Notice of Determination of Losses (Loss Determination)
Losses - Carryforward and Carryback
A taxpayer may not make a profit in any particular tax year but incur losses instead. As an extreme example, many well-known tech companies have never realized a profit. Snapchat lost $1.3 billion in 2018. Tesla made its first profit in the 4th quarter of 2019 yet lost $862 million over the year. If a corporation realizes losses it may require a loss determination to formalize the amount.
Losses can be applied to reduce income from other years therefore lowering tax payable in the respective year. A business, for example, can use a loss from 2018 to reduce taxable income for 2019. Losses can be applied to reduce taxable income for prior years (carryback) and future years (carryforward). The loss carryforward and carryback periods vary based on the type of loss.
If a business or corporation files a tax return and it has only incurred losses in the respective tax year CRA can review the amount of losses claimed in the same manner they would review a tax return indicating a profit. Furthermore, a taxpayer (individual or corporation for example) can ask CRA to review losses claimed and issue a Notice of Determination of Losses.
What is a Loss Determination?
Once a tax return for a particular tax year is sent to the Canada Revenue Agency (“CRA”) it is reviewed and CRA issues a Notice of Assessment. The assessment details the tax liability resulting from the return. CRA may reassess the return at some point and issue a Notice of Reassessment. If you dispute a Notice of Assessment or Reassessment with a Notice of Objection, and CRA does not vary the assessment/reassessment, they will issue a Notice of Confirmation. These are the most commonly disputed CRA notices.
However, CRA can also review a taxpayer’s losses for a particular tax year and issue a Notice of Determination of Losses. If they conduct another review of the same tax year, they can issue a Notice of Redetermination of Losses.
A Taxpayer can Request a Determination of Losses
A corporation can ask CRA for a determination of the following types of losses:
- non-capital loss;
- net capital loss;
- restricted farm loss;
- farm loss; and
- limited partnership loss.
How do you Appeal a Loss Determination?
If the taxpayer does not agree with CRA’s determination it can be disputed as any other assessment with a Notice of Objection and appeal to the Tax Court of Canada and beyond.
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