If you sell a capital property for an amount that is less than its adjusted cost base plus the costs involved in selling it, you will face a capital loss. This also applies if you are deemed to have sold the property.

To learn about the process of determining your capital gain or loss, review the article entitled Calculating your capital gain or loss.

In the event that you incur an authorized capital loss in a given year, you must first offset it against your taxable capital gain for that same year. Should you still have a loss remaining, it will contribute to the calculation of your net capital loss for that specific year. Utilizing a net capital loss, you can diminish your capital gain in any of the three years prior or in upcoming years.

A capital loss is the difference between the value of a sold asset and the purchase price.

If you sell the property for the amount below what you bought it, you will have a cash flow loss. Assets classified as capital property encompass tangible investments like land, cottages, or intangible assets such as securities such as bonds and stocks. Say you procured 100 equity in XYZ business valued at $5.00/share in 2021 and disposed of them the following year at $4.00/share; you would have incurred a capital loss carryback amounting to $100 alongside other expenses linked to the transaction, such as fees payable by your broker.

How it’s applied

When it comes to capital losses, they can solely be offset against capital gains and not any other income. This implies that if you experienced a loss of $5,000 in your stock market debut last year, it wouldn’t be deducted from your employment income but instead from your capital gains.

  1. Keep the $5,000 as a safety net
  2. Request the loss

Any tax-related loss incurred can be carried back to the previous three years for application.

Suppose you made a capital gain of $8,000 in 2020 and a capital loss of $5,000 in 2022. In that case, it is possible to apply for a carryback of your 2022 loss to your 2020 return. You don’t have to file an adjustment to your 2020 return but can submit Form T1A – Request for Loss Carryback along with your 2022 return.

Upon the application of the loss, CRA shall execute the remittance for your 2020 return and take charge of the remaining tasks.

What Are Non-Capital Losses?

At some stage, be it during the commencement of business, scaling-up of activities, or due to unfavourable market conditions, small-scale entrepreneurs and cultivators usually encounter a shortfall.

Revenue Canada takes various factors into account when determining the impact of a loss on your taxes. The specific nature of your business’s loss has a notable effect on your tax refund.

Losses that are not capitalized are incurred by businesses when expenses surpass income in a particular year.

The losses that are not capitalized consist of unredeemed losses that may arise from office, occupation, trade, or real estate. They also incorporate non-utilized allowable business investment losses (ABIL).

In order to improve the financial results of your business, there are several steps that can be taken if you have incurred a non-capital loss in the current year.