Non capital loss

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Non capital loss
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A non-capital loss is a loss for a particular year that includes any loss incurred from business, property or an employment. In case one's allowable business investment loss realized in the specific year is more than one's other sources of income for that year, the difference should be included as a part of one's non-capital loss[1]. In relation to the business, a non-capital loss occurs when in any given year expenses of the company are above and over the amount of its income[2].

Non-capital losses, together with fishing and farming losses might be carried three taxation years back and twenty taxation years forward. In order to carry back losses in taxation year for which a tax return form has been filled, the company needs only file one form and not a full adjusted tax return form[3]. After ten years the losse expires and can no longer be used[4].

Items included in non-capital losses are[5]:

  • partnership income,
  • employment income,
  • investment income,
  • rental income,
  • professional, business or commission income or losses,
  • fishing or farming income of losses,
  • non-taxable income,
  • taxable capital gains,
  • net capital losses of past years,
  • certain other deductions (e.g. deduction of the capital gains, the business investment losses deduction, stock options and shares deductions, deduction for employee home-relocation loan, other payments deduction, income exempt under a tax treaty.

Application of capital losses

Ratepayer may choose to apply capital losses in proportion to capital gains in any order. Usually the best outcome can be achieved when capital losses are offset against capital gains as per the following sequence:

  1. To capital gains that have neither Capital Gain Tax (CGT) discount nor the benefit of indexation based on the cost.
  2. To capital gains calculated with indexation based on the cost.
  3. To capital gains that have the CGT discount benefit.

As long as complying pension fund chooses to demand the frozen indexation option, the application of capital losses against the capital gain can take place after deduction of the cost base, including indexation, from the capital proceeds. In case frozen indexation option is not available or not chosen, the capital gain's calculation is done by deduction of the cost base, excluding indexation, from the capital proceeds. CGT discount is applied against the capital gain after capital losses[6].


  1. Campbell, D., 2008, p.204
  2. Non-capital loss, 2019
  3. Beam, R.E., Laiken, S.N., Barnett, J.J., 2007, p. 546
  4. Bateman, G.L. and others, 2004, p. 139
  5. Henderson, C., Quinlan, B., Schultz, S., 2010
  6. Leow, J., 2010, p. 580


Author: Klaudia Słota