Income Tax Act 2007 section 68

Reasonable expectation of profit

Section 68 sets out the "reasonable expectation of profit" test which, if met, prevents sideways loss relief for farming or market gardening from being restricted under section 67.

• The test is judged by reference to what a competent farmer or market gardener would reasonably expect, not by what the actual taxpayer believed.
• The test is met where a competent person carrying on the activities in the current tax year would reasonably expect future profits, but could not have expected profitability to arrive before the end of the current tax year when viewed from the start of the prior period of loss.
• Whether future profits are reasonably expected is assessed by looking at the nature of all the activities and the way they were carried on in the current tax year.
• The prior period of loss is normally the five tax years before the current year, but extends further back if trade losses (ignoring capital allowances) were also made in successive tax years immediately before those five years.