Selling an investment for less than you paid for it is never ideal, but the loss may still have tax value.
In Canada, a capital loss generally occurs when you sell—or are considered to have sold—capital property for less than its adjusted cost base plus the expenses incurred to sell it. Capital losses can reduce taxable capital gains, which may lower the tax you otherwise pay on profitable investments.
But there are limits.
A regular capital loss generally cannot be deducted directly against salary, interest income or other ordinary income. It is normally applied against capital gains. If you cannot use the entire loss this year, the unused net capital loss can generally be carried back three years or carried forward indefinitely.
That makes understanding capital losses especially important for investors with taxable stocks, ETFs, mutual funds, rental properties or other capital assets.
What Is a Capital Losses in Canada?
A capital loss arises when your proceeds from selling capital property are lower than the property’s adjusted cost base and the costs associated with selling it.
The basic calculation is:
Capital Gain or Loss = Proceeds of Disposition − Adjusted Cost Base − Selling Expenses
If the result is negative, you generally have a capital loss.
For example:
| Calculation | Amount |
|---|---|
| Original investment cost | $20,000 |
| Eligible acquisition costs added to ACB | $200 |
| Adjusted cost base | $20,200 |
| Sale proceeds | $15,000 |
| Selling commission | $150 |
| Capital loss | $5,350 |
Calculation:
$15,000 − $20,200 − $150 = −$5,350
You have realized a $5,350 capital loss.
Under the current 50% inclusion rate, the related allowable capital loss is generally based on 50% of the loss. The federal government confirmed in Budget 2025 that it would not proceed with the proposed increase to the capital-gains inclusion rate, so the one-half treatment remains in place.
How Does a Capital Loss Reduce Your Tax?
Capital losses are most useful when you also have capital gains.
Suppose you sell two investments during the year:
- Investment A produces a $20,000 capital gain
- Investment B produces an $8,000 capital loss
Your net capital gain is:
$20,000 − $8,000 = $12,000
At the current 50% inclusion rate:
$12,000 × 50% = $6,000 taxable capital gain
Without the loss, your taxable capital gain would generally have been:
$20,000 × 50% = $10,000
The $8,000 capital loss therefore reduces the taxable capital-gain amount from $10,000 to $6,000 in this simplified example.
The important point is that the capital loss does not normally create an $8,000 tax deduction against employment income. It first reduces capital gains.
If you need a broader explanation of the tax treatment of investments, see Filing Taxes’ How to Minimize Investment Taxes in Canada.
What Happens if Your Capital Losses Are Higher Than Your Capital Gains?
If your allowable capital losses exceed your taxable capital gains for the year, the unused amount generally contributes to a net capital loss.
For example:
- Capital gain: $10,000
- Capital loss: $30,000
- Net capital loss before the inclusion-rate calculation: $20,000
You cannot ordinarily deduct the remaining capital loss from your salary or interest income.
Instead, the available net capital loss can generally be:
- carried back up to three years; or
- carried forward indefinitely.
CRA’s current rules confirm that net capital losses can be used against taxable capital gains from any of the three preceding years or future years.
For a detailed walkthrough, read Filing Taxes’ guide to carrying forward capital losses.
How to Carry a Capital Loss Back
A carryback can be useful if you paid tax on capital gains in one of the previous three years.
Suppose you realize a net capital loss in 2025 and had taxable capital gains in:
- 2022;
- 2023; or
You may choose to carry the 2025 net capital loss back to one or more of those years.
For a 2025 loss, CRA instructs taxpayers to use Form T1A, Request for Loss Carryback. You generally do not need to file an amended tax return for the prior year simply to request this carryback.
One important detail: applying a net capital loss to a prior year can reduce taxable income for that prior year, but CRA notes that it does not change the prior year’s net income used for certain credits and benefits.
How to Carry Capital Losses Forward
If you do not have previous capital gains to offset—or you prefer to save the loss—you may be able to carry a net capital loss forward indefinitely.
When you later have taxable capital gains, unused losses from previous years can generally be claimed on line 25300 of the personal income tax return, subject to the applicable calculation rules.
Your available loss balance will usually appear on your CRA notice of assessment or reassessment.
There is another detail worth knowing: inclusion rates have changed historically. If an old capital loss arose in a year with a different inclusion rate, CRA may require an adjustment when that loss is applied to a gain in another year.
For most taxpayers dealing only with recent losses, this historical adjustment issue is less likely to be significant, but it matters when old loss balances are still available.
Capital Loss vs. Non-Capital Loss: What Is the Difference?
These terms are often confused, but they are not interchangeable.
A capital loss generally results from selling capital property at a loss.
A non-capital loss can generally arise when deductible losses from sources such as a business, employment or property exceed the taxpayer’s other income for the year.
Here is the practical difference:
| Capital Loss | Non-Capital Loss |
|---|---|
| Usually arises from capital property | Often arises from business, employment or property sources |
| Generally applies against capital gains | May generally reduce broader taxable income, subject to the rules |
| Carry back up to 3 years | Carry back up to 3 years |
| Carry forward indefinitely | Generally carry forward up to 20 years for losses arising after 2005 |
| Prior-year net losses generally claimed on line 25300 | Prior-year losses generally claimed on line 25200 |
CRA currently allows most non-capital losses arising in years ending after 2005 to be carried back three years and carried forward for up to 20 years.
Example of a Non-Capital Loss
Suppose a self-employed consultant has:
Business revenue: $40,000
Eligible business expenses: $60,000
This creates a $20,000 business loss before considering the taxpayer’s other income and tax calculations.
Depending on the person’s complete tax situation, that loss may contribute to a non-capital loss.
