A capital loss occurs when you sell an investment, such as a stock or mutual fund, at a lower value than you originally paid for it.
What Are Net Capital Losses?
When you have an allowable capital loss in the current tax year, you must claim it to offset any capital gains you had in the current year.
- You can only use capital losses to reduce capital gains.
- You cannot use capital losses to offset other types of income like business income.
If you have insufficient capital gains in the current tax year and still have an amount left over, you can claim a net capital loss. Net capital losses can be used to lower your capital gains in any of the three preceding tax years or future tax years.
If you have net capital losses from previous tax years, you may apply them against any capital gains you have in the current tax year. For example, if you originally purchase stock for ABC Company for $100 and sell it for $200, you have a capital gain of $100. If you have a net capital loss of $200 from a prior year, you can use it to offset the tax you normally pay on the capital gain.
Keeping a Record of Net Capital Losses
The Canada Revenue Agency makes it easy to keep track of your net capital losses.
- CRA My Account holders can use the online portal to access loss balances as well as a record of any losses applied in past years.
- You may also view your net capital losses from previous tax years on your notice of assessment.
Your current year notice has your net capital losses from previous years and any unused capital losses from the current tax year. Add these two amounts together to determine your available net capital loss for the future tax year; use this to offset any capital gains you may have in the current year.
Claim Net Capital Losses
- If you want to use net capital losses from previous tax years to lower your capital gains in the current tax year, claim a tax deduction on line 25300 of your tax return (T1).
- Complete Form T1A, Request for Loss Carryback, if you want to carry capital losses from the current tax year back to any of the last three tax years; include the form when you file your tax return.
For example, in 2020, you can carry a capital loss back to 2017, 2018, or 2019. Do not file an amended tax return; Form T1A is specifically used for claiming losses in prior years.