Using the S4 Non-capital and capital loss carryback in ProFile

The Schedule 4 (S4) form, titled "Corporation Loss Continuity and Application," is a critical schedule within the T2 module used to track the continuity of a corporation's losses, including non-capital losses and capital losses. Recent updates to tax legislation have introduced significant changes to how this form is structured and used within ProFile.

Some of the important changes to the Schedule 4 (S4) form include new tax rules for Restricted Interest and Financing Expenses (RIFE). This includes a new Part 8 for these expenses. Consequently, Part 1, which tracks non-capital losses, now features a new line 1B to report the RIFE deducted in the current year.

Note: To automate the continuity of these balances, ProFile ensures that the closing balance of RIFE on line 780 is carried forward to line 700 of the next fiscal year

When managing capital losses, it's important to ensure the inclusion rates are accurate, especially when dealing with retroactive adjustments or carrybacks.

Inclusion Rate Adjustments

In the past, ProFile had a problem where the inclusion rate wasn't shown correctly. This problem was fixed in the 2020 release. When you ask for a capital loss carryback, you need to change the amount of money you put into the calculation to 50% of the amount you put into the Inclusion Rate Adjustments. This is to make sure the calculation was done correctly. While this was decided in release 2020.4.7, preparers reviewing older files should remain aware of this calculation logic.

Related Loss Carryback Context

Context: Schedule 4 is for T2 corporate returns. However, preparers handling other entity types in ProFile should distinguish between the S4 and other loss carryback systems:

• Trusts (T3): For trusts, the S4 isn't used. Instead, a request to carry back a current-year loss under sections 111 and 41 of the Income Tax Act is done by completing form T3A (Request for Loss Carryback by a Trust)
• Provincial Credits: Loss carryback logic also applies to specific provincial credits tracked on separate schedules. For example, unused credits for the Newfoundland and Labrador Manufacturing and Processing Investment Tax Credit (S310/S310Supp) can be carried back to the three previous tax years or carried forward to the 20 following tax years