As a small business owner, it is not uncommon to have a bad year. You may be looking for solutions to help soften the burden of this particular year and ask if you are eligible for any tax breaks? A loss carryback may be able to help you. Our experts can help your experts make the right decisions about this as well as other tools and strategies.
Common questions business owners ask:
What is loss carryback?
Suppose your small business has suffered losses in a particular year. In that case, you may be eligible to offset income that has occurred in any of your three most recent profitable years. Applying your current year's losses to a prior year's tax return can result in a refund of taxes that you previously paid. In part, you have reduced your income, and therefore your tax liability for that prior year. You may also carry business losses forward to future tax years of your business.
How do I know if I qualify for loss carryback?
Your accountant will know if you have tax losses that you can carry back or forward. Speaking with your accountant about the loss carryback rules allows you to apply them correctly and against income in the eligible years.
Can I use loss carryback for estate planning?
The estate of deceased individuals in Canada can also use a loss carryback rule for estate planning purposes. In the absence of a beneficiary designation, certain joint ownership or trust structures, individual Canadians are deemed for tax purposes to have disposed of their capital assets immediately before death. The CRA requires any tax reckoning associated with those assets to be settled on the deceased's terminal tax return.
Private corporations can also use this strategy. When shares of a private corporation are redeemed, a capital loss is created and is eligible to be carried back to offset the capital gain in the terminal return. If there is life insurance, this ensures that cash is available to redeem those shares at death. You can use the insurance policy death benefit to create a capital dividend account credit to extract funds from the corporation tax-free.
Our experts make your experts even better.
Financial and legal advisors work together to build your estate plan to ensure your solutions are integrated. Frequently, siloed advice can lead to unintended consequences such as overpaying taxes or having to spend a lot of money to fix a well-intended but poorly integrated estate plan.