A non-capital loss is a business or property loss that can be carried back three years or forward twenty to offset income in other years and recover or reduce tax.
When a business's deductible expenses exceed its income, it produces a non-capital loss. Rather than being wasted, this loss can be applied against income in other years: carried back three years to recover tax already paid, or carried forward up to twenty years to reduce future tax.
This is a valuable asset, especially for new or cyclical businesses. A loss year followed by profitable years lets the earlier loss shelter later income. Preserving loss carryforwards is also a reason some owners keep a dormant corporation alive rather than dissolving it.
A start-up loses $50,000 in year one, then earns $80,000 in year two. The prior loss is carried forward to reduce year-two taxable income to $30,000, cutting that year's tax bill substantially.
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