Loss relief: carry forward, the same-trade rule and the order of relief

A manufacturer loses ₦10 million in a bad year and pays no tax. Three years later it earns profits. Does the old loss still reduce its tax, or has it expired? And what happens if the business closes while the loss is still unused? Loss relief is a short topic with precise rules, and a single misplaced step, such as deducting capital allowances before the loss, changes the final tax figure.

This topic covers what a loss is, the rules for relieving it under CITA and the Nigeria Tax Act (NTA) 2025, carry-forward relief, why current year relief does not apply to companies, what happens at cessation, and where loss relief sits in the computation. The previous topic covered adjusted profit. The next covers capital allowances, which come after loss relief.

The Pathfinder papers reviewed so far do not set a stand-alone loss relief question. The November 2020 Pathfinder (Question 2) shows the order in a petroleum computation, where an unrelieved loss is deducted from adjusted profit before capital allowances.

Key terms in plain English

Syllabus check

This topic is in syllabus area B (taxation of companies and investment income, 35% of marks). It covers:

• the rules for relieving trading losses of companies;
• the loss rules of the Nigeria Tax Act 2025 and their place in the computation of total profit.

CAMA 2020 and losses

The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.

The rules in more depth

Rules for relieving a company’s loss

Section 27 of CITA contained the rules, and the NTA 2025 kept them, with minor changes, from 1 January 2026. A loss may be relieved only if:

1. the tax authority is satisfied that the loss was incurred in the trade or business in an earlier year;
2. the relief never exceeds the loss;
3. it is set only against profit of the same trade or business;
4. it is deducted from the profit of the first year of assessment after the loss, and later years until the loss is recouped (since 2007 the carry forward has been indefinite);
5. the loss is computed on the same basis period as profit;
6. a loss from digital assets is deducted only from profit of the digital or virtual asset business (NTA).

Types of relief

• Current year relief. A loss from one source is set against another source of income in the same year. This is for individuals only, and needs a written claim within 12 months after the end of the year of assessment. It does not apply to companies.
• Carry-forward relief. Available to individuals and companies. No application is needed; it is automatic, on the preceding year basis, and continues until the loss is used.
• Terminal loss relief. The law gave no relief for a loss in the final period or for any unrelieved loss at cessation. The year of cessation produces nil assessable profit. Unused capital allowances in the year of cessation, however, can be carried back against the assessable profits of the preceding years, up to the fifth year before cessation (CITA Second Schedule, para. 24(5)).

Place in the computation

Loss relief comes before capital allowances. A capital allowance left unused because profit is too small is carried forward, without a time limit.

Worked examples

1. Year 1: loss ₦6,000,000 carried forward; assessable profit nil.
2. Year 2: relieve ₦2,500,000; assessable profit nil; loss c/f ₦3,500,000.
3. Year 3: relieve ₦3,500,000; assessable profit ₦500,000; loss c/f nil.
4. Year 4: new loss ₦1,000,000 carried forward; assessable profit nil.
5. Year 5: relieve ₦1,000,000; assessable profit ₦4,000,000.

1. Assessable profit after loss = ₦500,000.
2. Capital allowance used = ₦500,000; total profit nil.
3. Unused allowance of ₦200,000 is carried forward.

1. A loss is set only against profit from the same trade or business.
2. The trading profit is not reduced by the transport loss.

1. There is no terminal relief for the loss.
2. Unused capital allowances may be carried back up to five years (CITA).

How to score full marks

• Keep a loss schedule: b/f, relieved, c/f.
• Deduct the loss before capital allowances.
• Relieve only against the same trade.
• Add any new loss to the amount carried forward.
• State that carry forward has no time limit.
• Cite s. 27 CITA for older years and the NTA 2025 conditions for 2026 onward.

Common mistakes in the exam

• Giving a company current year relief against other income.
• Deducting capital allowances before the loss.
• Limiting carry forward to a number of years.
• Setting a loss against a different trade.
• Forgetting to carry forward the loss of a later year.
• Claiming terminal loss relief.

Quick revision

• Carry forward is automatic and indefinite.
• Same trade only; relief never exceeds the loss.
• Loss first, then capital allowances.
• No terminal loss relief; capital allowances may be carried back five years under CITA.
• Digital asset losses: digital asset profits only.
• CAMA 2020: ss. 305, 308, 377(1), 378, 426, 427.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

Recent ICAN papers are written, although older papers such as May 2014 included multiple-choice questions. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

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