Finance Act 1954

18 Right to carry back loss sustained in last year of business

(1) Where a trade, profession or vocation is permanently discontinued, and any person then carrying it on, either solely or in partnership, has sustained therein a loss to which this section applies (hereinafter referred to as a " terminal loss"), then subject to the provisions of this section he may claim that the amount of the terminal loss shall, as far as may be, be deducted from or set off against the amount of profits or gains on which he has been charged to tax under Schedule D in respect of the trade, profession or vocation for the three years of assessment last preceding that in which the discontinuance occurs, and there shall be made all such reductions of assessments or repayments of tax as may be necessary to give effect to the claim:

Provided that relief shall not be given in respect of the same matter both under this section and under some other provision of the Income Tax Acts.

(2) Any relief under this section shall be given as far as possible from the assessment for a later rather than for an earlier year.

(3) Where a claim is made under this section in respect of a terminal loss sustained in a trade, and relief cannot be given, or cannot be wholly given, against the profits or gains of the trade charged to tax under Schedule D for any year because the amount of those profits or gains is insufficient, then any interest or dividends on investments arising in that year, being interest or dividends which would fall to be taken into account as trading receipts in computing the profits or gains of the trade for the purpose of assessment under Case I of Schedule D but for the fact that they have been subjected to tax under other provisions of the Income Tax Acts, shall be treated for the purposes of the application of this section as if they were profits or gains on which the person carrying on the trade was assessed under the said Case I in respect of that trade for that year of assessment, and relief shall be given accordingly by repayment or otherwise.

(4) The profits or gains on which a person or partnership has been charged to tax for any year of assessment shall be treated, for the purposes of any relief under this section from the assessment for that year, as reduced by the amount of those profits or gains applied in making any payment, where tax was deducted from the payment and was not accounted for because the payment was made out of profits or gains brought into charge, and in the case of a body of persons by the amount of those profits or gains applied in payment of dividends; and where those profits or gains are so treated as reduced by an amount applied in making any payment other than a payment of dividends, then the like reduction shall be made in the amount of the terminal loss for which relief may be given under this section from the assessments for earlier years, unless the payment was one which, if not made out of profits or gains brought into charge, could have been assessed to tax under section one hundred and seventy of the Income Tax Act, 1952, and, if so assessed, could have been treated as a loss by virtue of section three hundred and forty-five of that Act.

(5) The question whether a person has sustained any, and if so what, terminal loss in a trade, profession or vocation shall for the purposes of this section be determined by taking the amounts, if any, of the following (in so far as they have not been otherwise taken into account so as to reduce or relieve any charge to tax), that is to say—

(a) the loss sustained by him in the trade, profession or vocation in the year of assessment in which it is permanently discontinued;

(b) the relevant capital allowances for that year of assessment;

(c) the loss sustained by him in the trade, profession or vocation in the part of the preceding year of assessment beginning twelve months before the date of the discontinuance;

(d) the same fraction of the relevant capital allowances for that preceding year of assessment as the part beginning as aforesaid is of a year.

(6) In the last foregoing subsection " the relevant capital allowances " means, in relation to any year of assessment, any allowances falling to be made in charging the profits or gains of the trade, profession or vocation for that year under Parts X and XI of the Income Tax Act, 1952, excluding amounts carried forward from an earlier year, and for the purposes of paragraphs (a) and (c) of that subsection the amount of a loss shall, subject to the provisions of this section, be computed in like manner as profits or gains under the provisions of the Income Tax Acts applicable to Cases I and II of Schedule D.

(7) Where a person claiming relief under this section on a discontinuance has, since the beginning of the third year of assessment preceding that in which the discontinuance occurs, carried on the trade, profession or vocation in partnership,—

(a) " the amount of profits or gains on which he has been charged to tax " shall be taken to mean, in respect of any year or part of a year for which the partnership was assessed in respect of the trade, profession or vocation, such portion of the amount of the profits or gains on which the partnership has been, or is treated by virtue of subsection (4) of this section as having been, charged to tax in respect of it for that year or part of a year as would be required by the Income Tax Acts to be included in a return of his total income for that year; and

(b) any reduction in the amount of his terminal loss which falls to be made under the said subsection (4) by reason of profits or gains having been applied by the partnership in any such year or part of a year in making any payment shall be limited to the same proportion of the profits or gains brought into charge which were so applied; and

(c) if he was carrying on the trade, profession or vocation in partnership immediately before the discontinuance, the amounts to be included in his terminal loss by virtue of paragraph (b) or (d) of subsection (5) of this section shall be such part only of the amounts therein mentioned (in so far as they have not been otherwise taken into account so as to reduce or relieve any charge to tax) as would fall to his share on a division made according to the shares in which the partners were then entitled to the profits of the trade, profession or vocation.

(8) For all the purposes of this section a trade, profession or vocation shall be treated as permanently discontinued, and a new trade, profession or vocation as set up and commenced, when it is so treated for the purposes of section nineteen of the Finance Act, 1953; but—

(a) a person who continues to be engaged in carrying it on immediately after such a discontinuance shall not be entitled to relief in respect of any terminal loss on that discontinuance; and

(b) on any discontinuance, a person not continuing to be so engaged may be given relief in respect of a terminal loss against profits or gains on which he was charged in respect of the same trade, profession or vocation for a period before a previous discontinuance, if he has been continuously engaged in carrying it on between the two discontinuances, and, in his case, if the previous discontinuance occurred within twelve months before the other.—

(i) it shall be disregarded for the purposes of paragraphs (a) and (c) of subsection (5) of this section, except that those paragraphs shall be taken to include any amount on which relief could have been allowed to him as for a loss sustained before the previous discontinuance by virtue of paragraph (c) of subsection (2) of the said section nineteen, so far as it is referable to a period within those twelve months; and

(ii) paragraph (d) of the said subsection (5) shall be taken to include the whole amount of the allowances in question, instead of the fraction there mentioned.

(9) A claim for relief under this section may require that, in so far as they have not been otherwise taken into account so as to reduce or relieve any charge to tax, allowances under Part X of the Income Tax Act, 1952, in respect of the trade, profession or vocation, being allowances which fall to be made to the claimant by way of discharge or repayment of tax and to be so made for the year of assessment in which the discontinuance occurs or the preceding year of assessment, shall be added to the terminal loss sustained by him (or, if he has not sustained a terminal loss computed in accordance with the foregoing subsections, shall be treated as a terminal loss so sustained), and the allowances to be taken into account for this purpose may include allowances arising before a previous discontinuance:

Provided that—

(a) there shall be taken into account such fraction only of the allowances for the said preceding year of assessment as the part of that year beginning twelve months before the discontinuance giving rise to the claim is of a year; and

(b) the allowances for any year shall not be treated as including any amounts carried forward from an earlier year.

(10) The Fourth Schedule to this Act shall have effect to adapt and apply to the purposes of this section the provisions of the Income Tax Acts referred to in the Schedule.

(11) Where a person occupying woodlands has elected to be charged to tax in respect thereof under Schedule D, this section shall apply to a terminal loss sustained by him in the occupation thereof as it applies to a terminal loss sustained in a trade.

(12) This section shall apply where a trade, profession or vocation is permanently discontinued in the year 1954-55 or any subsequent year of assessment, and where relief falls to be given for the year 1951-52 shall apply with the necessary adaptations of references to the Income Tax Act, 1952.