Schedule 4 − Corporation Loss Continuity and Application

Expiration of Losses

The carry forward period for non-capital losses, farm losses and restricted farm losses incurred in a taxation year is 20 years.

Order of Application

Non-capital losses are generally applied against taxable income in the following order:

Restricted Farm Losses.
Farm Losses.
Non-Capital Losses.

However, the program considers the number of years before expiry of a loss when determining the order of application of non-capital losses and farm losses. The program will claim a farm loss that will expire in two years before claiming a non-capital loss that will expire in three years. Restricted farm losses are always claimed to the extent of farm income entered at the "Farm income" cell on the bottom of Schedule 1.

If you want to claim losses differently, override the appropriate "Total" cell for the Applied to reduce taxable Income column or the amount for a specific year in that column of Schedule 4N.

Prior Taxation Years

The program calculates the year-end date of all possible prior years based on:

the tax year entered on the T2 Jacket.
the assumption that all prior tax years were 12 months long.

If there were prior years covering a period other than 12 months, use the table at the bottom of the Schedule 4N, Non-Capital Loss Continuity Workchart (Jump Code: 4N) to change the prior year history.

Provincial Loss Schedules

If provincial income before application of losses is different from the federal income, the program will automatically calculate the application of losses based on the provincial income.

Applying Losses Against Part IV Tax

You must manually enter the application of prior year losses against Part IV tax. The amount entered will then automatically update the T2 Jacket.

Farm Losses

Farm losses in the current year are automatically calculated from the farm income entered at the "Farm income" cell on the bottom of Schedule 1. To indicate a farm loss on Schedule 1, enter a negative amount (loss) on Schedule 1 so that Schedule 4N updates properly.

Restricted Farm Losses

Prior year restricted farm losses are applied to the extent of positive farm income entered at the "Farm income" cell on the bottom of Schedule 1, where there is sufficient taxable income to offset the loss.

Listed Personal Property

Listed personal property (LPP) losses of prior years are automatically applied up to the amount of LPP gains for the current year (as shown in Schedule 6) regardless of the amount of taxable income for the year.

Loss Carrybacks

All loss carrybacks are automatically updated from the appropriate federal and provincial loss carryback schedules.

Prior Year Loss Carrybacks

Loss carryback requests must be filed according to the tax year in which the loss arose. You cannot file a loss carryback request for the current year relating to a prior year loss.

Increasing a Non-Capital Loss

In a situation in which there is a net capital loss carryforward and both a capital gain and an operating loss in the current year, you have the option of using your prior year capital loss to increase the amount of the non capital loss carried forward. The program does not automatically claim the net capital loss carryforward in these circumstances because it may or may not be beneficial depending on the circumstances of the corporation.

If you wish to claim the net capital loss in this situation, simply override the amount of the net capital loss applied in the current year on Schedule 4 at line 225. Schedule 4N will be adjusted automatically to reflect the claim.

Transfers Upon Amalgamation or Wind-up and Adjustments

These items must be entered on Schedule 4 in the appropriate section (non-capital, capital, farm, restricted farm) and on the appropriate line (transfer upon amalgamation/windup, section 80 adjustment, subsection 111(10), and other adjustments).

The total of the items in each section for non-capital, farm and restricted farm is transferred to the appropriate section of the Schedule 4N at the top of the Adjustments and transfers columns with an appropriate sign (depending on whether it was a deduction or an addition). The program does not know which year the adjustment or transfer applies to, so you have to allocate the amount to the appropriate years in the columns in order for the program to know when the amounts expire. As you allocate the amounts the total at the top of the columns is adjusted and, when all amounts have been allocated to the appropriate year, you should have a zero at the top of the columns.

Part 6 – Analysis of balance of losses by year of origin

You will find four summary and analysis tables in Schedule 4N. The first three tables allow you to keep track respectively of non-capital losses, farm losses and restricted farm losses that can be carried forward. These losses can be carried forward to the twenty taxation years following the taxation year during which the loss was incurred.

The fourth table is for listed personal property losses that can be carried forward to the seven taxation years following the taxation year during which the loss was incurred.

Printing – Part 6

When printing those schedules, only tables with at least one amount are printed. Moreover, a check box entitled Print only the lines for the years of origin with amounts offers you the possibility of printing only the lines on which amounts are entered. If you select the check box, the program will retain your choice during roll forward. If you want to print all tables, use the command File/Print Form (Ctrl+P), and select the Print as displayed check box. However note that, for Form Alberta Schedule 21N, only the tables or lines that differ from those in federal Schedule 4A will print.

History of taxation years

This section includes two check boxes to facilitate the entry of start dates of preceding tax years.

1.Check box Select this box to calculate the dates of the prior taxation years from the date of incorporation onwards, based on the date of the current taxation year.

This box allows you to recalculate the history dates from the start date of the current taxation year down to the date of incorporation, considering that all taxation years between these two dates are taxation years of 365 days (366 days for leap years).

Notes:

If dates were entered in the Beginning column, they will not be retained. In addition, the Undo command (Ctrl+Z) on the Edit menu cannot be used to cancel the recalculation of these dates.
We suggest that you select this box when creating a history of taxation years for a new client file. You can also select it when the dates in the default taxation year calculated by the program on lines 060 and 061 of Form Identification have been modified.

2.Check box Select this box to delete the dates from the taxation year history for all years prior to the current taxation year.

This box allows you to delete all dates of the history, from the first to the twentieth year.

Notes:

If this check box is selected, the Undo command (Ctrl+Z) on the Edit menu cannot be used to cancel the deletion of these dates.
We suggest that you select this check box when it is the first taxation year of a corporation or the first taxation year of a corporation after amalgamation or acquisition of control and the losses and/or tax credits cannot be carried forward to the corporation’s subsequent taxation years.