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Claiming a Net Operating Loss


Example, for Canadians:
Non Capital Losses:

What does a Non Captial Loss mean? What's the difference between a capital loss and a non capital loss?

A non-capital loss for a taxation year includes losses incurred from employment, property, a business (i.e. sole proprietor, farming income, fishing income, professional income). If you have a loss from the current year, you can apply it to other income for the current year. For example, if you have a small business (sole proprietorship) on the side AND you are also employed at XYZ store which you receive a paycheck from, you can deduct your sole proprietor loss from the employment income you receive from XYZ Store.

If you do not have other income in the current year to apply the loss against, you can carry the loss forward (or back) to another year. How do you do this? Just file your tax form like normal, showing hte negative amount (and zero in the appropriate spots), and you should receive back in your assessment, a note saying how much loss you can carry forward or back to other years.

You can carry a non-capital loss back three years and forward seven years in Canada (however this number may be increased at current date, check with your country for details).

The unapplied losses arising from a business investment loss becomes a net capital loss in the eighth year (again, check with your country for specifics).

In Canada, you can now carry non-capital losses from taxation years ending after year 2004, back 3 years and forward 10 years. Any unapplied non-capital loss will become a net capital loss in the eleventh year.


If you are going to be applying a loss from a previous year:

Losses that you can claim, are usually shown on your Notice of Assessment or Notice of Reassessment for previous years you have filed. If you haven't filed your previous year yet, then it would be wise to file it first, and wait until you get the assessment back. This way, you are more sure what you are doing will be accepted - for example if you don't have an assessment yet for a previous year, and you are filing a bunch of years at once (catching up) you don't know for sure if the net loss you have for one year is correct. Maybe the assessment on a year will have some minor adjustments, so you would want to have your assessment on hand before filing another year.

A notice of assessment is just the statement you receive back from the tax center saying that they have receive and processed your tax forms. (i.e. if they didn't process a year of tax yet, then you couldn't have an assessment yet).


Also known as: net loss, net income loss, business loss, business losses, sole proprietor loss, sole proprietership loss, negative income, claiming a loss, claiming negative income, apply a loss, apply a negative, apply losses from previous years, apply loss, net operating losses.

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