How to complete Schedule 4, Corporation Loss Continuity and Application
How to complete Schedule 4, Corporation Loss Continuity and Application
Part 1 - Non-capital losses
Determination of current year non-capital loss
To determine the current-year non-capital loss, you have to complete Part 1 as follows:
Net income (loss) for income tax purposes - income from all sources minus losses from business and property, plus or minus the adjustments on Schedule 1;
deduct
| net capital losses deducted in the year - net capital losses from previous years used to reduce taxable capital gains included in income | |
| taxable dividends deductible - taxable dividends received, deductible under section 112 or 113 or subsection 138(6) (for details, see Line 320 on page 72) | |
| amount of Part VI.1 tax deductible - unused Part VI.1 tax deductible in the taxable income calculation | |
| amount deductible as prospector's and grubstaker's shares - paragraph 110(1)(d.2) - the amount deductible is the value of any shares received from a corporation on disposition of a right or a mining property, except if the amount is exempt from tax in Canada by virtue of one of Canada's tax treaties, multiplied by 1/2 |
Subtotal - If the result is positive, enter"0"
deduct
| section 110.5 or subparagraph 115(1)(a)(vii) - addition for foreign tax deductions - any amounts added to the taxable income to use foreign tax deductions you could not otherwise deduct from Part I tax. For details, see Line 355 on page 74 |
add
| current-year farm loss - whichever is less: the net loss from farming or fishing included in the income, or the non-capital loss before deducting the farm loss |
Current-year farm loss
The current-year farm loss is whichever of the following amounts is less:
-
the loss from farming or fishing that is more than the farming or fishing income for the year
-
the amount of the current-year non-capital loss as calculated in Part 1 of Schedule 4 before you deduct the farm loss for the year
Enter the farm loss calculated on line 310 of Schedule 4.
The farm loss can also include an amount allocated from a partnership.
If the result after the calculation shown under Part 1 is negative, enter this result (as positive) on line 110 of Schedule 4 as the current-year non-capital loss.
Note
You cannot use prior-year losses to create or increase a
current-year non-capital loss, except with net capital
losses of other years.
References
Subsection 111(8)
IT-302, Losses of a Corporation - The Effect That Acquisitions of Control,
Amalgamations and Windings-Up Have on Their Deductibility -
After January 15, 1987
Continuity of non-capital losses and request for a carryback
Use this area to establish the continuity of non-capital losses and to carry back a current-year non-capital loss to prior years.
The current-year non-capital loss can reduce any kind of income or taxable dividends subject to Part IV tax for the 20 following tax years and for the 3 previous tax years. The loss expires after the carry-forward period.
When completing this part, line 105 is the amount of non-capital losses transferred from a predecessor corporation after amalgamation or a subsidiary after wind-up where not less than 90% of the issued shares in each class were, immediately before the wind-up, owned by the corporation. This amount is the unused non-capital losses available to be carried forward at the end of the tax year of the predecessor corporation or subsidiary ending immediately before the amalgamation or wind-up, minus any expired amount.
Line 150 is an amount received under subsection 111(10) as a fuel tax rebate that reduced non-capital loss for a previous year, and any other adjustments not previously mentioned. These adjustments would apply to corporations that have undergone an acquisition of control and whose losses that accrued before the acquisition of control are not deductible after the acquisition of control.
Line 140 is the amount of debt forgiveness under section 80 that reduces the non-capital losses balance. Losses have to be reduced in the order established by section 80.
The result of this part is the closing balance of non-capital losses you carry forward to future years (line 180).
Complete Part 6 to establish the balance of non-capital losses by year of origin.
Part 2 - Capital losses
Continuity of capital losses and request for a carryback
The current-year capital loss is calculated on Schedule 6. See page 42 for more details. Complete this part to establish the continuity and the application of capital losses.
To establish the continuity, you have to enter the amount of capital losses and not the amount of net capital losses available. The inclusion rate will be used only when the loss is applied. You have to indicate the balance of any previous-year capital losses carried forward.
The net capital loss can reduce taxable capital gains included as income for the three previous tax years and indefinitely for future years.
