Capital losses

This page provides information on capital losses and on different treatments of capital gains that may reduce your taxable income.

Our Summary of loss application rules chart indicates the rules and annual deduction limit for each type of capital loss.

What is a capital loss

You have a capital loss when you sell, or are considered to have sold, a capital property for less than its adjusted cost base (ACB) plus the outlays and expenses involved in selling the property.

For information on calculating your capital gain or loss, see Calculating your capital gain or loss.

General application rules

Generally, if you had an allowable capital loss in a year, you have to apply it against your taxable capital gain for that year. If you still have a loss, it becomes part of the computation of your net capital loss for the year. You can use a net capital loss to reduce your taxable capital gain in any of the 3 previous years or in any future year.

Example

In 2024, you sold two different securities resulting in a taxable capital gain of $225 (50% x $450) and an allowable capital loss of $375 (50% x $750). After applying your allowable capital loss against your taxable capital gain, you are left with $150 ($375 – $225) of unapplied allowable capital losses for 2024.

The inclusion rate for 2024 is 50%. While you cannot deduct the $150 from other sources of income in 2024, it becomes part of the computation of your net capital loss for 2024. You can carry this net capital loss back to apply against taxable capital gains in any of the 3 previous years or carry it forward to any future year.

To carry back or carry forward the loss, complete Schedule 3 for Period 2 and attach it to your 2024 income tax and benefit return. This ensures your net capital loss is updated on the CRA's records and available for future use.

Note

When determining your capital losses, special rules apply if you disposed of any of the following:

Inclusion rate

The rate used to determine "taxable capital gains", "allowable capital losses" and "allowable business investment losses" is called an inclusion rate (IR) . The IR has changed over the years. As a result, the amount of net capital losses of other years that you can claim against your taxable capital gain depends on the IR that was in effect when the loss and the gain were incurred. Also, the way you apply these losses may differ if you incurred them before May 23, 1985. For more information, see Applying your net capital losses of other years to 2024.

If you had a capital loss or gain in 2024, you must complete Schedule 3, Capital Gains or Losses.

The table below provides the inclusion rates for the period when the net capital loss was incurred.

Inclusion rates by period of net capital loss
Period net capital loss incurred	Inclusion rate (IR)
Before May 23, 1985	1/2 (50%)
After May 22, 1985, and before 1988	1/2 (50%)
In 1988 and 1989	2/3 (66.6667%)
From 1990 to 1999	3/4 (75%)
In 2000	IR^{Footnote 1}
From 2001 to 2024	1/2 (50%)

Applying your 2024 net capital loss to previous years

You can carry your 2024 net capital loss back to 2021, 2022 and 2023 and use it to reduce your taxable capital gains in any of these years. When you carry back your net capital loss, you can choose the year(s) to which you apply the loss.

When you apply a net capital loss back to a previous year's taxable capital gain, it will reduce your taxable income for that previous year. However, your net income, which is used to calculate certain credits and benefits, will not change.

To apply a 2024 net capital loss to 2021, 2022 or 2023, complete "Part 5 – Net capital loss for carryback" on Form T1A, Request for Loss Carryback. This form will also help you determine the amount you have left to carry forward to future years. Do not file an amended income tax and benefit return for the year you want to apply the loss.

Note

If you apply a 2024 net capital loss to a previous year, any capital gains deduction that you claimed in that year or a following year, may be reduced.

Applying your net capital losses of other years to 2024

You can apply your net capital losses of other years to your taxable capital gains in 2024. To do this, claim a deduction on line 25300 of your 2024 income tax and benefit return. However, the amount you claim depends on when you incurred the loss. This is because the inclusion rate used to determine taxable capital gains and allowable capital losses has changed over the years.

When you apply a net capital loss from a previous year to the current year's taxable capital gain, it will reduce your taxable income for the current year. However, your net income, which is used to calculate certain credits and benefits, will not change.

You have to apply net capital losses of earlier years before you apply net capital losses of later years.

Example

If you have net capital losses in 1994 and 1996 and want to apply them against your taxable capital gains in 2024, you have to follow a certain order:

Apply your 1994 net capital loss against your taxable capital gain.
Apply your 1996 net capital loss against it.

Keep separate balances of unapplied net capital losses for each year. This will help you keep track of your capital losses.

