Net capital losses in the year of death

To apply a net capital loss that was incurred in the year of death, you can use either Method A or Method B.

Method A - You can carry back a 2018 net capital loss to reduce any taxable capital gains in any of the 3 tax years before the year of death. If you are applying it against taxable capital gains realized in 2015, 2016, or 2017, you do not need to make any adjustment because the inclusion rate is the same in all 3 years. The loss you carry back cannot be more than the taxable capital gains in those years. To ask for a loss carryback, complete "Section III − Net capital loss for carryback" on Form T1A, Request for Loss Carryback, and send it to your tax centre. Do not file an amended return for the year to which you want to apply the loss.

After you carry back the loss, there may be an amount left. You may be able to use some of the remaining amount to reduce other income on the final return, the return for the year before the year of death, or both returns. However, before you do this, you have to calculate the amount you can use.

From the net capital loss you have left, subtract any capital gains deductions the deceased has claimed to date. Use any loss left to reduce other income for the year of death, the year before the year of death, or for both years.

If you claim any remaining net capital loss in the year of death, you should claim it as a negative amount in brackets at line 127 of the final return.

Note

Do not use a capital loss claimed against other income at line 127 in the calculation of net income for the purposes of calculating other amounts such as social benefit repayments, provincial or territorial tax credits, and those non-refundable tax credits requiring the use of net income.

Method B - You can choose not to carry back the net capital loss to reduce taxable capital gains from earlier years. You may prefer to reduce other income on the final return, the return for the year before the year of death, or both returns. However, before you do this, you have to calculate the amount you can use.

From the net capital loss, subtract any capital gains deductions the deceased has claimed to date. Use any loss remaining to reduce other income for the year of death, the year before the year of death, or for both years.

If you claim any remaining net capital loss in the year of death, you should claim it as a negative amount in brackets at line 127 of the final return.

Example

A man died on June 20, 2018. You have the following details about his tax matters:

  • Net capital loss in 2018:         $11,000
  • Taxable capital gains in 2016: $4,000
  • Taxable capital gains in 2015: $2,000
  • Total capital gains deductions claimed to date: $4,000

He did not claim any capital gains deductions for 2015 or 2016.

You can use Method A or Method B.

Method A
If you choose Method A, you can use the net capital losses to reduce his 2016 taxable capital gains to zero ($11,000 − $4,000). Then, you can use the remaining balance of $7,000 to reduce his 2015 taxable capital gain to zero ($7,000 − $2,000).

After you subtract his capital gains deductions ($5,000 − $4,000), you still have $1,000 left to reduce the man's other income for 2018 or 2017 or for both years.

Method B
If you choose to use this method, you will first deduct his capital gains deductions of $4,000 from his net capital loss in 2018 of $11,000. You can now use the remaining $7,000 to reduce the man's other income for 2018 or 2017, or for both years.

 

Note

If you claim any remaining net capital loss in the year before the year of death, you will need to complete Form T1-ADJ, T1 Adjustment Request, or send us a signed letter providing the details of your request. Send your Form T1-ADJ or letter separately from the deceased's final return. Applying a 2018 net capital loss to a previous year may reduce any capital gains deductions the deceased claimed in that year or a following year.

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