Non-capital and net capital losses
Your losses from income sources can offset your positive income from such sources. However, they cannot bring your income below nil. For example, if you have $50,000 of employment income this year and a $60,000 loss from a business, your net income will be zero. The excess $10,000 loss amount becomes a “non-capital loss”.
Non-capital losses can be carried back 3 years and forward up to 20 years to offset all sources of income in any of those years (for losses incurred before 2006, the carryforward period was either 10 or 7 years). If you are carrying losses back to a previous year, you can use CRA Form T1A to effectively amend an earlier year’s return to account for the loss.
Similarly, allowable capital losses (one-half of capital losses) can offset taxable capital gains (half of capital gains), but only to bring the amount to zero. Excess allowable capital losses become “net capital losses”, which can be carried back 3 years or forward indefinitely to offset taxable capital gains in any of those years.
Allowable business investment losses
An allowable business loss (ABIL) is one-half of a capital loss incurred on the disposition of shares or debt in certain types of small business corporations (see our February 2016 Tax Letter for details).
An ABIL, unlike regular allowable capital losses, can be deducted against all sources of income and not just taxable capital gains. An unused ABIL can be carried forward up to ten years to offset all sources of income in those years.
However, after the tenth-carryforward year, any unused ABIL becomes a regular allowable capital loss. From that point onward, it can only offset taxable capital gains and not other sources of income.
Personal-use property
Normally, losses from the disposition of personaluse property are denied for income tax purposes. However, losses from listed personal property (“LPP”) can be used to offset gains from LPP. LPP includes artwork, rare books and manuscripts, stamps, coins, and jewelry. (See the July 2016 Tax Letter for details.)
If LPP losses in a year exceed the LPP gains in a year, the excess losses can be carried back three years or forward seven years to offset gains from LPP in any of those years. If a net gain remains, one-half of the gain is included in income as a taxable capital gain.
Restricted farm losses
If you are a full-time farmer carrying on a farming business, any losses from the farming business for a taxation year can offset your other positive sources of income for the year, if any. For these purposes, you will be considered a full-time farmer if your chief source of income is from your farming business.
If the farming business is not your chief source of income, the deductible amount of your farm business loss is limited to $2,500 plus ½ of the next $30,000 of the loss, for a maximum loss of $17,500. The excess loss for the year, if any, is a “restricted farm loss”. It can be carried back 3 years or forward 20 years (for losses incurred before 2006, the carryforward period was 10 years). However, it can only offset farming income in those years, and not other sources of income.