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Losses can be suffered in a trade for a variety of reasons, for example, as a result of theft, fire or bank failures. No sum can be deducted in respect of any loss which is not connected with or does not arise out of the trade¹.

A loss that is incurred in a transaction entered into for the purpose of earning the profits of the trade is a permissible deduction. Any deduction in respect of a loss should normally be allowed in arriving at the profits of the period in which the loss is incurred or its amount determined. The question whether in any particular case the loss arose out of or in connection with the trade is a question of fact².

In Laver³ persons concerned in property transactions financed a company to carry out a film manufacturing venture, pledging ground rents for this purpose. The venture failed, a loss was incurred, and the ground rents were sold. They were held to be carrying on a trade, but the loss was not