You can use a net capital loss of a previous year to reduce a taxable capital gain in 2024. If the inclusion rates for the two years are different, you must adjust the amount of the net capital loss to match the inclusion rate for 2024. To do so, you can use one of the following charts depending on your situation:

Chart 4 – Determining your net capital losses of other years you can apply to 2024 if you do not have a balance of unapplied net capital losses from before May 23, 1985, and your 2023 notice of assessment or notice of reassessment shows that you have unapplied net capital losses of other years, a 2023 net capital loss, or both, to determine your net capital losses of other years that you can apply to 2024
Chart 5 – Applying net capital losses of other years to 2024 if you have a balance of unapplied net capital losses from before May 23, 1985, or you want to keep a breakdown of your unapplied net capital losses by year

Special rules for losses incurred before May 23, 1985

Special rules apply to losses you incurred before May 23, 1985. This also includes losses you incurred after May 22, 1985, on any disposition of capital property made under an agreement of sale you entered into before May 23, 1985.

Special rules for losses incurred before May 23, 1985

Usually, you can apply net capital losses of other years only against taxable capital gains. However, if you incurred the losses before May 23, 1985, you may use them to offset other income. Once you have applied your net capital losses of other years against taxable capital gains, you can use any excess to offset other income. The amount you can use is limited to the least of the following:

the excess amount
$2,000
your pre-1986 capital loss balance available for 2024

Calculate your pre-1986 capital loss balance available for 2024 as follows:

Balance of your total net unapplied capital losses that you had at any time before May 23, 1985

−

Total adjusted amount of capital gains deductions that you claimed before 2024

Pre-1986 capital loss balance available for 2024

If you had a net capital loss during the period from January 1, 1985, to May 22, 1985, and you had taxable capital gains later in 1985, your taxable capital gains will reduce your pre-1986 capital loss balance.

Special rules

Applying listed personal property (LPP) losses

You have a listed personal property (LPP) loss if, in a particular year, your losses from dispositions of LPP are more than your gains from such dispositions. Applying this type of loss is different from applying other capital losses because of the following reasons:

You can only deduct losses from the disposition of LPP from any gains you had from selling other LPP
The total LPP losses you deduct in the year cannot be more than your total LPP gains from such dispositions for that year
You cannot use this type of loss to reduce any capital gains you had from selling other types of property

If you have an LPP loss in 2024, you can use the loss to reduce gains from dispositions of LPP you had in any of the 3 years before 2024 or the 7 years after.

For information on how to apply a prior-year LPP loss to 2024 gains from dispositions of LPP, see Listed personal property (LPP) losses.

To carry back your 2024 LPP losses to reduce your LPP net gains from 2021, 2022, and 2023, complete Form T1A, Request for Loss Carryback, and include it with your 2024 income tax and benefit return. Do not file an amended return for the year to which you want to apply the loss.

Superficial loss

A superficial loss can occur when you dispose of capital property for a loss and both of the following conditions are met:

You, or a person affiliated with you, buys, or has a right to buy, the same or identical property (called "substituted property") during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale
You, or a person affiliated with you, still owns, or has a right to buy, the substituted property 30 calendar days after the sale

Examples of affiliated persons

Some examples of affiliated persons are:

you and your spouse or common-law partner
you and a corporation that is controlled by you or your spouse or common-law partner
a partnership and a majority-interest partner of the partnership
a trust and its majority interest beneficiary (generally, a beneficiary who enjoys a majority of the trust income or capital) or one who is affiliated with such a beneficiary

If you have a superficial loss in 2024, you cannot deduct it when you calculate your income for the year. However, if you are the person who acquires the substituted property, you can usually add the amount of the superficial loss to the adjusted cost base of the substituted property. This will either decrease your capital gain or increase your capital loss when you sell the substituted property.

In certain situations, when you dispose of capital property, the loss may not be considered a superficial loss.

Common situations where a loss may not be considered a superficial loss

Some of the more common situations include the following:

You are considered to have sold the capital property because you became or ceased to be a resident of Canada.
You are considered to have sold the property because you changed its use.
You disposed of the property and within 30 calendar days after the disposition you became or ceased to be exempt from income tax.
The property is considered to have been sold because the owner died.
The disposition results from the expiry of an option.
The property is appropriated by a shareholder on the winding-up of a corporation.
Non-depreciable capital property is disposed of by a corporation, partnership, or trust. In this situation, although the loss is not added to the adjusted cost base of the transferred property, it is not claimed immediately but its recognition is deferred pending the occurrence of certain events.

