Which tests must typically be met for a loss to be carried forward?

In the context of tax regulations regarding the ability to carry forward losses, the continuity of ownership test and the same business test are critical requirements. The continuity of ownership test ensures that the ownership of the business remains consistent over time, meaning that the same shareholders or stakeholders must maintain their interests in the company throughout the period in which the loss is being carried forward. This is designed to prevent abuse of the loss carryforward provision by changing ownership solely for tax benefits.

The same business test complements the continuity of ownership test by confirming that the business must continue to operate in the same manner it did when the losses were incurred. This helps to ensure that the losses are applied to a business that is reasonably similar to the one that sustained them, thus preventing the use of losses from one business to offset income from an entirely different type of business.

Together, these tests aim to maintain integrity in the tax system by ensuring that losses can only be used by those businesses that genuinely experienced the losses.