TAX – Nov 2021 – L2 – Q4b – Tax Incentives and Reliefs

Explanation of the rules governing loss relief for companies, including carry forward, loss limitation, and cessation rules.

Question

Explain FIVE rules governing loss relief for companies.

Answer

Deduction from Assessable Profits: A trading loss can only be deducted from assessable profits of the company in the year it was incurred or carried forward to subsequent years. The loss deductible cannot exceed the actual loss incurred by the company in the prior assessment years.
No Aggregation of Losses: Losses incurred in one source of income cannot be set off against the profits from another source. Therefore, a trading loss from one line of business can only be relieved by future profits from that same line of business.
Priority of Loss Relief: When losses from multiple assessment years are being carried forward, the earliest loss incurred must be relieved first before later losses are applied.
Terminal Loss: When a company ceases operations, any remaining loss that cannot be relieved in the cessation year is deemed to be lost. This terminal loss cannot be carried forward to future years.
No Loss Carry-Back: The Nigerian tax system does not allow for the carrying back of losses to previous assessment years. Losses can only be carried forward to offset future profits