Loss
relief has to do with a situation where a company incurs loss and it is
therefore unable to pay company income tax. When this happens, the company is
allowed, for the purpose of income tax, to carry forward the losses and use
them against future profits. This is true because a company that reports loss
can carry forward the loss for relief against future profit as per the tax laws.
The reporting entity is not however allowed to relieve losses
above the actual amount of losses suffered since the rule of loss relief is
that the loss for relief shall be limited to the actual loss. Any excess
thereof shall be forfeited.
In the year of loss, there is no tax liability on the
reporting entity under the company income tax arrangement.
Note that during computation, if the entity has an adjusted
profit before arriving at the loss for the year, then the entity will be liable
for payment of 2% of that adjusted profit as Education Tax. Assuming a
reporting entity reports loss of =N=2.5m whereas depreciation and other
disallowed expenses amounting to =N=3.1m were charged in the account before
arriving at the reported loss of =N=2.5m. When the disallowed expenses of
=N=3.1m is adjusted against the loss, we will have an adjusted profit of
=N=0.6m (that is six hundred thousand naira).
The Education Tax payable will be 2% of =N=600,000 which is
=N=12,000
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