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Discussion Starter #1
Hello Canadian Money Forums,

In 2019 I incurred a Net Loss for the first time in my business. In 2018 I had a decent year and paid a decent amount of Tax. I'm taking 2020 off (no business activity or revenue)

I do my own taxes using Turbo Tax for Home and Business and it's asking me whether I want to carry the loss forward or apply it to past years. Since I never incurred a loss before this is a new situation for me. What is your recommendation for the utilization of the loss in 2019? Apply all / some to 2018 or carry some forward? Is there an internet article you can recommend that would be helpful for me to read to make an informed decision?

Thank you
 

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Hi and some ideas. All else being equal, using the loss now against past income would be better from the time value of money. The longer carried forward w inflation, the less value.

2nd if you anticpipate being in a higher tax bracket in the future, carrying forward maybe better for a greater tax savings. ie if the business is growing rapidly
 

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Don't know if this is relevant, but to qualify for the $2k/month Covid-19 CERB program, I think you must show at leat $5k of "employment/business income" in the previous 12 months (or possibly in the previous calendar year).
 

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Discussion Starter #4
Thank you for your responses. I appreciate it.

When I entered a $10,000 Non-Capital Loss Carryback for 2018 in Turbo Tax, the entry did not adjust my Tax Refund. (Please see the accompanying Screenshot below.)

Isn't the purpose of the Carryback to increase my Tax Refund for the 2019 Tax year from the Taxes I paid in 2018?

Thank you.

Non-Capital Loss Carryback.jpg
 

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It doesn't affect your return this year. You have completed the correct form T1A. I understand the CRA then amends your prior year return and issues you a refund separately.


Do not complete an amended return for the year when you are requesting to have the carryback applied. Using the information from Form T1A, the CRA calculates your refund or reduction in tax owed, and it does not need an amended return.
 

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Discussion Starter #7
I wanted to get a better understanding of how the Carryback works.

Suppose my Net Income in 2018 was $50K and I paid $10K in Tax. Suppose my Net Loss in 2019 is $25K.

A) If I apply $10K Carryback to 2018 will I receive a refund of $10K?

OR

B) Apply the full $25K Carryback to 2018 and the $25K will be subtracted from my 2018 Net Income ($50K - $25K) calculating a new Tax for 2018 (Suppose the new tax is $2K). The difference of the Original Tax ($10K) - New Carryback Tax of $2K will produce a Tax refund of $8K?

Is the scenario more like example A or B?

Thank you.
 

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I wanted to get a better understanding of how the Carryback works.

Suppose my Net Income in 2018 was $50K and I paid $10K in Tax. Suppose my Net Loss in 2019 is $25K.

A) If I apply $10K Carryback to 2018 will I receive a refund of $10K?

OR

B) Apply the full $25K Carryback to 2018 and the $25K will be subtracted from my 2018 Net Income ($50K - $25K) calculating a new Tax for 2018 (Suppose the new tax is $2K). The difference of the Original Tax ($10K) - New Carryback Tax of $2K will produce a Tax refund of $8K?

Is the scenario more like example A or B?

Thank you.
Ions, it would be scenario B. You apply the $25K loss against your total income from other 2018 sources (employment, business etc) to get a new taxable income figure and tax payable amount. Refund will be 2018 old tax payable - 2018 new tax payable.
 

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Wether you use the loss in 2018 or sometime in the future it won’t really make a difference as you won’t be writing off more. The benefit to using 2018 is you get the money today as opposed to the inflation adjusted money, less buying power, in the future. I’d write off 2018 and carry forward the extra.
 
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