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 can ask CRA to review losses claimed and issue a Notice of Determination of Losses.