Schedule 4. Corporation Loss Continuity
Schedule 4 (T2SCH4) tracks the continuity and application of non-capital losses, net capital losses, farm losses, restricted farm losses, and limited partnership losses across tax years.
Definition
Schedule 4 (T2SCH4) is the running ledger of a corporation's unused tax losses. It reconciles opening balances, current-year additions, carrybacks to prior years, and carryforwards applied against current-year income for each category of loss under s.111. Because loss balances are among the most valuable tax attributes a corporation owns, the CRA requires an explicit year-over-year schedule.
File Schedule 4 in any year the corporation has a loss balance, generates a new loss, or applies a loss against income. Omitting the schedule can result in the CRA refusing to carry forward a balance the corporation believes it has.
Key rules
| Loss type | Carryback | Carryforward | ITA |
|---|---|---|---|
| Non-capital loss | 3 years | 20 years | s.111(1)(a) |
| Net capital loss | 3 years | Indefinite | s.111(1)(b) |
| Farm loss (full-time) | 3 years | 20 years | s.111(1)(c) |
| Restricted farm loss (part-time) | 3 years | 20 years | s.111(1)(d) |
| Limited partnership loss | None | Indefinite (against same partnership income) | s.96(2.1) |
Key mechanics:
- Net capital losses can only offset taxable capital gains, not ordinary income.
- Non-capital losses can offset any source of income.
- Losses incurred in a year before an are restricted under s.111(5): non-capital losses from a business can only offset future income from that same business or a similar one, and net capital losses are extinguished.acquisition of control
- To carry a loss back, file Form T2A within three years of the return's filing due date.
- Part-year rules: a deemed year-end triggers a short taxation year, which still counts as one full year for the carryforward clock.
Example
Acme Ltd. had the following history:
Common mistakes
Applying a net capital loss against ordinary business income. Net capital losses only offset taxable capital gains, never operating income.
- Missing the 20-year expiry on non-capital losses from 2006 or later (pre-2006 had a 10-year limit; earlier rules differ again).
- Applying losses from before an acquisition of control without the s.111(5) stream restriction.
- Failing to reduce the balance by the amount used on T2 line 331 (non-capital) or line 332 (net capital).
- Carrying a limited partnership loss against income other than that same partnership's income.
- Using Form T2A for a loss carryback request but failing to update Schedule 4 in the origin year.
Related concepts
Authority
- CRA Form T2SCH4
- Income Tax Act s.111
- Income Tax Act s.31
- Income Tax Act s.96(2.1)
- CRA Guide T4012
See also
Related entries
T2 Corporate Return Overview
Every Canadian resident corporation must file a T2 return within six months of year-end and pay any balance owing within two or three months.
Schedule 1. Net Income for Tax
Schedule 1 (T2SCH1) reconciles a corporation's accounting net income to its net income for tax purposes by adding back non-deductible items and subtracting tax-only deductions.
Schedule 6. Capital Gains and Losses
Schedule 6 (T2SCH6) summarizes dispositions of capital property during the tax year and computes taxable capital gains, allowable capital losses, and the capital dividend account credit.
This entry is for general reference. It does not constitute professional tax advice. Consult a qualified Canadian accountant for your specific situation.