When completing this part, line 205 is the amount of capital losses transferred from a predecessor corporation after amalgamation or a subsidiary after wind-up where not less than 90% of the issued shares of each class were, immediately before the wind-up, owned by the corporation. This amount is the unused capital losses available to carry forward at the end of the tax year of the predecessor corporation or subsidiary ending immediately before the amalgamation or wind-up, including any amount of the allowable business investment loss (ABIL) expired as non-capital loss for the predecessor corporation or the subsidiary, divided by the inclusion rate for the tax year in which the ABIL was incurred.
Line 250 is the amount of any other adjustments not previously mentioned. These adjustments would apply to corporations that have undergone an acquisition of control and whose losses that accrued before the acquisition of control are not deductible after the acquisition of control. These adjustments would also apply to corporations whose losses that occurred after the acquisition of control are not deductible before the acquisition of control.
Line 240 is the amount of debt forgiveness under section 80 that reduces the capital losses balance. Losses have to be reduced in the order established by section 80.
Line 220 is the amount of ABIL earned as non-capital losses in the 11th previous year that has not been used against taxable income in the previous 10 years, multiplied by 2.
On the appropriate line (lines 951 to 953), enter the amount of capital loss you carry back to prior years.
The result of this part is the closing balance of available capital losses you carry forward to future years (line 280). The net capital loss amount will be calculated at the 50% inclusion rate.
Part 3 - Farm losses
Continuity of farm losses and request for a carryback
Use this part to establish the continuity of farm losses and to carry back a current-year farm loss to previous years. Farm losses include losses from farming and fishing businesses.
Farm losses will expire after 20 tax years following the year of the loss.
When completing this part, line 305 is the amount of farm losses transferred from a predecessor corporation after amalgamation or subsidiary after wind-up where not less than 90% of the issued shares in each class were, immediately before the wind-up, owned by the corporation. This amount is the unused farm losses available to carry forward at the end of the tax year of the predecessor corporation or subsidiary ending immediately before the amalgamation or wind-up minus any expired amount.
Line 350 is any other adjustments not previously mentioned. These adjustments would apply to corporations that have undergone an acquisition of control and whose losses that accrued before the acquisition of control are not deductible after the acquisition of control.
Line 340 is the amount of debt forgiveness under section 80 that reduces the farm losses balance. Losses have to be reduced in the order established by section 80.
The result of this part is the closing balance of farm losses you carry forward to future years (line 380).
Complete Part 6 to establish the balance of farm losses by year of origin.
Part 4 - Restricted farm losses
Current-year restricted farm loss
If your chief source of income is neither farming nor a combination of farming and some other subordinate source of income, the loss arising from the farming activity that you can deduct is restricted. An amount of farm loss allocated from a partnership may also be restricted.
The limit of deductible farm losses for a year is $17,500.
Enter your amount on line 410 of Schedule 4 and add it to your income on line 233 of Schedule 1.
References
Subsection 31(1)
IT-232, Losses - Their Deductibility in the Loss Year or in Other Years
Continuity of restricted farm losses and request for a carryback
Use this part to establish the continuity of restricted farm losses and to carry back a current-year restricted farm loss to prior years.
The current-year restricted farm loss can reduce farm income for the 20 following tax years and for the 3 previous tax years. The loss expires after the carry-forward period.
When completing this part, line 405 is the amount of restricted farm losses transferred from a predecessor corporation after amalgamation or a subsidiary after wind-up where not less than 90% of issued shares in each class were, just before the wind-up, owned by the corporation. This amount is the unused restricted farm losses available to carry forward at the end of the tax year of the predecessor corporation or subsidiary ending just before the amalgamation or wind-up minus any expired amount.
Line 440 is the amount of debt forgiveness under section 80 that reduces the restricted farm losses balance. Losses have to be reduced in the order established by section 80.
Line 450 is the amount of any other adjustments not previously mentioned. These adjustments would apply to corporations that have undergone an acquisition of control and whose losses that accrued before the acquisition of control are not deductible after the acquisition of control.
The result of this part is the closing balance of restricted farm losses you carry forward to future years (line 480).
Complete Part 6 to establish the balance of restricted farm losses by year of origin.
Part 5 - Listed personal property losses
Continuity of listed personal property loss and request for a carryback
Use this part to establish the continuity of listed personal property losses. You can carry a current-year listed personal property loss against net capital gains incurred on the same kind of property back to the three previous tax years and forward to the seven following tax years.
A listed personal property loss cannot be transferred.
