ACCA Advanced Taxation (ATX) Practice Exam

Can capital losses be carried back for both companies and individuals?

1. Yes, they can always be carried back

2. No, not for companies

3. Yes, but only for a year

4. No, they cannot be offset against other income

The correct answer is: No, they cannot be offset against other income

Capital losses can generally only be offset against capital gains and cannot be used to offset other income for both individuals and companies. This principle is essential in taxation as it maintains the integrity of capital gains taxation by preventing taxpayers from utilizing capital losses to reduce their overall tax liability on other income streams, such as salary or business profits. While it is true that certain types of losses can sometimes be carried back to offset profits from previous periods, capital losses typically do not have this option for individuals or companies. Instead, these losses are often carried forward to future years to be offset against future capital gains, ensuring that the distinction between different types of incomes remains intact within tax legislation. Understanding this ensures compliance with tax regulations and helps in effective tax planning for both businesses and individual taxpayers.