As you are going to see in this unit, tax is based on profits which accrue to businesses; but where losses occur instead, the assessment of tax interest of the business or organisation is nil. Hence, a business that makes a loss from its operations is to relieve such a loss by carrying it forward for set-off against the assessable profits of the following four assessment years commencing from the year following that in which the loss was incurred. This unit exposes you to the rules, principles and treatment of loss relief.


At the end of this unit, you should be able to:

  1. discuss the rules governing loss relief in Nigeria 
  2. explain clearly the principle involved 
  3.  explain the methods and treatment of loss relief. 


3.1 Rules on Loss Relief

The following are the rules or principles for applying loss relief to businesses, except those in agro-allied businesses.

  1.  Business loss to be deducted from assessable profit of a year of assessment shall not exceed the actual loss incurred by the business in the previous year of assessment; 
  2.  According to section 31 (1) of CITA, losses are not aggregated with assessable profits in the computation of total profits that accrue from different lines of business operations. Consequently, a business cannot aggregate any loss from one of its businesses. Sources of profits cannot be set-off against profits from another source; a loss incurred from a particular line of business can only be relieved in future years from assessable profits derived from the same source or line of business; 
  3. When losses incurred in two different assessment years are carried forward against future profits, the first loss incurred will be relieved in priority to the subsequent loss, subject to a maximum of four years loss relief periods after which any unabsorbed losses elapsed; 
  4.  When business operation ceases, any terminal loss resulting therefrom, which could not be relieved in the year of cessation- due to non-availability or insufficiency of profit- is deemed lost. This is because the Nigerian tax system has no provision for carry-back of terminal loss; 
  5.  No previous loss is deducted from current profits if a claim in writing, made within 12 months after the year of assessment, has not been made. 


Stipulate the conditions for granting loss relief.

3.2 Methods of Obtaining Loss Relief

There are two methods of obtaining loss relief in the Nigerian tax system. These include current year loss relief system and carry forward loss relief system. Let us look at this one after another.

(a) Current year loss relief system

This is the process of setting off the loss incurred against the total assessable profit of the taxpayer for the year of assessment in which the loss was incurred. Characteristics of current year loss relief system are listed below:

  1.  It is only applicable to individuals chargeable to tax under PITA;
  2.  It is not automatic; a taxpayer who wishes to enjoy this relief must claim it in writing within a period of 12 months after the end of the year of assessment; 
  3. The current year loss relief is not confined to profit from a trade, business, profession or vocation, but may be set off against all sources of income for that year including investment income;
  4.  Under the current-year loss relief system, loss relief is available only in the first year when the loss is incurred, any unrelieved balance can only be set off against profit from the source from which the loss was incurred; 
  5.  It is useful when profit from trade is declining but rising on other sources of income. 

(b) Carry forward loss relief system

Under this system, the taxpayer is given the right to carry forward losses and to set them off against future assessable profits from the particular trade in which the losses were incurred.
Characteristics of carry forward loss relief system include the following:

  1.  Unlike the current year loss relief system which is available only to individuals, carry forward loss relief system is available to both individuals and companies; 
  2.  The carry-forward relief is confined to the amount of loss suffered in respect of trade business, procession or vocation;
  3.  Under no circumstances shall the aggregate deduction from assessable profit in respect of any loss exceed the amount of such loss; 
  4.  Losses are only available to be set off against income from which the loss was incurred, it cannot be set off against any other source of income; 
  5.  Loss relief under this system is automatically granted. That is, the tax authority will use carry forward relief if the taxpayer has not applied for current year relief; 
  6.  Losses incurred by a property letting business will be treated as if it were a loss incurred by the individual in a trade or business carried on by him, and therefore, can only be set off only under the carrying forward system; 
  7. Carry-forward relief is available only to the taxpayer that has incurred the loss, and the taxpayer must be carrying on the same trade or business as that in which the loss arose. Where he ceased to carry on trade, any unused losses cannot be made use of by the new purchaser of the trade or firm; 
  8.  Carry-forward relief is useful where profits or income from business are increasing or where there is the likelihood of an increase in tax rates, as this will put money into the hands of the taxpayer. 


Briefly distinguish between carry forward loss relief and current year loss relief.

3.3 Losses used in Aggregation

Under the commencement regime, it is possible for the losses incurred in a particular period to be used in determining the assessable profits or losses in more than one tax year. The implication of the above is that when such losses are eventually aggregated, the total losses available for relief may be in excess of the actual loss incurred. The provision of the act in this respect is that losses to be relieved must be restricted to the actual losses incurred.


In this unit, you learnt that losses accumulated from business operations can be relieved from current and future profits. However, the relief is restricted to a maximum of four years, counting from the year of loss. Therefore, businesses can take this tax incentive and be encouraged in spite of any negative results.


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