52 What are some common Division ‘C’ deductions and how do they impact taxes payable?

Falak Sharma

Taxable Income of an individual is equal to Net Income for Tax Purposes (also known as Division ‘B’ Income) less a group of deductions found in Division ‘C’ of the ITA.   There are lots of Division ‘C’ deductions however we will focus on two important ones: Net Capital Losses and Non-Capital Losses.

Net Capital Losses are generated when Allowable Capital Losses (1/2 of Capital Losses) exceed Taxable Capital Gains (1/2 of Capital Gains) in a year.   In this scenario the net taxable capital gain in S3(b) will be $Nil and the negative amount will become a Net Capital Loss.   Net Capital Losses can only be applied against S3(b) net Taxable Capital Gains in a year.  They can be carried back 3 years or forward indefinitely.  See ITA 111(1.1) for more details

Non-Capital losses are created when the S3 ordering rules create a negative amount.  In this situation Net Income For Tax Purposes (‘NITP’) will be $Nil and the negative amount will become a Non-Capital Loss. Non-Capital Losses can be applied against NITP in a given year.  They can be carried back 3 years or forward 20 years.   See ITA 111(5.4) for more details.

Example: Mr. Smith has NITP of $25,000. He has a Net Capital Loss of $4,000, and a Non-Capital Loss of $2,200 carried from previous years. Mr. Smith’s S3(b) amount is $1,500. His Taxable Income would be calculated as follows:

NITP………………………………….. $25,000

Less:

Net Capital loss…………………… $(1,500) (can only be applied against S3(b) amount)

Non-Capital loss…………………. $(2,200) (can be applied against all sources of income)

Taxable income = $21,300

The remaining Net Capital Loss of $2,500 ($4,000-$1,500) could be applied against net TCG’s in other years.

Interactive content (author: Falak Sharma, Feb 2019)

Interactive content (Author: Jasmeen Boparai, January 2020)

References and Resources:

  • ITA 111(1.1), 111(5.4)
  • Competency map: 6.3.2

February 2019

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