Entrepreneurship & Small Business

Carrying forward expenses to future years

  • Last Updated:
  • Nov 14th, 2017 10:41 pm
[OP]
Deal Addict
Nov 2, 2013
4803 posts
902 upvotes
Edmonton, AB

Carrying forward expenses to future years

I know you can carry forward unused home office expenses as they can't force a business loss.

What are some other ones you can carry forward? Is there any way to carry forward supplies and motor vehicle expenses?

I'm in the predicament where I need to report around $100,000+ income to close on a pre-con condo, but claiming my expenses would push me below this threshold. Carrying forward does not bother me as I'd likely be in a higher tax bracket later on anyhow.

The only other technique I can brainstorm is to get my corporation to pay me management fee and salary to force itself into a loss, but then be able to use my write-offs. The loss on the corporation then can be carried to future years. But this is extremely hard on taxes for the present years, and I also get EI for part of the year after being laid off from working for another employer. While I can't find concrete proof that it'd be an issue, just don't want to have positive business income on my personal tax return, as then EI will slot me under the "self employed" category as having positive business income. They may wonder when I'm earning that business income.
5 replies
Deal Addict
Feb 5, 2009
2370 posts
537 upvotes
Newmarket
Business expenses have to be claimed in the year they occur, you can't pick and choose when to claim them.

If you are self employed, or claiming employment expenses, home office expenses can't create a loss.
If you are a corporation the home office expenses would be classified on your tax return as rent expense, and you can have a loss, never heard of cra not allowing it to claim in the year, if you had income in the last 3 years you would carry the total loss back, and if not you would carry it forward to future years.
[OP]
Deal Addict
Nov 2, 2013
4803 posts
902 upvotes
Edmonton, AB
Homerhomer wrote:
Nov 12th, 2017 2:19 pm
Business expenses have to be claimed in the year they occur, you can't pick and choose when to claim them.

If you are self employed, or claiming employment expenses, home office expenses can't create a loss.
If you are a corporation the home office expenses would be classified on your tax return as rent expense, and you can have a loss, never heard of cra not allowing it to claim in the year, if you had income in the last 3 years you would carry the total loss back, and if not you would carry it forward to future years.
Yes - that's what I thought.

The method to "carrying forward" home office expenses is charging yourself a management fee from the corp. - but with an amount less than the home office expenses. Since home office expenses can't force a business loss on the personal tax return anyways, they'd effectively be carried onto the year after.

e.g. Charge yourself $1,000, home office expenses are $7,000. Then personal business income would be 0, and $6000 home office expenses carried onto next year.

The rental method is probably more popular because of it not being subject to CPP, since it's not a business income. You'd also be able to claim CCA on that portion of your home if you choose, and as you said, you can have a rental loss, but not a business loss, from home expenses.
Newbie
Jan 18, 2017
47 posts
27 upvotes
I'm not sure I quite understand what you are trying to do. If I have this right:

- You have a corporation;
- The corporation needs to show $100,000 in net income for the year (for financing reasons etc);
- You are claiming home office expenses due to shareholder;

For the current year, you are concerned that if you claim home office expenses, your net income will be lower than the $100,000 required. Do I have this correct?

The simple answer is don't claim home office. Then you are fine.

Now we move to part 2: it sounds like you want to claim home office expenses for tax purposes (ie. reduce your tax bill) but don't want them to show up on your financial statements.

This is more difficult, and can't really be done. You might be able to squeak around it by doing the classic "I forgot these expenses last year, can you claim them this year?" which sometimes works, but technically is incorrect for both GAAP and tax purposes (GST/ITC's you can do that though.) The addition problem is that it screws up your comparatives: Last year you show zero home office, while this year you show doubled-up home office.

You could try your management fee route, but then you're looking at the cost of compliance (t-slip prep etc) plus personal tax and CPP on earned income.

In the end, it sounds like it's more of a headache than is worth it. I'd personally just skip the home office expense - The tax savings on claiming it typically runs around $80 anyway.
______
Canadian & US tax guy
Deal Addict
Sep 23, 2007
4164 posts
674 upvotes
- Expenses should be claimed in the year they were incurred. Even if you can "pick" which year it happened, there isn't a reason to do so. It's your incentive to claim as much home office expense as CRA would allow. If you have a profit, it's good to lower it (presumably with real expenses). If it creates a loss, it's still good as it can carry forward or back.

-If you pay yourself a salary or management fee, that's an expense for the corporation but income for you. So if you year to date income is low, you probably want to pay yourself some salaries irrespective of whether you have a big bill to pay or not.

-Corporate tax rates are lower than personal tax rates. But money sitting in the corporation does nothing for you and you will get taxed again when you distribute it to yourself either as dividend or salaries.
Newbie
Jul 19, 2010
14 posts
4 upvotes
I read this that you need to show $100k personal income - either on a T4 or through dividends. In that case, reduce your corporate expenses wherever possible to allow yourself to pay this as a salary (or management fee). Do whatever you can to avoid a corporate loss, though. A big potential customer might ask to see your financials, a lender might ask to see your financials, etc, and a loss in a small business does not inspire confidence.

Top