Capital losses: how to use them

Most capital losses can’t reduce your salary, pension or other ordinary income: they only offset taxable capital gains. But a loss you can’t use this year isn’t wasted. You can carry it back to any of the three previous years, or forward to any future year.

What counts as a capital loss

You have a capital loss when you sell capital property, or are considered to have sold it, for less than its adjusted cost base (ACB, generally what it cost you) plus the costs of selling it. Capital property includes investments such as stocks, bonds and units of a mutual fund trust.

Only part of the loss counts. The allowable capital loss is the loss multiplied by the inclusion rate, 50% for 2025, the same rate that decides how much of a gain is taxed (see how dividends and capital gains are taxed).

Using a loss in the year you have it

You have to apply an allowable capital loss against your taxable capital gains for the same year first. Gains and losses go on Schedule 3.

If your allowable capital losses are more than your taxable capital gains, the difference becomes part of your net capital loss for the year. You can’t deduct it from employment income or any other kind of income. File Schedule 3 anyway, so the CRA records the loss and it’s there to use later.

Carrying a loss back or forward

• Back up to three years. You choose which of the three previous years to apply it to, using Form T1A, Request for Loss Carryback. Don’t file an amended return for the earlier year.
• Forward indefinitely. In any later year, claim it as a deduction for net capital losses of other years (line 25300). The deduction can’t be more than that year’s taxable capital gains.

When you carry losses forward:

• Your unused losses are usually shown on your notice of assessment or reassessment.
• Use losses from earlier years before later ones, and keep a separate balance for each year.
• If the inclusion rate was different in the year of the loss, the loss is adjusted to match the year you use it. The CRA’s Capital Gains Worksheet does the arithmetic.
• Losses from before May 23, 1985 have special rules.

Applying a loss to another year lowers your taxable income for that year, but not your net income, so credits and benefits based on net income don’t change.

The superficial loss rule

A loss is superficial, and can’t be claimed, when both of these are true:

• You, or a person affiliated with you, buy (or have a right to buy) the same or identical property in the period from 30 calendar days before the sale to 30 calendar days after it.
• You, or that person, still own (or have a right to buy) it 30 calendar days after the sale.

Affiliated persons include your spouse or common-law partner, and a corporation controlled by you or your spouse or common-law partner.

If you’re the one who bought the replacement, you can usually add the denied loss to its ACB, which lowers your gain (or increases your loss) when you sell it.

The rule doesn’t apply in some cases, such as when property is considered sold because you became or stopped being a resident of Canada, because you changed its use or because the owner died, or when the loss comes from an option expiring.

An exception: small business investments

A loss on shares of a small business corporation, or on a debt one owes you, can be a business investment loss. That happens when you sell them to someone you deal with at arm’s length, or they’re considered sold because the debt went bad or the corporation went bankrupt or insolvent. The allowable part can be deducted from your other income, not just capital gains. The CRA’s capital losses page sets out the conditions.

Losses on things you own for personal use

Personal-use property is what you own mainly for your own or your family’s use or enjoyment, such as furniture, cars, boats and a cottage. You have to report a gain when you sell it, but a loss usually can’t be deducted, and it can’t reduce gains on other personal-use property. The CRA treats a drop in value from personal use as a personal expense.

An ACB or selling price under $1,000 is treated as $1,000. If both are $1,000 or less, there’s no gain or loss to report.

Listed personal property is personal-use property that usually rises in value: art, jewellery, rare books, folios and manuscripts, stamps and coins. A loss on it only reduces gains on other listed personal property, in the same year, the three years before or the seven years after.

In short

• Allowable capital losses offset taxable capital gains, starting with the same year.
• An unused net capital loss carries back three years (Form T1A) or forward indefinitely (line 25300).
• Buying the same investment within 30 days before or after the sale, or having your spouse or your corporation buy it, can make the loss superficial.
• Losses on personal-use property generally don’t count.
• To see what a gain or loss does to your tax, try the investment income calculator.