exercisable given that there is no substantial change in the ownership of the business
or enterprise in that such owners at least own 75 percent of the nominal shares of issued.
It is only allowed given that the business or enterprise is held by or on behalf of the same
persons (No takeovers) or at least holding 75 percent of the paid up capital of the
corporation
Rules in carry over of the NOLCO
1. NOLCO is only an applicable deduction to business income and not compensation income
2. NOCO of the business shall be carried over as a special deduction from gross (business)
income for the next three (3) consecutive years immediately following the year of such net
operating loss
NOLCO for Individual Taxpayers
An individual who claims the Optional Standard Deduction (OSD) shall not
simultaneously claim deduction as provided by the NOLCO privilege. The 3 year period
shall continue to run even if such individual taxpayer have availed OSD during the said
period.
*Optional standard Deduction is where as allowed by the BIR, 40 percent of their gross
sales or receipts shall be allowed as deduction instead of the itemized deduction.
*Itemized deduction is where you declare all valid deductible expenses in your tax return
NOLCO for Merger and Consolidation
*Merger/Consolidation is when two or more companies consolidate into one company or
become one new consolidated company.
According to ruling No. 214-2012, The BIR have held that NOLCO of the absorbed
corporation cannot be transferred to the surviving corporation even if both the surviving
and absorbed corporation become owned substantially the same shareholders.
PRACTICAL EXAMPLE
A single employee with a small business have reported income and expenses during the
taxable years:
2015 2016 2017 2018 2019
Compensation Income P216,000 216,000 220,000 220,000 224,000
Business Income P350.000 300,000 380,000 400,000 350,000
Allowable Business P550,000 220,000 310,000 380,000 250,000
Deductions
Applicable NOLCO as of 2015
Business Income 350,000
Allowable Business Expenses (550,000)
Applicable NOLCO for the next 3 years (200,000)
APPLICATION
2016 2017 2018 2019
Business Income Gross 300,000 380,000 400,000 350,000
Business Deductions (220,000) (310,000) (380,000) (250,000)
Income (Loss) from 80,000 70,000 20,000 50,000
Business
Less: Applicable (80,000) (70,000) (20,000) 0
NOLCO
Compensation Income 216,000 220,000 220,000 224,000
Taxable Income (Before 216,000 220,000 220,000 224,000
any credit or exemptions)
*In 2019, the remaining supposed to be 30,000 balance from the NOLCO is not applicable
anymore for it has passed the three year period.
