Non-Capital Losses: How to Carry Forward or Carry Back to Offset Your Taxable Income

Understanding Non-Capital Losses

A non-capital loss from prior years occurs when a business's allowable deductions exceed its income for a particular year. Unlike capital losses, non-capital losses can offset other types of income, such as employment, business, or investment income.

Key Points

Carry-Forward: Non-capital losses can typically be carried forward up to 20 years to offset future taxable income.

Carry-Back: These losses can also be carried back up to 3 years to recover taxes previously paid.

Non-Capital Losses: Can include business losses, employment expenses, or rental property losses.

Example

Sarah runs a small business, and her income statement looks like this:

Revenue from her business: $100,000

Expenses (including wages, rent, supplies, etc.): $150,000

In this case, her net loss for the year would be:

Non-Capital Loss = Revenue - Expenses

Non-Capital Loss = $100,000 - $150,000 = $50,000

This $50,000 loss can be classified as a non-capital loss because it arises from business operations, not from the sale of investments or other capital assets.

How Sarah Can Use the Non-Capital Loss

Sarah can:

Carry forward the $50,000 non-capital loss to offset any taxable income she earns in the next 20 years.

Carry back the $50,000 loss up to 3 years to offset income she reported in those years and potentially get a refund of taxes already paid.