That is fundamentally different from selling shares for $20,000 less than their adjusted cost base.
Can You Claim a Loss Inside a TFSA or RRSP?
Generally, no.
If an investment falls in value inside a TFSA, the investment loss cannot be claimed as a capital loss on your personal income tax return. CRA specifically states that TFSA investment losses are not deductible capital losses.
The same basic principle applies to capital losses inside an RRSP. CRA lists capital losses within an RRSP among amounts you cannot deduct.
This creates an important difference between registered and non-registered investing.
In a taxable account, a realized capital loss may have tax value.
Inside a TFSA, you receive tax-free growth when investments perform well—but you do not receive a capital-loss deduction when they decline.
What Is the Superficial Loss Rule?
This is one of the biggest mistakes investors make when trying to realize capital losses before year-end.
You cannot simply sell an investment at a loss, immediately buy the same investment back and automatically claim the loss.
A superficial loss can generally arise when you or an affiliated person acquires the same or an identical property during the period beginning 30 days before the sale and ending 30 days after the sale, and the substituted property is still owned at the end of that period.
Affiliated persons can include, depending on the circumstances, your spouse or common-law partner and certain corporations, partnerships or trusts connected with you.
Example
You own shares with:
ACB: $15,000
Current value: $10,000
You sell them and realize a $5,000 loss.
Ten days later, you repurchase the identical shares and still own them 30 days after the original sale.
The superficial-loss rule may deny the immediate capital-loss claim.
In many situations, the denied loss is instead added to the adjusted cost base of the substituted property, but the exact result depends on the circumstances.
This is why tax-loss selling should be planned before executing the trades.
Can You Claim a Loss on Personal Property?
Not every asset sold below cost produces a deductible capital loss.
Losses on ordinary personal-use property are generally not deductible.
For example, if you purchase furniture, a personal vehicle or another personal-use asset and later sell it for less than you paid, the loss will normally not reduce your taxable capital gains.
Listed personal property has separate rules. This category can include items such as:
- artwork;
- jewellery;
- rare books;
- stamps; and
- coins.
Losses on listed personal property generally have their own carry rules and can be applied only against gains from listed personal property. CRA currently allows such losses to be carried back three years and forward seven years.
What Is an Allowable Business Investment Loss?
There is one important exception to the normal rule that capital losses can only offset capital gains.
An allowable business investment loss (ABIL) may arise from certain qualifying losses involving shares or debt of a small business corporation.
Unlike an ordinary allowable capital loss, an ABIL may generally be deductible against other sources of income, subject to detailed eligibility requirements.
If an ABIL cannot be fully used, special carryover rules apply. CRA notes that the unused amount can form part of a non-capital loss, with specific rules applying over the following tax years.
Because the eligibility rules are much narrower than for an ordinary investment loss, do not assume that a loss on any private-company investment automatically qualifies as an ABIL.
How Do You Report Capital Losses to the CRA?
Capital gains and losses are generally calculated and reported on Schedule 3, Capital Gains or Losses.
You should keep records showing:
- purchase dates;
- purchase prices;
- adjusted cost base;
- commissions and transaction costs;
- sale dates;
- proceeds of disposition; and
- costs incurred to sell the property.
Brokerage commissions paid to buy securities generally affect the adjusted cost base, while commissions paid on disposition are considered when calculating the capital gain or loss.
Keeping accurate ACB records is particularly important when you purchase the same security several times.
Should You Sell an Investment Just to Create a Capital Loss?
Not automatically.
Tax-loss selling can be useful when an investment no longer fits your portfolio and realizing the loss also creates a legitimate tax benefit.
But a tax deduction should not turn a poor investment decision into a good one.
Before selling, consider:
- whether you still believe in the investment;
- transaction costs;
- available capital gains;
- superficial-loss rules;
- your adjusted cost base; and
- whether the sale fits your overall investment strategy.
The objective should be to improve the after-tax result of a sensible investment decision, not create losses simply to reduce taxes.
For broader investment-tax planning, see How to Minimize Investment Taxes in Canada.
Frequently Asked Questions
What is a capital loss in Canada?
A capital loss generally occurs when you sell or are considered to have sold capital property for less than its adjusted cost base plus the expenses incurred to dispose of it.
Can capital losses reduce my employment income?
Ordinary capital losses generally cannot be deducted directly against employment income. They are normally applied against taxable capital gains. Different rules apply to certain losses such as qualifying allowable business investment losses.
How many years can capital losses be carried forward in Canada?
Net capital losses can generally be carried forward indefinitely and used against taxable capital gains in future years. They may also generally be carried back up to three years.
What is a non-capital loss?
A non-capital loss generally arises when certain deductible losses from employment, property, business or qualifying ABIL amounts exceed other income. Non-capital losses arising after 2005 can generally be carried back three years and forward up to 20 years.
Can I claim a capital loss from my TFSA?
No. Investment losses within a TFSA cannot be claimed as capital losses on your income tax return.
Use Capital Losses Before They Are Forgotten
A losing investment does not automatically mean the tax benefit is lost.
The important questions are whether the loss is actually a capital loss, whether superficial-loss or personal-use-property rules apply, and whether you have capital gains in the current year or previous three years that the loss can offset.
If the loss remains unused, keeping accurate records allows it to remain available for future taxable capital gains.
For a detailed carry-forward explanation, read Filing Taxes’ How to Carry Forward Capital Losses to Deduct Future Gains.
If your situation involves significant investment gains and losses, private-company shares or several years of unused losses, Filing Taxes can review how the available losses fit into your wider tax position through our Tax Planning Services.
