Canada consults on direct current-year corporate loss transfers

The measure is a policy proposal, not enacted law, and submissions are due by 8 January 2027. Canada currently taxes corporations separately: section 111 of the Income Tax Act allows a taxpayer to deduct its own non-capital losses under the statutory carry rules, but not simply another group member’s loss. Groups may instead use amalgamations, wind-ups or intra-group financing arrangements, subject to existing conditions.^{[1][2][3][4][5]}

Proposed direct election

The mechanism would permit transfers between a parent and a directly or indirectly wholly owned subsidiary, or between subsidiaries wholly owned by the same parent. Both companies would have to be resident in Canada and taxable under Part I of the Income Tax Act; conduit-type entities such as mutual fund corporations would be excluded. Only a current-year non-capital loss could be transferred.^[2]

The transferor and transferee would make an annual joint election. The recipient could deduct the elected amount in that year, while the transferor’s loss would fall by the same amount. Any elected amount not used by the recipient in that year would not be available for carryback or carryforward.^[2]

Provincial and integrity limits remain open

The initial design would be available only where each company has a permanent establishment in one province or territory and both establishments are in the same jurisdiction. Finance is asking whether that rule can be broadened without shifting provincial tax bases. It is also consulting on safeguards against duplicated tax attributes, including possible adjustments to share or asset tax cost.^[2]

Planning consequence

The proposal could accelerate domestic loss relief without requiring a merger or financing transaction, but it does not change current returns or payments. There is no draft legislation, commencement date, prescribed election or filing deadline. Multinational groups should map wholly owned Canadian entities, current-year loss and income forecasts, and permanent-establishment locations, and treat any modelled benefit as provisional.^[2]