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Over 2000 to 2020, claimed carryback refunds and loss carryforward deductions, on average, reduced corporate income tax (CIT) by $8 billion ($2.7 billion in CIT carryback refunds and $5.3 billion in loss carryforward deductions), or 21.6 per cent per year.
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During economic downturns, corporations increased their utilization of loss carrybacks. For example, in 2008 the loss carryback refund increased to $6.8 billion. For fiscal planning purposes, this stresses the importance of considering how many losses could be generated during downturns and their associated carryback CIT refund.
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From a fiscal planning perspective, the stock of loss carryforwards represents a fiscal risk, since profitable corporations may utilize some, or all, of their accumulated loss carryforwards to reduce their corporate income taxes payable in that year.
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Based on past experience, $12.3 billion of the current stock of unused losses could be further used as carryforward deductions in a given year, annually lowering corporate income tax revenues by an additional $1.7 billion, which represents 2.1 per cent of our October 2022 CIT revenue projection.
