🔹 What Is a Capital Loss?

A capital loss occurs when you sell a capital asset for less than its adjusted cost base (ACB).

Common examples include:

✔ Stocks
✔ ETFs
✔ Mutual funds
✔ Investment real estate
✔ Cryptocurrency
✔ Other investment assets

The rules are governed by the Canada Revenue Agency (CRA).

Important: Only 50% of a capital loss is deductible. This is called an allowable capital loss.

🔹 What Can Capital Losses Offset?

Capital losses can only offset:

👉 Capital gains

They cannot reduce:

❌ Employment income
❌ Business income
❌ Rental income
❌ Interest income

If you do not have capital gains in the current year, you may carry the loss to another year.

🔹 1️⃣ Carryback (Apply to Prior Years)

You can apply a current-year capital loss against capital gains from any of the previous 3 tax years.

This may result in:

✔ An immediate tax refund
✔ Recovery of taxes previously paid on capital gains

You must file the appropriate adjustment request with the CRA to apply the carryback.

🔹 2️⃣ Carryforward (Apply to Future Years)

If you have no current or prior capital gains:

✔ You can carry capital losses forward indefinitely
✔ They can be applied in any future year when you realize capital gains

There is no time limit for carrying capital losses forward.

🔹 Practical Example

In 2025:

• You sold investments with a $40,000 capital loss
• 50% is deductible = $20,000 allowable capital loss

You can:

• Apply it to capital gains from 2022, 2023, or 2024
• Or carry it forward to offset future gains

Proper planning could generate significant refunds.

🔹 Important Rules

✔ The loss must be realized (you must actually sell the investment).
✔ Documentation of the transaction is essential.
✔ The “superficial loss rule” may deny your deduction in certain cases.

🔹 The Superficial Loss Rule

If you sell an investment at a loss and:

• Repurchase the same or identical property within 30 days before or after the sale, or
• A related person (such as your spouse or corporation) repurchases it

👉 The loss may be denied temporarily.

This is one of the most commonly reviewed areas by the CRA.

🔹 Strategic Tax Planning

Capital loss planning can:

✔ Offset large capital gains (such as selling investment property)
✔ Reduce year-end tax exposure
✔ Improve long-term portfolio tax efficiency
✔ Support estate and retirement planning

Year-end tax planning before December 31 can be especially valuable.

🔹 Common Mistakes

❌ Not realizing losses strategically
❌ Ignoring the superficial loss rule
❌ Failing to apply carrybacks when beneficial
❌ Losing track of accumulated capital losses

Tax planning requires coordination with your broader financial strategy.

💼 How Toro Accounting Can Help

At Toro Accounting, we:

✔ Review your investment portfolio
✔ Calculate allowable capital losses accurately
✔ Evaluate carryback vs. carryforward strategies
✔ Coordinate with your overall tax planning
✔ Reduce CRA reassessment risk

Losses don’t have to mean wasted opportunities — with proper planning, they can reduce your overall tax burden.

📞 Book a Consultation

If you experienced investment losses and want to optimize your tax strategy:

👉 Book your appointment here