Loss relief and the companies income tax computation

This is the lesson that ties area D together. Lesson 02 turned accounting profit into assessable profit and lesson 03 computed capital allowances; here you relieve losses, put every piece into one computation and arrive at the tax the company must pay. The full computation is the heart of Section A's compulsory question whenever it is set on a company, and ICAN's examiners say the same things after every diet: candidates start from gross profit, omit the year of assessment, deduct items in the wrong order and leave figures unexplained. The layout below avoids all four. The losses rules are short, because the NTA simplified them, but they interact with capital allowances in a way you must get right.

Types of loss relief

A company's loss is its adjusted loss: profit before tax adjusted exactly as in lesson 02, giving a negative result. The NTA gives a company one main relief and several special rules:

There is no carry-back of a company's loss and no relief against another company's profits: the Act provides for neither. Older texts mention time limits on carrying losses forward for some kinds of company; under the NTA there is none.

The principles of loss relief

NTA s. 27(6) sets four conditions:

1. No more than the loss. The total deducted over all years can never exceed the loss itself (s. 27(6)(a)).
2. Same trade or business. A loss can only be deducted from the profits of the trade or business in which it was incurred (s. 27(6)(b)). A company with two separate businesses keeps two loss records.
3. First available year, then onwards. The loss is deducted, as far as possible, from the assessable profits of the first year of assessment after the loss year, and then the following years until it is fully recouped (s. 27(6)(c)). It is not optional: you cannot skip a year to save the loss for later.
4. Computed on the basis periods. The loss for a year of assessment is computed on the basis period rules in NTA ss. 22 to 25 (s. 27(6)(d)).

Two further rules come from the First Schedule:

• Losses come before capital allowances. The allowance is deducted from the remainder of the assessable profits after the loss has been deducted in full (First Schedule para 22(1), (2)).
• Capital allowances are kept separate. They never create or increase a loss. An allowance that cannot be absorbed is carried forward on its own, without time limit (para 22(3)).

Losses on commencement, change of date and cessation

Because losses are computed on the basis periods (s. 27(6)(d)), the timing rules in lesson 02 decide which year of assessment a loss belongs to:

• Commencement. A loss made in the first basis period, from the commencement date to the end of the first accounting period (s. 22(2)), is the loss of the first year of assessment and is carried forward from there. Expenses incurred up to six years before commencement are treated as incurred on the first day (s. 20(1)(j)), so they often create or enlarge that first loss.
• Change of accounting date. A loss made in the transitional basis period under s. 23(1) is the loss of that year of assessment; there is no gap or overlap, so it is relieved only once.
• Cessation. The loss of the final period, from the start of the accounting period to cessation (s. 24(1)), cannot be carried back, and there are no later profits of that trade to absorb it. Any unrelieved loss is lost, unless the business is merged into another under s. 189(1)(a).

The full computation

Learn this layout and use it every time:

The levy is shown below the companies income tax because it is a separate charge on assessable profits, before losses and capital allowances. Companies income tax itself is not deductible (NTA s. 21(e)); for the same reason, add back the levy if a question has charged it above profit before tax. For a company with turnover of ₦50,000,000,000 or more, or in a large multinational group, you then test the minimum effective tax rate (lesson 05).

Worked example

Example 1: the full computation. Calabar Foods Plc, a Nigerian company with turnover of ₦6,800,000,000, is not part of a multinational group. Its profit before tax for the year to 31 December 2027 was ₦412,500,000 after charging and crediting:

• depreciation ₦96,000,000 and impairment of its investment in a subsidiary ₦12,000,000;
• donations: ₦9,000,000 to a state university, ₦4,000,000 to a flood relief fund set up by a State Government and ₦1,500,000 to a social club;
• a penalty for late remittance of VAT ₦2,250,000;
• a provision of ₦5,000,000 for a legal claim that may arise next year;
• ₦18,000,000 spent on a new cold room, charged to repairs;
• profit of ₦6,000,000 on selling a machine for ₦20,000,000 (its residue for capital allowance purposes was ₦16,000,000);
• dividends received from Nigerian companies, net of tax at source, ₦18,000,000;
• interest on State Government bonds ₦9,500,000.

Losses brought forward from the same trade are ₦85,000,000. Capital allowances on assets other than the cold room are ₦138,400,000. Tax of ₦7,800,000 was deducted at source from the company's taxable income.

Calabar Foods Plc: computation of companies income tax and development levy, 2028 year of assessment (basis period: year ended 31 December 2027)

W1: Donations. The university (s. 163(3)(c)) and the State flood relief fund (s. 163(3)(a), (e)) qualify: ₦13,000,000, well within the cap of 10% × ₦412,500,000 = ₦41,250,000 (s. 163(5)). The social club does not qualify.

W2: Chargeable gain. Proceeds ₦20,000,000 − residue ₦16,000,000 = ₦4,000,000 (NTA s. 39(a)).

