Question: This is our first year in business and unfortunately have a net loss. As a corporation, how will this loss be treated?
i.e. Will we be able to claim the loss back in future years?
Should we reduce the depreciation on assets to reflect zero profit? Is this legal?
When a corporation’s net taxable income is negative, the business is in a loss position. These losses are in fact non-capital losses that the corporation may carry back three years or carry forward a maximum of 20 years.
The depreciation for tax purposes known as capital cost allowance, or “CCA” is not a mandatory tax deduction. The Income Tax Act sets the upper limit of CCA a business may take in a year and you would be free to select any amount between zero and the CCA limit for the asset. Thus there is no requirement to claim CCA.
Since this is your first year, it would be wise to eliminate any tax deductions such as CCA, that you may use in the future and only use them in so far as they reduce your taxable income to zero. If you have not claimed any CCA and you are still in a loss position, you may use those looses in the future (up to 20 years in the future).