When completing this part, line 530 is the amount of prior-year listed personal property losses applied in the current year to reduce the net capital gain incurred in the current year on the same kind of property (enter this amount on line 655 of Schedule 6).
Line 550 is the amount of adjustments. These adjustments would apply to corporations that have undergone an acquisition of control and whose losses that accrued before the acquisition of control are not deductible after the acquisition of control.
The result of this part is the closing balance of listed personal property losses you carry forward to future years (line 580).
Complete Part 6 to establish the balance of listed personal property losses by year of origin.
Part 6 - Analysis of balance of losses by year of origin
Use this part to show by year of origin the balance of losses you can carry forward to future years. Enter each loss by year of origin, starting with the current year and going down to the 20th previous year.
Part 7 - Limited partnership losses
Current-year limited partnership losses
Use this part to calculate the current-year limited partnership losses that cannot be deducted in the year, but can be carried forward to other years.
The amount of partnership loss allocated to a limited partner is reported on an information slip T5013, Statement of Partnership Income. If the limited partner does not receive this slip because the partnership is exempt from filing, you have to file the partnership's financial statements with the return to prove the corporation's share of the partnership loss for the year.
Report the amount in the corporation's tax year that the partnership's fiscal period ends in.
The part of a partnership loss that a limited partner can deduct in determining net income for income tax purposes may be restricted.
For tax years that end after February 26, 2018, it was clarified that the at-risk rules apply to a partnership that is itself a limited partner of another partnership and that a corporation's available non-capital loss and limited partnership loss carry forward balances have to be adjusted as if these rules applied in the preceding years.
In column 606, enter the corporation's at-risk amount at the fiscal period ending of the partnership (column 602). The amount entered in column 604 is from a business (other than a farming or fishing business) or from property.
In general terms, you have to calculate a limited partner's at-risk amount as follows:
| the adjusted cost base of its partnership interest |
plus
| its share of the current-year's income from the partnership |
minus
| all amounts the partner owes to the partnership, and any amount or benefit to which the partner is entitled that is intended to protect it from the loss of its investment |
In general, interests in partnerships that were operating on a regular and continuous basis on February 25, 1986, and continuously thereafter, are exempt from the at-risk rules. However, partnership interests may lose their exempt status if, after February 25, 1986, there has been either a substantial contribution of capital to the partnership or substantial partnership borrowings.
The difference between the corporation's share of the actual loss of the partnership and the corporation's at-risk amount (reduced by any investment tax credit, clean economy tax credit, farming losses and resource expenses the partnership allocated to the corporation for that fiscal period) is called a limited partnership loss. This amount is entered in column 620.
Add the total of column 620 to line 222 of Schedule 1. Enter all those losses in column 670 to establish the continuity of losses.
References
Subsection 96(2.1)
IT-232, Losses - Their Deductibility in the Loss Year or in Other Years
Limited partnership losses from previous tax years that may be applied in the current year
Complete this part if you want to apply limited partnership losses from previous years to reduce any kind of income in the current year. However, the deductible amount in respect of each partnership is limited to the difference between the balance of losses for that partnership and the corporation's at-risk amount for that partnership after deducting the amounts specified under subparagraph 111(1)(e)(ii).
Continuity of limited partnership losses that can be carried forward to future tax years
Limited partnership losses can be carried forward indefinitely to future years.
For this part, column 664 is the amount of limited partnership losses transferred from a predecessor corporation after amalgamation, or a subsidiary after wind-up, where not less than 90% of the issued shares in each class were, immediately before the wind-up, owned by the corporation. This amount is the unused limited partnership losses available to carry forward at the end of the tax year of the predecessor corporation or subsidiary ending immediately before the amalgamation or wind-up.
The result of this part is the amount of limited partnership losses you carry forward to later years (column 680).
Part 8 - Election under paragraph 88(1.1)(f)
Further to a winding-up of a subsidiary, the part of a non-capital loss, restricted farm loss, farm loss, or limited partnership loss incurred by the subsidiary is deemed to be the parent corporation's loss for its tax year starting after the winding-up has begun.
Paragraph 88(1.1)(f) allows the parent corporation to elect that this loss is deemed to be a loss from its tax year previous to the year mentioned above.
Tick box 190 if you are making an election under paragraph 88(1.1)(f).
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