If a company has a loss from operations during a year, the loss can generally be applied against prior or future taxable income. This can help the company with its tax burden. Schedule 4 tracks these losses so that a company can request losses to be carried back and applied against a specific year or carried forward for future use.

A non-capital loss arises from a taxable operating loss of a company during its fiscal year. Non-capital losses can be carried back up to three years or carried forward up to twenty years. By applying the loss against a prior or future year’s taxable income, the taxes payable will be reduced. For example, if a company previously had taxable income in all of its past three years and was not expecting future losses, it would want to maximize its tax refund by carrying the current year’s non-capital loss back to when the corporate tax rates were the highest in the past three years. If a company incurred a non-capital loss this year and expected taxable income in the years to come, it may choose to carry the non-capital losses forward to help reduce future tax bills. This would be of greatest benefit if corporate tax rates are expected to climb in the near future. Capital losses arise when you sell a capital property for less than its adjusted cost base plus the cost of the sale (real estate fees, legal fees, etc.). Capital losses can be carried back three years or carried forward indefinitely. However, they can only be used to offset capital gains. Therefore, a company would need to have sold a capital asset for a gain before a capital loss could be applied.