The amount of the loss that is deductible is limited to the income for the year after all allowable deductions other than for net capital losses have been made. Restrictions apply where there has been a change of control of a corporation and a cessation of the business in which the losses were incurred. The deductible portion of capital losses in excess of capital gains may be carried back three years and forwarded indefinitely but may be applied only against taxable capital gains. On a change of control of a corporation, net capital losses from any previous year can no longer be deducted. Canadian corporations resident in Canada are also taxed on foreign source income, whether or not such income is remitted to Canada.
Special rules apply to dividends received from certain foreign corporations as referred to above.
A credit against Canadian tax is generally available, subject to a formula limitation, for foreign income taxes paid. Generally speaking, no relief is available for underlying foreign taxes incurred by foreign entities. The rules with respect to credit for foreign taxes are different depending on whether the foreign taxes are paid on business income or non-business income, and the credits are determined on a per country basis. The complexity of such rules is beyond the scope of this article. This article provides a brief overview of certain aspects of taxation of corporations in Canada.