Restricted farm loss

If you run your farm as a business, you may be able to deduct a farm loss in the year. However, if your main source of income is neither from farming nor from a combination of farming and some other source of income, you can only deduct a portion of your farm loss for the year.

For more information, see the following guides:

The portion of the loss that you cannot deduct becomes a restricted farm loss (RFL). You can carry an RFL incurred in tax years ending before 2006 back 3 years and forward up to 10 years.

You can now carry an RFL incurred in tax years ending after 2005, back 3 years and forward up to 20 years.

However, the amount you can deduct in any year cannot be more than your net farming income for that year. For more information on determining your main source of income and how to calculate an RFL, see Guide T4002, RC4060, or RC4408.

You may have RFLs that you incurred in your farming operation that you could not deduct when you calculated your income for previous years. You can apply part of these RFLs against any capital gain you may have when you sell your farmland. The amount of RFLs that you can apply cannot be more than the property taxes and interest on money you borrowed to buy the farmland that were included in the calculation of the RFLs for each year. Reduce your capital gain by adding these amounts to the adjusted cost base (ACB) of your farmland. Also, you have to reduce your RFL balance by these amounts.

You can only use RFLs to reduce any capital gain from selling your farmland to zero. You cannot use an RFL to create or increase a capital loss from selling farmland.

Example

You sold your farmland in 2024 for $200,000. The ACB of the property was $160,000. You have an unapplied RFL of $20,000 from 2000. This amount includes $5,000 for property taxes, $5,000 for interest, and $10,000 for other expenses.

You want to reduce your capital gain from selling your farmland by applying your RFL against the capital gain. You calculate your capital gain as follows:

$

Proceeds of disposition

−

$

(ACB + property taxes + interest)

=

$

Gain en capital

In your case, this means that you complete the calculation as follow:

Step 1 – Add the ACB of your property, property taxes, and interests

$

160,000 is the ACB of your property

+

$

5,000 is the amount of property taxes

+

$

5,000 is the amount of interests

=

$

170,000 is the total

Step 2 – Substract the total above from the proceeds of disposition

$

200,000 is the proceeds of disposition (the amount you sold your farmland for)

−

$

170,000 is the total of the ACB, property taxes, and interests calculated above

=

$

30,000 is your capital gain

You can only apply the portion of your RFL that relates to property taxes and interest on the money you borrowed to buy the farmland.

Allowable business investment loss (ABIL)

What is a business investment loss

A business investment loss results from the actual or deemed disposition of certain capital properties. It can happen when you dispose of one of the following to a person you deal with at arm's length:

a share of a small business corporation
a debt owed to you by a small business corporation

For business investment loss purposes, a small business corporation includes a corporation that was a small business corporation at any time during the 12 months before the disposition.

You may also have such a loss if you are deemed to have disposed of, for nil proceeds of disposition, a debt or share of a small business corporation under any of the following circumstances:

A small business corporation owes you a debt (other than a debt from the sale of personal-use property) that is considered to be a bad debt at the end of the year
At the end of the year, you own a share (other than a share you received as consideration from the sale of personal-use property) of a small business corporation that:
- has gone bankrupt in the year
- is insolvent and a winding-up order has been made in the year under the Winding-up Act
- is insolvent at the end of the year and neither the corporation, nor a corporation it controls carries on business. Also, at that time, the share in the corporation has a fair market value of nil and it is reasonable to expect that the corporation will be dissolved or wound up and will not start to carry on business

Note

You, or a person that you do not deal with at arm's length, will be deemed to have realized an offsetting capital gain if the corporation, or a corporation it controls, carries on business within 24 months following the end of the year in which the disposition occurred. You or that person will have to report the capital gain in the tax year the corporation starts to carry on business. This applies if you or the person owned the share in the corporation at the time the business started.

You can elect to be deemed to have disposed of the debt or share of the small business corporation at the end of the year for nil proceeds of disposition, and to have immediately reacquired the debt or share after the end of the year at a cost equal to nil. To do this, you have to file an election with your income tax and benefit return. To make this election, attach to your return a letter signed by you. State that you want subsection 50(1) of the Income Tax Act to apply.

