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Dear Sir,
I have a question regarding International Investment Appraisal questions. What happens when instead of making a profit you make a loss in first year, would you deduct the capital allowance (CA) and make a bigger loss to set off against future profits, or you carry forward the CA and set both CA and loss off against future profits? I’m a bit confused. Any help would be greatly appreciated.
Thanks!
Regards,
MaisamIf it is one extra investment by a company already paying tax (on other projects) then a loss from one project does not mean an overall loss to the company – it means their total profit will fall so they will save tax. In this case, a los simply results in a tax saving (in the same way that a profit results in a tax payment).
If, however, it is one new project in another country (which is what you are referring to) then tax is payable in the other country and there are no existing profits for the loss on the project to reduce. So in that case, if there is a loss then there is no tax payable in that year, but the loss is carried forward to reduce the taxable profit (and therefore the tax payable) in the following year.
Dear Sir,
Thanks for your answer. But, if, for example, you have made a loss in first year (International Investment Appraisal) even before deducting capital allowances, what would happen in that case? Would we still deduct capital allowance from loss and make a bigger loss to set it off against future profits or do we loose the capital allowance for the first year?
Thanks!
Yes – capital allowances increase the taxable loss and the total loss is then carried forward.
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