ACCA Advanced Taxation (ATX) Practice Exam

How can property losses be dealt with for companies?

1. Set against capital gains only

2. Set against current year total profits

3. Only carried forward

4. Losses cannot be claimed

The correct answer is: Set against current year total profits

Setting property losses against current year total profits is a viable option for companies as it allows them to use the losses incurred from property investments or disposals to offset against their overall taxable income for that financial year. This mechanism is beneficial because it helps reduce the taxable profits and, consequently, the tax liability for that company. In most jurisdictions, companies can utilize their losses in a way that provides immediate tax relief, which promotes financial stability and can potentially improve cash flow. This approach is designed to ensure that companies are not solely penalized for losses arising from property transactions, which might be part of wider operational strategies. Using losses solely against capital gains or restricting them to being carried forward to future years would limit a company’s ability to manage its tax liability effectively in the current year. Additionally, the notion that losses cannot be claimed contradicts the principles of tax relief intended to support businesses facing difficulties. Therefore, allowing property losses to offset current total profits is the most accommodating and practical approach in tax legislation for companies.