What happens when you incur an ABIL

You can deduct your ABIL from your other sources of income for the year. If your ABIL is more than your other sources of income for the year, include the difference as part of your non-capital loss.

Although you can generally carry a non-capital loss back 3 years and forward 20 years, this does not apply to a non-capital loss resulting from an ABIL. Instead, an ABIL that has not been used within 10 tax years will become a net capital loss in the eleventh year.

To carry a non-capital loss back to 2021, 2022, or 2023, complete Form T1A, Request for Loss Carryback, and include it with your 2024 income tax and benefit return (or send one to the CRA separately). Do not file an amended return for the year to which you want to apply the loss.

The unapplied part of your non-capital loss resulting from an ABIL will become a net capital loss in the eleventh year. You can use this loss to reduce your taxable capital gains in any year after.

Note

Any ABIL that you claim for 2024 will reduce the capital gains deduction you can claim in 2024 and future years.

Summary of loss application rules

The table below is a summary of the various types of capital losses, the time limits relating to their application, and to what kind of income they can be applied.

Summary of loss application rules
Type of loss	Application rules	Limit to annual deduction
Allowable business investment loss	Any unapplied portion of an ABIL becomes a non-capital loss that can be: carried back 3 years carried forward 10 years The unapplied portion of the non-capital loss will become a net capital loss that can be used to reduce taxable capital gains in the eleventh year or any year after.^{Footnote 2}	No limit Limited to taxable capital gains in the year
Net capital loss	Carry back: 3 years Carry forward: indefinitely	Limited to taxable capital gains in the year^{Footnote 3}
Farm loss^{Footnote 4}	Carry back: 3 years Carry forward: 20 years for a loss incurred after 2005 Carry forward: 10 years for a loss incurred before 2006	No limit
Listed personal property (LPP) loss	Carry back: 3 years Carry forward: 7 years	Limited to net gains from LPP in the year
Personal-use property loss	No loss allowed^{Footnote 5}	Not applicable
Restricted farm loss (RFL)^{Footnote 6}	Carry back: 3 years Carry forward: 20 years for a loss incurred after 2005 Carry forward: 10 years for a loss incurred before 2006 You can use part of any unapplied loss to reduce your capital gains from the sale of the farmland that was used in a farming business.	Limited to net farming income in the year
Superficial loss	No loss allowed You can usually add the amount of the loss to the adjusted cost base of the substituted property.	Not applicable

Footnote 2

Any unapplied portion of an ABIL incurred in 2003 or previous years became a non-capital loss that could be carried back 3 years and forward 7 years. The unapplied portion of the non-capital loss has become a net capital loss that can be used to reduce taxable capital gains in the eighth year or any year after.

Return to footnote2 referrer

Footnote 3

For net capital losses incurred before May 23, 1985, you may deduct an additional amount (up to $2,000) from other income. For more information, see Applying your net capital losses of other years to 2024

Return to footnote3 referrer

Footnote 4

For the purposes of this chart, farm losses include losses from farming and fishing businesses. For more information, see Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income, RC4060, Farming Income and the AgriStability and AgriInvest Programs Guide, or RC4408, Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide.

Return to footnote4 referrer

Footnote 5

For exceptions to this rule, see Personal-use property.

Return to footnote5 referrer

Footnote 6

The amount of RFLs that you can apply cannot be more than the property taxes and the interest on money you borrowed to buy the farmland that you included in the calculation of the RFLs for each year. You cannot use it to create or increase a capital loss.

Return to footnote6 referrer

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Capital losses

What is a capital loss

General application rules

Note

Inclusion rate

Applying your 2024 net capital loss to previous years

Note

Applying your net capital losses of other years to 2024

Special rules for losses incurred before May 23, 1985

Calculate your pre-1986 capital loss balance available for 2024 as follows:

Special rules

Applying listed personal property (LPP) losses

Superficial loss

Restricted farm loss

Step 1 – Add the ACB of your property, property taxes, and interests

Step 2 – Substract the total above from the proceeds of disposition

Allowable business investment loss (ABIL)

What is a business investment loss

Note

What happens when you incur an ABIL

Note

Summary of loss application rules

Forms and publications

Related Topics

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