A company loses money for four years, recovers in the fifth, and asks whether it has to pay tax on that recovery. The answer is that the earlier losses are set against the later profits, but only in the right order, only against the same line of business, and before capital allowances are used. A single mistake in the order changes the tax.
Exam questions give a run of profits and losses and ask for the tax of each year, so the carry forward working has to be neat.
This topic covers what a loss is, the two kinds of loss relief, who may use each, the rules that govern the relief, and a multi-year computation. The previous topic covered the change of accounting date. The next covers the total profit and company tax computation.
In 30 seconds
Companies: relieve a loss by carrying it forward against the profits of the same source from the next year; no claim or approval is needed. Current year relief: individuals only, against other income, by a written claim within 12 months after the year of assessment, not for property letting.
Rules: relief cannot exceed the actual loss; losses are not mixed with other sources; the older loss goes first; a terminal loss is lost; no carry back; loss relief comes before capital allowances. Time: losses can be carried forward without limit.
Key terms in plain English
| Term | What it means |
|---|---|
| Loss | Allowable expenses greater than income |
| Carry forward relief | Setting a loss against later profits of the same source |
| Current year relief | Setting an individual’s loss against other income of the year |
| Terminal loss | A loss in the last period of trading that cannot be relieved |
| Source of income | A separate line of business or kind of income |
| Capital allowance | Relief for capital spending, claimed after loss relief |
Syllabus check
This topic is in syllabus area D, company taxation. It covers:
- current year and carry forward loss relief
- the rules governing loss relief
- a multi-year loss computation
CAMA 2020 and company tax
The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.
| Section | What it says | Link to this topic |
|---|---|---|
| s. 377(1) and s. 378 | Directors prepare financial statements that give a true and fair view | The audited accounts and their results, whether profit or loss, are where the tax computation starts |
| s. 305 and s. 308 | Directors must act in good faith and with the care, diligence and skill of a prudent director | Directors answer for correct returns, claims made on time and tax paid by the due date |
| s. 119 | A company must keep proper books of account | The records of losses brought forward and capital allowances must be kept from year to year |
The rules in more depth
What a loss is
A company makes a loss from its trade or business when its allowable operating expenses are greater than its income. It may carry the loss forward and set it off against the assessable profits of later years, starting with the year after the loss.
Two kinds of relief
| Point | Current year relief | Carry forward relief |
|---|---|---|
| Who | Individuals only | Individuals and companies |
| Set against | Other sources of income of the year (including a balancing charge) | Profit of the same source only |
| Claim | Written claim within 12 months after the year of assessment in which the loss arises | No claim or approval needed |
| Property letting | Not available | Available |
Any current-year loss that is not relieved is carried forward against the profit of the same source.
The rules for companies
- The loss deducted from the assessable profit of a year cannot be more than the actual loss incurred.
- Losses are not added to other profits to get total profit (section 31(1)). A loss from one source cannot be set off against profit of another source: a mining loss relieves mining income only, and a farming loss relieves farming income only.
- Where there are losses of two years, the first is relieved before the second.
- When a trade ceases, a terminal loss that cannot be relieved in the year of cessation is lost.
- There is no carry back of a terminal loss.
- A claim for loss relief takes precedence over capital allowances: the loss is deducted from the assessable profit first, and the capital allowances are then claimed from what is left.
- Losses can be carried forward indefinitely, and the insurance classes now carry forward without limit, class by class.
Why the order matters
A loss relieved against profit reduces the profit that remains for capital allowances, while an unrelieved capital allowance can be carried forward for use later. If a company used capital allowances first, it could waste a loss. The rule gives the company the loss first and keeps the allowance in hand.
The advantage of relief
Relief lowers the assessable profit of later years, so it lowers tax, helps cash flow and encourages compliance, since a company that is allowed to carry a loss forward has a reason to keep proper records and file returns.
The position from 2026
The Nigeria Tax Act 2025 repeals the Companies Income Tax Act and the Personal Income Tax Act and sets out loss relief in its own provisions. Use the rules above for periods ending before 1 January 2026, which is what the Pathfinder marking guides apply.
Worked examples
Example 1: a run of losses and a profit. Oworu Nigeria Limited, an agricultural company with turnover of ₦101.3 million, has adjusted results for years ended 31 December: 2016 loss ₦80,000,000; 2017 profit ₦40,000,000; 2018 profit ₦20,000,000; 2019 profit ₦50,000,000. Capital allowances for 2017 to 2020 assessment years are ₦5,000,000, ₦3,500,000, ₦2,700,000 and ₦2,500,000. Tax is at 30% and tertiary education tax at 2% of assessable profit. Figures in ₦’000.
| Year of assessment | Profit (basis year) | Loss relief | Loss c/f | Capital allowance used | Allowance c/f | Total profit |
|---|---|---|---|---|---|---|
| 2017 (2016) | (80,000) | nil | 80,000 | nil | 5,000 | nil |
| 2018 (2017) | 40,000 | 40,000 | 40,000 | nil | 8,500 | nil |
| 2019 (2018) | 20,000 | 20,000 | 20,000 | nil | 11,200 | nil |
| 2020 (2019) | 50,000 | 20,000 | nil | 13,700 | nil | 16,300 |
- In 2018 the profit of 40,000 is wiped out by the loss, which falls to 40,000; the capital allowances (5,000 + 3,500) are carried forward.
