Capital Loss

A capital loss happens when you sell an investment for less than what you originally paid for it. If you bought shares for $5,000 and sold them for $3,500, you have a capital loss of $1,500. Capital losses only matter in non-registered accounts. Inside a TFSA or RRSP, gains and losses have no direct tax impact.

How capital losses work in Canada

Capital losses can be used to offset capital gains, which reduces the amount of tax you owe. If you had $4,000 in capital gains and $1,500 in capital losses in the same year, you’d only be taxed on $2,500 in net gains.

If your capital losses exceed your capital gains in a given year, you can carry the unused portion back up to three years or carry it forward indefinitely. This gives you flexibility to use losses whenever they’re most valuable. You report capital gains and losses on Schedule 3 of your tax return.

The superficial loss rule

There’s one important catch. If you sell an investment to trigger a capital loss and then buy the same investment (or something nearly identical) within 30 days before or after the sale, the CRA will deny the loss under the superficial loss rule. This applies to purchases by you, your spouse, or a corporation you control. The loss isn’t gone forever. It gets added to the adjusted cost base of the repurchased shares, but you can’t use it to offset gains right away.

Why it matters

Capital losses are one of the few tools available to reduce your investment tax bill. Tax-loss harvesting is the practice of intentionally selling losing positions to capture those losses and offset gains elsewhere in your portfolio. Used well, it can meaningfully lower what you owe at tax time. For a deeper look, see our guides on capital gains tax and tax-loss harvesting in Canada.

Example

You sold Stock A for a $6,000 capital gain and Stock B for a $2,500 capital loss in the same year. Your net capital gain is $3,500. At the 50% inclusion rate, $1,750 gets added to your taxable income instead of $3,000. If your marginal tax rate is 30%, that capital loss saved you $375 in taxes. If Stock B’s loss had been $8,000 instead, the extra $2,000 beyond your gains could be carried back to offset gains from the previous three years.