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IAI Actuarial Core Principles · Business Finance · Personal and corporate taxation

A company made a trading loss this year and expects profits next year. Under the general approach to trading losses, what is the most likely treatment?

A trading loss can generally be carried forward and set against later taxable profits, so the company pays less tax when it becomes profitable. It is not forfeited, penalised, or linked to dividends or tax rates.

  1. AThe loss can be carried forward and set against future taxable profits, reducing later taxCorrect
  2. BThe loss is lost permanently and gives no tax relief
  3. CThe loss must be paid back to the government as a penalty
  4. DThe loss is added to dividends payable
  5. The loss increases the next year's tax rate

Explanation

Tax systems typically allow trading losses to be carried forward against future profits of the business, reducing tax then. They are not forfeited, and no penalty or rate change applies.

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