- In 2019 the profit of 20,000 is wiped out by the loss, which falls to 20,000; allowances c/f are 11,200.
- In 2020 the profit of 50,000 is first reduced by the remaining loss of 20,000 to 30,000.
Capital allowances of 2,500 + 11,200 = 13,700 are then deducted, leaving a total profit of ₦16,300,000. - Tax at 30% = ₦4,890,000; tertiary education tax at 2% of assessable profit ₦50,000,000 = ₦1,000,000.
The printed solution leaves out the loss of ₦20,000,000 in 2020 and shows a total profit of ₦36,300,000; the loss still carried forward must be relieved, giving ₦16,300,000. Tertiary education tax is shown at 2% as the Pathfinder solution shows it, although the Finance Act 2021 raised it to 2.5%.
Example 2: two different losses. A company has a loss of ₦300,000 in 2022 and a loss of ₦200,000 in 2023, and a profit of ₦400,000 in 2024.
- The older loss goes first: ₦300,000 is relieved against ₦400,000, leaving a profit of ₦100,000.
- The 2023 loss of ₦200,000 relieves the remaining ₦100,000 and ₦100,000 is carried forward.
Example 3: a loss in a separate line. A company loses ₦500,000 in its mining line and earns ₦900,000 in its farming line.
- The loss cannot be set against the farming profit, because it is another source.
- It is carried forward for the mining line only.
How to score full marks
- Draw a table by year with loss b/f, relief, loss c/f.
- Take the loss before capital allowances.
- Keep separate sources separate.
- Carry unused capital allowances forward.
Common mistakes in the exam
- Claiming current year relief for a company.
- Using capital allowances before the loss.
- Carrying a loss back.
- Forgetting a balance of loss still carried forward.
- Setting one source’s loss against another.
Quick revision
- Companies carry forward; individuals may also use current year relief.
- Same source, oldest first, no carry back, terminal loss lost.
- Loss relief before capital allowances.
Practice questions
Questions 1 to 10 are multiple choice. Questions 11 to 13 are written. Try each before opening the answer.
Question 1. Current year loss relief applies to:
- Companies only
- Individuals only
- Both
- Neither
Show the answer
B. Individuals only.
Question 2. A written claim for current year relief is made within:
- 6 months
- 12 months of the year end
- 24 months
- 3 years
Show the answer
B. Twelve months after the year of assessment.
Question 3. Carry forward relief is against profit from:
- Any source
- The same source
- Capital gains
- Dividends
Show the answer
B. The same source as the loss.
Question 4. A terminal loss that cannot be relieved is:
- Carried back
- Lost
- Paid to the company
- Carried forward
Show the answer
B. Deemed lost.
Question 5. Loss relief takes precedence over:
- Dividends
- Capital allowances
- Withholding tax
- Donations
Show the answer
B. Capital allowances follow.
Question 6. Where two years have losses, which goes first?
- The later loss
- The earlier loss
- Either
- Neither
Show the answer
B. The first incurred.
Question 7. Carry forward relief needs:
- Approval
- A written claim
- Neither
- A court order
Show the answer
C. It is automatic.
Question 8. Is carry back allowed?
- Yes for three years
- No
- Yes for one year
- Only for banks
Show the answer
B. There is no carry back.
Question 9. Property letting loss may use:
- Current year relief
- Carry forward relief only
- Neither
- Carry back
Show the answer
B. Current year relief is not available.
Question 10. The relief cannot exceed:
- The assessable profit of the next year
- The actual loss
- Capital allowances
- Turnover
Show the answer
B. The actual loss incurred.
Question 11 (10 marks). Explain current year loss relief and carry forward loss relief. (10 marks)
Question 12 (10 marks). State the rules governing the claim for loss relief by companies. (10 marks)
Question 13 (10 marks). A company has a loss of ₦600,000 in 2023 and profits of ₦200,000 in 2024 and ₦500,000 in 2025. Show the loss relief in each year. (5 marks)
Model answers
Show the model answer to Question 11
Current year relief:
- individuals only
- a loss from one source can be set against other sources
- it is claimed in writing within 12 months after the year of assessment
- not for property letting
- unrelieved loss is carried forward
(5) Carry forward relief: only against profit of the same source; no approval; individuals and companies. (5)
Show the model answer to Question 12
The relief cannot exceed the actual loss; (2) losses are not aggregated with other sources; (2) the earlier loss is relieved first; (2) a terminal loss is lost and there is no carry back; (2) loss relief precedes capital allowances. (2)
Show the model answer to Question 13
2024: profit ₦200,000 less loss ₦200,000 = nil; loss c/f ₦400,000. (2) 2025: profit ₦500,000 less ₦400,000 = ₦100,000 assessable; loss c/f nil. (3)
Pathfinder on Loss relief for businesses: carry forward, current year and the rules for companies
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
Revise first: The rules for companies
Revise first: What a loss is
Source: ICAN Pathfinder, Taxation. Diets covered: May 2026 and November 2025.
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