When it comes to taxes, the term “loss” refers to a number of different scenarios. The type of loss you have determines how it affects your return.
What Is Capital Loss?
If you sell capital property for less than you originally paid for it, you may have a capital loss.
Capital property can include real estate such as a cottage or land or securities such as stocks and bonds. If you purchased 100 shares of company XYZ in 2021 for $5.00/share and then sold it in 2023 for $4.00/share, you’d have a capital loss of $100 plus any expenses relating to the transaction, such as broker’s fees.
How it’s applied:
In almost all cases, capital losses can only be applied to capital gains, not other income. This means that if you played the stock market for the first time last year and lost $5,000, that $5,000 doesn’t come off your employment income — it comes off your capital gains only.
The good news is that your capital losses can be carried forward or back if you need them. For example, if you lost $5,000 on the market in 2023 but had no other capital gains to offset, you can either:
- Keep that $5,000 as a cushion for future gains or
- Request a loss carryback.
A loss carryback can be applied to any of the past 3 years’ returns.
For example: If you had a capital gain in 2021 of $8,000 and a capital loss of $5,000 in 2023, you are allowed to request a carryback of your 2023 loss to your 2020 return. There’s no need to file an adjustment to your 2021 return. Simply submit the FormT1A – Request for Loss Carryback with your 2023 return. CRA will do the rest and send you the refund for your 2021 return after the loss has been applied.
What Is Non-Capital Loss?
As its name suggests, non-capital losses are losses other than capital losses. These types of losses can result from a number of sources including small business ventures or rental property activities.
- If your small business didn’t generate more income than your expenses last year, you may have a business loss.
- If your rental stood empty for a few months last year despite your best efforts to find tenants, you may have a rental loss.
How is non-capital loss applied?
Unlike capital losses, non-capital losses can be applied to other income. If your small business venture resulted in a loss of $5,000, that loss can be applied to the income from your other sources such as employment, RRSP income, interest amounts, etc.
Similar to capital losses, non-capital losses can be carried back three years and applied to prior years’ returns using the Form T1A. Carrying a non-capital loss forward for future use is a bit more complex as different rules apply for different types of losses.
Keeping Track
To ensure you’re applying your losses properly, you need to know your loss balances from previous years.
If you’re a CRA My Account holder, your capital and non-capital loss carryover amounts are easily accessible under the Tax Returns heading. Or even better, use the Auto-fill my return feature to import your balances directly into the proper spots in your tax return.
If you haven’t signed up for CRA My Account, check your Notice of Assessment from last year. Your available balances are listed there as well.
If you used any of our paid editions of TurboTax last year, you can easily transfer your carry-forward balances for losses, tuition, etc. to this year’s return. Sign into TurboTax Online, or find out more about our software & support services here.
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