ACCA Advanced Taxation (ATX) Practice Exam

If an asset has already had relief for its fall in value through capital allowances, what is true regarding capital loss?

1. Capital loss can be claimed

2. Capital loss is partially allowable

3. Capital loss is not allowable

4. Capital loss can be carried forward

The correct answer is: Capital loss is not allowable

When an asset has already received relief for its fall in value through capital allowances, any further claim for a capital loss related to that asset is not allowable. This is primarily because capital allowances effectively represent a tax deduction that compensates for the depreciation of an asset, rendering a separate claim for capital loss redundant. The rationale behind this principle is that capital allowances are designed to provide tax relief for the decline in value of an asset over its useful life; thus, if relief has already been granted through capital allowances, the tax implications of the asset's sale or disposal are already accounted for. Therefore, any subsequent claim for capital loss, which would typically arise from the disposal of an asset at a price lower than its initial acquisition cost, is precluded since relief has previously been recognized. In contrast, the other options suggest various degrees of allowance or conditions that contradict this principle, leaning on the idea of tax relief for losses. However, once capital allowances are applied, the tax treatment aligns with the non-allowance of further capital losses for the same asset.