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7.1. General Rules

General

Canada generally allows companies to carry forward tax losses for up to 20 years for loss incurred from 2006, 10 years for loss incurred before 2006 and after 22 March 2004, and 7 years for losses incurred prior to that. Losses may also be carried back up to 3 years.

Capital Losses

The deduction of capital losses is limited to 50% of the loss and may only be used to offset capital gains, which are 50% taxable. Capital losses may be carried forward indefinitely to be offset against future capital gains, and may also be carried back up to 3 years.

Change in Ownership

Canada has anti-avoidance provisions in place to restrict carry-forward of losses when there is a change in control of a corporation. Additional rules have been put in place to disallow the deduction of carried forward losses when there is a 75% acquisition of share ownership without a change in control and it is reasonable to conclude that one of the main reasons for not assuming control was to avoid the loss use restriction. The 75% share rule applies for share acquired after 20 March 2013, unless an agreement for acquisition was entered into prior to that date.

In general, capital losses may never be carried forward after a change in control or based on the 75% rule. However, in certain cases, non-capital losses may be carried forward if the business that gave rise to the loss is carried on by the corporation for profit or with a reasonable expectation of profit throughout a particular year after an acquisition.