I’m not sure whether this is an issue with the T2 Software or whether it is a CRA issue.
In 2019 I filed a T2 return whereby the client had a capital gain of $266. The client had capital losses in 2015 of $1,055. While preparing the 2019 T2 return I chose not to apply the capital gain against the capital losses by answering “Yes” and entering zero online 225 of schedule 4. The 2019 capital gains were not applied to the capital losses, and the 1,055 (from 2015) was carried forward to 2020.
When I carried forward the T2 return to 2020 Taxcycle brought forward the $1,055 as I would have expected. After performing an AFR, TaxCycle gives me a yellow diagnostic message on line 200 of Schedule 4 that says “Capital loss for the previous tax year in T2 does not match the T2 Auto-fill value. Use value from AFR”.
It seems that TaxCycle is using the running total amount of Capital Gains and losses from the T2 Auto-fill (AFR) screen and assuming this net figure is the amount of the net capital loss carryforward.
Is it actually safe to assume this total figure (total accumulated capital gains less total capital losses) is the “net capital loss carryforward”? I don’t think we can assume that, especially in my case where it is not true.
Even though I can see that same data (that TaxCycle scrapes) in the CRA Represent a Client, there is no way to verify what figure the CRA actually has for Net Capital Losses carried forward. Unlike the Non-capital losses, this section merely just lists out the gains and losses reported each year.
To summarize, I don’t think TaxCycle can or should infer the Total figure (capital losses minus capital gains) in the T2 Auto-fill represents the “Net Capital Losses” carried forward at the end of the previous tax year.
If TaxCycle is picking up a correct carry forward from CRA for Net Capital Losses then I suppose the CRA assessed the client’s T2 return incorrectly in 2019. Unless TaxCycle has access to data that we can’t view in Represent a Client, I just don’t see that we are able to actually determine the amount of Net Capital Losses carried forward from the information available from CRA (via Represent a Client).
I noticed this same issue as well in a recent file, $nil balance per AFR downloaded data although there were ~$40K of loss carryforwards available per our calculations.
@snoplowguy, if you have rep-a-client access for the client I think you should be able to take a peek at the prior year assessed T2 return’s schedule 4 info to verify what they have on file? If you login and under the “corporation income tax” heading select “view return status”, and then click the hyperlink for “assessed” for the most recent year there is a drop down for schedule 4 information that might provide some helpful info for you.
CRA has the correct carry forward data so It would appear this is a TaxCycle bug.
I will go out on a limb and suggest there is no way to determine the available Net Capital Losses from the data downloaded through AFR. In this regard, TaxCycle should not be suggesting the amount carried forward on the Schedule 4 does not match the AFR Values, because there are no AFR Values relating to Capital Losses at the end of the previous year. The CRA simply does not provide this information in AFR.
We can revise the condition for the review message such that we compare the S4 capital loss (line 200) value with the sum of only negative amounts in the capital gains and losses column in table in T2 Auto-Fill (AFR) worksheet in TaxCycle. I believe that will resolve the issue.
Now, the question I have is this…are the capital losses in this column adjusted (ie. reduced) each year if they are used to offset against capital gain?
Capital gain in 2019 = $3,100
Unused capital losses in 2015 = -$(2,000)
Unused capital losses in 2014 = -$(3,000)
Let’s 2014, 2015 and 2019 T2s were already filed. Today, I download the tax data to prepare 2020 T2, would I expect to see a revised capital loss balance like this (as opposed to the “original” capital loss balances)
It may be a a stupid question but the CRA’s testing environment is very limited with tax data.
From looking at your screenshot of Represent a client, it says…
“The amounts shown on this screen reflect only the losses and gains assessed for the applicable tax year-ends(s).” This sounds like the losses are the “original” amounts that were first reported…
As you inferred at the end of your post, I am fairly certain the amounts shown in the Capital gains and losses area are simply a listing of the original capital gains and original capital losses incurred in each year, with no information on whether any of the losses have been applied or not. Given that, I don’t think that revising the condition for the review message would work because it wouldn’t cover a situation where some capital losses had been applied over the years.
Unlike the Non-capital loss information available through RAC and AFR, there is simply no way of being able to determine whether there are any capital losses available for carry forward via AFR.
As @rick.s mentioned in his reply, you can find that information in RAC by looking at the prior year’s Schedule 4, but this information is likely not available to the AFR system.
Thanks for bringing this up @snoplowguy - I’ve been experiencing the same, and was going to make a similar enquiry. Its dangerous because I’ve had people “accept” the amount from the AFR (as $NIL) wiping out the actual CL carryforward.