If your self-employed business had expenses that exceeded income in 2026, you can report a business loss on your tax return. The CRA allows you to use that loss to reduce your taxable income in the current year or carry it back up to three prior years, or forward indefinitely to future years. This loss carryback or carryforward can significantly lower your tax bill and potentially recover taxes paid in previous years. A business loss occurs when your total expenses exceed your business income for the tax year. Unlike employment income, self-employed losses are flexible: you don't have to use them in the year they occur. This flexibility is one advantage of self-employment. Common reasons for business losses include: - Start-up phase (especially in year one or two) - Seasonal fluctuations in revenue - Unexpected expenses (equipment repairs, professional fees) - Market downturns affecting your industry - Deliberate reinvestment in business growth (buying inventory, upgrading tools) The CRA recognizes that not every year is profitable, and they have rules to help smooth out income over time. Loss carryback means using your 2026 business loss to reduce income you reported in prior tax years.
You can carry a 2026 business loss back up to three prior tax years (2025, 2024, and 2023) and claim a refund if you overpaid tax in those years. Any unused loss can be carried forward indefinitely.
You report the loss on your 2026 tax return using Form T2125. To request a carryback adjustment, you can amend prior-year returns using CRA My Account or file Form T1A (Request for Loss Carryback).
You report a net loss for the year, which is automatically carried forward. This loss can be used to reduce taxable income in any future year with no time limit.
The CRA expects you to operate a business with a reasonable expectation of profit. If you report losses for multiple years, the CRA may question whether the activity is a legitimate business or a hobby. Keep detailed records showing business activity and intent to profit.
No, farm and fishing losses have restricted loss rules. You can only deduct a portion of the loss in the current year, with the remainder carried forward. Contact the CRA if your business involves farming or commercial fishing.