Small Business -> Non-Capital Loss
Income Tax Act s. 111(1), (5), (8)
A non-capital loss includes unused losses from office, employment, business or property, and unused allowable business investment losses (ABIL). If the amount you calculate for line 23600 (line 236 prior to 2019) would be negative if not for the rule that it is zero if negative, then you may have a non-capital loss.
Non-capital losses can be (but don't have to be) carried back 3 years, or carried forward 7, 10 or 20 years, to offset all or part of the taxable income from any of those years.
To request a carry-back of non-capital losses to any or all of the previous 3 taxation years, a T1A Request for Loss Carry Back must be completed to calculate the amount of the loss carried back. This form is part of tax preparation software, so can be done at the same time as your tax return.
Non-capital loss of prior years are claimed on line 25200 (line 252 prior to 2019) of the tax return.
The carry-forward periods are:
Note that the extension of the carry-forward period to 20 years does not apply to unused allowable business investment losses (ABIL), which can only be carried forward 10 years.
Non-capital losses unused after the carry-forward period expire, and are simply lost. Any unused ABIL after the carry-forward period becomes a net capital loss, which can be carried forward indefinitely to be offset against capital gains.
Where there has been a change in control of a business, s. 111(5) of the Income Tax Act restricts the use of the non-capital losses carried forward. If the buyer continues to operate the same business, then the losses carried forward may be deductible from the profits of that business. It's possible the losses may also be deductible if the buyer carries on a very similar business, but often this ends up being a decision made in court.
Retroactive Adjustment of Capital Cost Allowance Claims
A 2020 Tax Court case denied the appellant the ability to retroactively reduce capital cost allowance claims. See:
December 2020 Life in the Tax Lane re retroactive CCA adjustments
St. Benedict Catholic Secondary School Trust v. The Queen 2020 TCC 109 - re attempt to retroactively reduce CCA in order to reduce non-capital losses carried forward.
If you have non-capital losses that are going to expire:
- Businesses: You could reduce or eliminate your capital cost allowance (CCA) claimed in the current year.
- Individuals: If you have RRSPs or RRIFs, a withdrawal can create income to offset the non-capital loss.
Canada Revenue Agency (CRA) Resources
Revised: January 24, 2022
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