Tax Education Series - Episode 3

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Loss Relief: Simplifying the complexities



Written by Richard Okunola

Losses arise when a company's aggregate deductions (like expenses) exceeds the total assessable profit or income made. The rules governing loss relief strictly prohibit making a claim for loss when there is actually no loss made. 

Categories of loss relief

There are three main types of loss relief namely;

1. Current year loss relief: 

The current year loss relief is only applicable to individuals and can be relieved against profit from various business activities i.e losses from a particular business can be relieved against profit from other business source.

2. Carry forward losses relief

The carry forward losses relief is available to both individual taxpayers and corporate bodies (companies). This relief is granted on preceding year basis i.e. losses from prior year can only be relieved prospectively on profits in the subsequent year(s).

3. Terminal loss relief

According to Nigerian tax law there is no provision for granting relief four losses made by a company in its year of cessation. Any loss incurred in the year of cessation will be assumed to be nil for the assessment year concerned.

Key Points

1. Loss relief cannot be granted in the same year in which loss is made. This is because there is no profit from which such loss would be relieved.

2. Loss relief can only be granted against profit from the same business or trade from which the loss was made. i.e loss on a Cheese making business can only be relieved against profit of the same Cheese business. There is an exception to this. 

3. Losses to be relieved must be computed on the same basis as that of the assessable profit in any year of assessment.

4. With effect from 2007, losses made on businesses can now be carried forward indefinitely against future profits. In addition , Insurance companies can now carry forward losses indefinitely like every other companies under CITA, according to the Finance Act 2019. 

5. Losses cannot be carried backwards. i.e You cannot use a loss from 2007 to relieve profit of 2005. 

PS: CITA means "Company Income Tax Act".

#Tax #TaxInsight #TaxEducation #TaxSeries

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