How does terminal trade loss relief work under Income Tax Act 2007 section 91?

Section 91 prescribes a strict four-step sequence. The relievable loss is first deducted from trade profits of the final tax year, then carried back through each of the three preceding tax years in turn. Only the unrelieved portion carries forward to the next step, and deductions are capped by section 25(4) and (5).

What is the order of deduction for a terminal loss under section 91?

You begin with the final tax year in which the trade ceases, deducting as much of the relievable loss as possible. Any remaining loss is then set against the immediately preceding tax year's trade profits, then the year before that, and finally the year before that — giving a maximum three-year carry-back.

Are there limits on the amount that can be deducted at each step under section 91?

Yes. Section 25(4) and (5) cap the deduction at each step so that it cannot exceed the net income for the year in question at the relevant step of the income tax calculation. This prevents the terminal loss relief from creating or increasing a loss at any given step in the process.

What happens if the terminal loss is not fully relieved after all four steps?

If any loss remains unrelieved after all four steps, the outstanding balance may be applied under any other form of relief available in the same chapter of the Act, provided that relief's own conditions are satisfied. This gives taxpayers a degree of flexibility to utilise the remaining terminal loss.

Income Tax Act 2007 section 91

How relief works

Section 91 sets out the mechanics of how terminal trade loss relief is given, by specifying the order in which a relievable loss is deducted from trade profits across up to four tax years.

The relievable loss is first deducted from the trade profits of the final tax year, then carried back through each of the three preceding tax years in turn
At each step, only the portion of the loss not already relieved at earlier steps is available for deduction
The amount that can be deducted at any step is subject to the caps set out in section 25(4) and (5)
Any loss still unrelieved after all four steps may be used under any other available relief within the same chapter, provided that relief's own conditions are met

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