How do you apply your net capital losses of other years to 2023?

You can apply your net capital losses of other years to your taxable capital gains in 2023. To do this, claim a deduction on line 25300 of your 2023 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.

Note

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. For example, if you have net capital losses in 1994 and 1996, and want to apply them against your taxable capital gains in 2023, you have to follow a certain order. First, apply your 1994 net capital loss against your taxable capital gain. Then 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 2023. 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 2023. Determine the adjustment factor by dividing the inclusion rate for 2023 by the inclusion rate for the year in which the loss arose.

Example

Andrew realized a capital gain of $5,000 in 2023. Andrew’s taxable capital gain for 2023 is $2,500 ($5,000 × 50%). Andrew has an unapplied net capital loss of $1,000 from 1999 to apply against his taxable capital gain of $2,500. Since the inclusion rate in 1999 was 75%, he calculates the adjustment factor as follows:

A ÷ B = 50% ÷ 75% = 66.6666%

Where

A = Inclusion rate for the year to which the loss is applied

B = Inlcusion rate for the year in which the loss arose

To determine the net capital loss he can carry forward to 2023, Andrew multiplies the adjustment factor by the net capital loss for 1999:

Net capital loss for carryforward

= Adjustment factor × net capital loss

= 66.6666% × $1,000

= $666.66

Andrew claims the adjusted net capital loss of $666.66 on line 25300 against his taxable capital gain of $2,500 reported on line 12700 of his 2023 income tax and benefit return.

Completing your return

To apply your net capital losses of other years against your taxable income, enter the amount you are claiming as a deduction on line 25300 of your 2023 income tax and benefit return.

Special rules apply if you have a balance of unapplied net capital losses from before May 23, 1985. Before claiming your deduction, see Losses incurred before May 23, 1985.

If you do not have a balance of unapplied net capital losses from before May 23, 1985, and your 2022 notice of assessment or notice of reassessment shows that you have unapplied net capital losses of other years, a 2022 net capital loss, or both, you can use the following chart to determine your net capital losses of other years that you can apply to 2023.

Chart 4 – Applying net capital losses of other years to 2023

1. Total unapplied net capital losses available from before 2022 (from your 2022 notice of assessment or reassessment)