What is a loss in the eyes of the Canadian Revenue Agency?

"...(CRA) defines several types of losses that can be used to offset income. Here is a thumbnail sketch of three of the most common."

As tax season approaches it’s wise to understand legitimate losses and how to claim them.  Canada Revenue Agency (CRA) defines several types of losses that can be used to offset income.  Here is a thumbnail sketch of three of the most common.

Did you operate a proprietorship in 2012?  Suffer a business loss at the end day? It’s not the most pleasant feeling to not have made money, but there is a silver lining.

A “non-capital loss” occurs when a business loss exceeds income from all sources for that year.  So after expenses, excluding any wages paid to the proprietor, the loss can be carried back up to 3 years to off-set profits from those years and recover taxes paid at that time, or if there are no past profits, CRA permits a carry-forward for 20 years.

This also holds true for rental property companies and farming operations, although there are restricted farm losses for hobby farmers.

Tip:  If there are past profits, apply the loss to the oldest year first so that its applicability is not lost the following year if again a business loss occurs.

Then there are “allowable business investment losses” (ABIL). This loss occurs with non-recoverable debt or loss on shares of qualified small business corporations.  In other words, you invested in a corporation by way of loans or equity purchase and now the loan or a portion of it is deemed uncollectible, or the shares are valued at nil or sold at diminished value.

Tip: The ABIL can be used to offset any form of income and can be carried back 3 years or forward 10.  If carried forward and not used in the 10 year period, the ABIL is then treated as a capital loss (described next) and consequently is available indefinitely as a carry-forward.

Losses can also occur from the disposal of capital assets such as stocks and recreational property.  This is a “capital loss”.  However, before a true loss exists, all capital gains in 2012 from the disposal of assets have to be netted against all capital losses.  If the number is negative then there is a net capital loss.  And to be accurate, because CRA generously only requires 50 per cent of a capital gain to be reported as income, then only 50 per cent of a capital loss is applicable.

A little known fact is that capital losses can also occur on personal use property such as artwork, jewellery, sports cards, coins and the like if, and only if, there has been a declaration made with CRA listing the valuables with the current market value.

This may sound like some sort of hedge against the value dropping in your “soon-to-be-extinct penny collection” and therefore the creation of a convenient capital loss.  Just remember, once registered, if there ever is a capital gain upon the sale of a prized possession, this gain has to be reported.

Tip:  A capital loss cannot be used to off-set other income (except in the year of death). If there are no capital gains in 2012, then the capital loss can be carried back 3 years or forward indefinitely.  Remember to use the oldest year first and move forward in time from there.

This discussion doesn’t pretend to cover all the permutations associated with losses. See a professional regarding your situation.

Email Ron Clarke at ron.clarke@JBSbiz.ca

Just Posted

Protestors blocking Columbia Avenue Saturday evening. Photo: Betsy Kline
Old growth protesters begin 24-hour blockade of Castlegar’s main street

Members of Extinction Rebellion plan to stay overnight

Forty sled dogs were seized by the BC SPCA from a Salmo kennel in February. A recent ruling has decided the dogs won’t be returned. Photo: Gounsil/Flickr
BC Farm Industry Review Board rules against Salmo kennel after 40 sled dogs seized

Spirit of the North Kennels was also ordered to pay BC SPCA $64,000

Residents line up outside the Vernon Recreation Complex for their COVID-19 vaccine Saturday, June 5. (Jennifer Smith - Morning Star)
No appointments necessary for first dose COVID-19 vaccine: Interior Health

People can just show up at clinics, register on the spot and get the shot

SD20 now has an electric bus. Photo: Submitted
Kootenay-Columbia School District 20 adds electric bus to fleet

Bus will be incorporated into Castlegar route for next school year

Painting by Dave Davies from Shaver’s Bench facing Teck Trail.
Happy 120th Birthday to the City of Trail!

The town of Trail Creek- or Trail Creek Landing - was incorporated as a city on June 14, 1901.

At an outdoor drive-in convocation ceremony, Mount Royal University bestows an honorary Doctor of Laws on Blackfoot Elder and residential school survivor Clarence Wolfleg in Calgary on Tuesday, June 8, 2021. THE CANADIAN PRESS/Jeff McIntosh
‘You didn’t get the best of me’: Residential school survivor gets honorary doctorate

Clarence Wolfleg receives honorary doctorate from Mount Royal University, the highest honour the school gives out

Two-year-old Ivy McLeod laughs while playing with Lucky the puppy outside their Chilliwack home on Thursday, June 10, 2021. (Jenna Hauck/ Chilliwack Progress)
VIDEO: B.C. family finds ‘perfect’ puppy with limb difference for 2-year-old Ivy

Ivy has special bond with Lucky the puppy who was also born with limb difference

A million-dollar ticket was sold to an individual in Vernon from the Lotto Max draw Friday, June 11, 2021. (Photo courtesy of BCLC)
Lottery ticket worth $1 million sold in Vernon

One lucky individual holds one of 20 tickets worth $1 million from Friday’s Lotto Max draw

“65 years, I’ve carried the stories in my mind and live it every day,” says Jack Kruger. (Athena Bonneau)
‘Maybe this time they will listen’: Survivor shares stories from B.C. residential school

Jack Kruger, living in Syilx territory, wasn’t surprised by news of 215 children’s remains found on the grounds of the former Kamloops Indian Residential School

A logging truck carries its load down the Elaho Valley near in Squamish, B.C. in this file photo. THE CANADIAN PRESS/Chuck Stoody
Squamish Nation calls for old-growth logging moratorium in its territory

The nation says 44% of old-growth forests in its 6,900-square kilometre territory are protected while the rest remain at risk

Flowers and cards are left at a makeshift memorial at a monument outside the former Kamloops Indian Residential School to honour the 215 children whose remains are believed to have been discovered buried near the city in Kamloops, B.C., on Monday, May 31, 2021. THE CANADIAN PRESS/Darryl Dyck
‘Pick a Sunday:’ Indigenous leaders ask Catholics to stay home, push for apology

Indigenous leaders are calling on Catholics to stand in solidarity with residential school survivors by not attending church services

“They will never be forgotten, every child matters,” says Sioux Valley Chief Jennifer Bone in a video statement June 1. (Screen grab)
104 ‘potential graves’ detected at site of former residential school in Manitoba

Sioux Valley Dakota Nation working to identify, repatriate students buried near former Brandon residential school

The Queen Victoria statue at the B.C. legislature was splattered with what looks like red paint on Friday. (Nicole Crescenzi/News Staff)
Queen Victoria statue at B.C. legislature vandalized Friday

Statue splattered with red paint by old growth forest proponents

Most Read