How to report net loss to CRA for new business

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Apr 8th, 2019 11:38 am

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Apr 3rd, 2019 10:14 am

PopFizzSoda [OP]: Newbie; Dec 10, 2018; 5 posts

Apr 3rd, 2019 10:14 am

How to report net loss to CRA for new business

In 2018 I started to sell a product online. I had a net loss of around USD 3000 (I dealt in USD), from paying more to buy the product & advertise, than earning in sales.

How can I report the loss to the CRA to maximize rebate? In case carrying tax back or forward will maximize, I'll be making more in 2019 from my full-time job than either in 2017 or 2018.

7 replies

Apr 3rd, 2019 11:39 am

Homerhomer: Deal Addict; Feb 5, 2009; 2808 posts; 932 upvotes; Newmarket

Apr 3rd, 2019 11:39 am

If it's a sole proprietor you will claim it as business loss on T2125 of your personal income tax, and the loss will reduce your total income in the year with the exception of home office expenses which will be carried forward to future years.

The answer will be different if you are incorporated.

+1

Apr 4th, 2019 10:40 am

PopFizzSoda [OP]: Newbie; Dec 10, 2018; 5 posts

Apr 4th, 2019 10:40 am

Thanks!

I haven't registered it as a business yet, so I assume it's a sole proprietorship.

So you're saying that to maximize tax rebate, I should:
- claim business loss for 2018
- carry forward home office expense for 2019?

Apr 6th, 2019 10:51 pm

libertyv: Banned; Mar 30, 2019; 18 posts; 9 upvotes

Apr 6th, 2019 10:51 pm

do you have income from this business?
If yes, then sure, you can write down the losses from your income.
If no, then nothing.

Apr 7th, 2019 11:12 am

Homerhomer: Deal Addict; Feb 5, 2009; 2808 posts; 932 upvotes; Newmarket

Apr 7th, 2019 11:12 am

libertyv wrote: ↑ do you have income from this business?
If yes, then sure, you can write down the losses from your income.
If no, then nothing.

nope, that is not correct. If you have no sales you can still apply the loss from the business to other income, it depends on other factors, for example it can happen if you have started the business towards the end of the year, had expenses but have not had any sales yet, and there are expectations of sales and the profit in the following years.

Apr 7th, 2019 9:02 pm

s7yl3x: Jr. Member; Oct 27, 2018; 123 posts; 52 upvotes

Apr 7th, 2019 9:02 pm

A negative cash flow does not mean you have a net loss. Since you bought too much product, it sits as inventory and flows through your cost of good sold when sold. Also, are you paying advertising fee to a non-Canadian advertising company? My understand is that an ad fee paid to a non Camadian advertising company may not be fully or partially deductible.

Apr 8th, 2019 8:30 am

Homerhomer: Deal Addict; Feb 5, 2009; 2808 posts; 932 upvotes; Newmarket

Apr 8th, 2019 8:30 am

s7yl3x wrote: ↑ . Also, are you paying advertising fee to a non-Canadian advertising company? My understand is that an ad fee paid to a non Camadian advertising company may not be fully or partially deductible.

Unfortunately that is not correct either. An expense is deductible in the same manner if paid for Canadian or foreign company.

Apr 8th, 2019 11:38 am

s7yl3x: Jr. Member; Oct 27, 2018; 123 posts; 52 upvotes

Apr 8th, 2019 11:38 am

Homerhomer wrote: ↑ Unfortunately that is not correct either. An expense is deductible in the same manner if paid for Canadian or foreign company.

Under what provision are you taking a deduction?

Just make sure you’re on side with s.19.1(1) of the ITA, when taking this ad deduction.

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