Expenses

Capital Loss vs. Non-Capital Loss: What They Mean in Taxes

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.

Capital Loss

What it is

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 2010 for $5.00/share and then sold it in 2015 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 $5000, that $5000 does not 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 $5000 on the market in 2015 but had no other capital gains to offset, you can either

  1. Keep that $5000 as a cushion for future gains or
  2. Bequest 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 2013 of $8,000 and a capital loss of $5000 in 2015, you are allowed to request a carryback of your 2015 loss to your 2013 return. There’s no need to file an adjustment to your 2013 return. Simply submit the Form T1A, Request for Loss Carryback with your 2015 return. CRA will do the rest and send you the refund for 2013’s return after the loss has been applied.

Non-Capital Loss

What it is

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 it’s applied

Unlike capital losses, non-capital losses can be applied to other income. If your small business venture resulted in a loss of $5000, 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, Request for a Loss Carryback. 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 new 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 TurboTax Standard, Premier, or Home and Business version last year, you can easily transfer your carry-forward balances for losses, tuition, etc. to this year’s return.