W3: Capital allowances. ₦138,400,000 + cold room (plant, class 2) ₦18,000,000 × 20% = ₦3,600,000, total ₦142,000,000. Non-taxable income (₦18,000,000 + ₦9,500,000 = ₦27,500,000) is far below 10% of total income, so there is no proration (NTA s. 27(4)).

W4: Development levy. The levy is on assessable profits, before losses and allowances (NTA s. 59(1)). NTA s. 27(1) counts chargeable gains as part of a company's total assessable profits, so the gain is included: ₦517,750,000 × 4% = ₦20,710,000. If a question excludes gains from the levy base, follow it.

Turnover is below ₦50,000,000,000, so the minimum effective tax rate does not apply (NTA s. 57(2)). The return and payment are due by 30 June 2028 (NTAA ss. 11(5)(a), 49(1)).

Example 2: losses and capital allowances over four years. Jos Pharma Ltd (not a small company) has the following adjusted results and capital allowances. There are no chargeable gains.

In 2028 the loss absorbs the whole assessable profit, so the allowances are carried forward (para 22(3)). In 2029 the rest of the loss goes first, then ₦34,000,000 of allowances from a remainder of ₦35,000,000. Notice that the levy is payable in 2028 even though no companies income tax is: the levy ignores losses and allowances.

Common mistakes

• Deducting capital allowances before losses, or adding unused allowances to the loss.
• Restricting the loss to part of the year's profit, or skipping a year. The loss must be set off as far as possible in the first available year (s. 27(6)(c)).
• Setting a loss of one trade against the profit of another, or a digital asset loss against trading profit.
• Carrying a loss back, or across to another company. The NTA provides neither, except on a merger.
• Charging the development levy on total profits instead of assessable profits.
• Leaving the accounting profit on the machine in the computation and forgetting the chargeable gain.

Exam technique

Head every answer with the company's name, the tax and the year of assessment, and state the basis period: ICAN's examiners deduct for a missing year of assessment. Follow the layout line for line, write the section beside each adjustment, and put every computed figure in a numbered working underneath. Where the question asks you to "explain", add a sentence for each treatment rather than a bare number. If the paper provides rates, use them; if it does not, use 30% and 4% and cite NTA ss. 56 and 59.

Study with AI

I am studying ICAN Taxation (B3) under the Nigeria Tax Act 2025. Set me a Section A
style question on a Nigerian company: profit before tax with eight adjustments, a
disposal of an asset with its residue, losses brought forward and capital
allowances. Ask for the companies income tax payable and the development levy.
Wait for my full computation, then mark it line by line and check the order of
losses and capital allowances under NTA s. 27 and First Schedule para 22.

AI assistants can be wrong and may use the repealed Companies Income Tax Act's rules on losses: check every answer against these notes and the Act.

Lecturer's note: Picture the computation as a funnel with three gates. Gate one turns accounting profit into assessable profit, and the development levy is taken there. Gate two takes out losses, which have first claim. Gate three takes out capital allowances from whatever is left, and anything that does not fit waits for next year. Total profits come out of the bottom, and only then is the 30% applied.

Key points

• A company's loss is carried forward against the assessable profits of the same trade in the following years until used, with no time limit and no carry-back (NTA s. 27(6)).
• Losses are deducted before capital allowances; unabsorbed allowances are carried forward separately (First Schedule para 22).
• On a merger, losses pass to the surviving business; on a sale that ends the business, they do not (NTA s. 189).
• Digital asset losses and insurance class losses are ring-fenced (NTA ss. 27(7), 61(8)).
• Total profits are taxed at 30% (NTA s. 56(b)); the 4% development levy is charged on assessable profits before losses and allowances (NTA s. 59(1)).

Quick check

1. Warri Plastics Ltd has a loss brought forward of ₦30,000,000 and, for the next year of assessment, an assessable profit of ₦45,000,000 and capital allowances of ₦20,000,000. What are its total profits and its capital allowances carried forward?
2. A company runs a trading business and a separate digital asset business. The digital asset business made a loss of ₦8,000,000 and the trading business a profit of ₦50,000,000. Can the loss reduce the trading profit?
3. Akure Foods Ltd has assessable profits of ₦60,000,000, losses brought forward of ₦60,000,000 and capital allowances of ₦5,000,000. What companies income tax and development levy are payable?

Answers

1. ₦45,000,000 − ₦30,000,000 = ₦15,000,000 remainder; ₦15,000,000 of the allowances is used, so total profits are nil and ₦5,000,000 of allowances is carried forward (First Schedule para 22(3)).
2. No. A digital asset loss is deductible only from profits of the digital or virtual asset business (NTA s. 27(7)), so it is carried forward against that business.
3. The loss absorbs all ₦60,000,000, so total profits are nil and no companies income tax is payable; the ₦5,000,000 allowances are carried forward. The levy is 4% × ₦60,000,000 = ₦2,400,000 (NTA s. 59(1)).