How Capital Loss Carryforward Works in Canada
A losing investment is not wasted at tax time. Canada lets you carry a net capital loss back three years to recover tax you already paid, or forward indefinitely to shelter gains you have not made yet. The catch that surprises almost everyone: a capital loss can only ever offset a capital gain — never your salary.
When your capital losses for the year exceed your capital gains, the leftover becomes a net capital loss. You can apply it against taxable capital gains in any of the three previous years (using Form T1A, which triggers a refund) or in any future year, with no expiry. It is claimed on line 25300. It cannot reduce employment, pension, or interest income — with one exception, the year a person dies.
| Capital loss carryforward in Canada | The rule |
|---|---|
| Carry back | Up to 3 previous tax years (Form T1A) |
| Carry forward | Indefinitely, no expiry |
| What it can offset | Taxable capital gains only |
| Can it offset salary or interest income? | No — except on a final return in the year of death |
| Where you claim it | Line 25300 of your T1 return |
| What records it | Schedule 3, filed in the year of the loss |
| Order of use | Earlier years’ losses before later years’ |
| Inclusion rate today | 50% (1990–1999 losses were 75%, 1988–1989 were 66.67%) |
Source: Canada Revenue Agency, Capital losses. Verified August 2026.
Capital loss, allowable capital loss, net capital loss
Three terms get used interchangeably in conversation, and the difference is where most confusion starts.
- Capital loss — you sold a capital property for less than its adjusted cost base plus selling costs. This is the raw dollar loss.
- Allowable capital loss — the deductible portion. At today’s 50% inclusion rate, a $10,000 capital loss is a $5,000 allowable capital loss, mirroring how only half a gain is taxable.
- Net capital loss — what is left after your allowable capital losses are applied against your taxable capital gains for the same year. This is the balance that carries backward or forward.
Here is the CRA’s own example. In a year you sell two securities: one produces a $450 capital gain, the other a $750 capital loss. At the 50% inclusion rate that is a taxable capital gain of $225 and an allowable capital loss of $375. The loss wipes out the gain, leaving $150 unapplied — and that $150 becomes your net capital loss for the year.
In Canada, a net capital loss cannot be deducted from salary, pension, or interest income — in the example above, the leftover $150 stays locked to capital gains. The CRA limits net capital losses to taxable capital gains in whatever year you use them. If you have no gains this year and none in the previous three, the loss simply waits, for as long as it takes.
How long you can carry a capital loss back and forward
Once you have a net capital loss in Canada, you have two directions to use it, and you can use both:
| Direction | Time limit | How you claim it | Effect |
|---|---|---|---|
| Carry back | Any of the 3 previous tax years | Form T1A, Request for Loss Carryback | Reassesses that year — you get a refund of tax already paid |
| Carry forward | Indefinitely — no expiry | Line 25300 in a future year | Reduces tax on a future capital gain |
Carrying back is the more attractive option when it is available, because it converts the loss into cash now rather than a credit against a gain you may not make for years. But it only works if you actually reported taxable capital gains in one of those three years.
Example: carrying a $30,000 capital loss back and forward
Say that in 2026 you sold a stock position at a $30,000 loss and another at a $12,000 gain. At Canada’s 50% inclusion rate:
Now suppose that back in 2024 you reported a $4,000 taxable capital gain and paid tax on it at a 43% marginal rate. You file Form T1A with your 2026 return and carry $4,000 of the loss back:
- The CRA reassesses 2024, erasing that $4,000 taxable gain
- You get roughly $1,720 back (43% of $4,000)
- $5,000 of net capital loss remains, sitting on your CRA record until you have another gain — next year, or in twenty years
If you are not sure what the tax on a given gain would be in the first place, our capital gains tax calculator works out the taxable portion and the tax by province, and our guide on how to calculate capital gains tax in Canada walks through the steps.
File Schedule 3 even in a year with no gains
This is the single most expensive mistake in this topic, and it costs nothing to avoid. The CRA is explicit: to carry a loss back or forward you complete Schedule 3 and attach it to that year’s return, because that is what puts the net capital loss on your CRA record and keeps it available for future use.
People who had a bad year in the markets and no gains often skip Schedule 3 entirely — there is no tax to pay, so it feels pointless. Years later they have a large gain, remember the old loss, and find nothing on file. The loss is not legally gone, but reconstructing and late-filing it is far more work than reporting it at the time.
To see what you already have banked, check your notice of assessment or the carryover balances in CRA My Account. Unused net capital losses are tracked there year over year.
Why an old capital loss is worth less than its recorded amount
When you apply old net capital losses in Canada, two CRA rules change the amount you actually get to deduct: the order you use them in, and the inclusion rate of the year each loss arose.
Oldest first. The CRA requires you to apply net capital losses of earlier years before those of later years. You do not get to pick the most convenient one.
Adjust for the inclusion rate of the year the loss arose. Canada’s capital gains inclusion rate has not always been 50%, so a loss from an era with a different rate must be converted before it can offset today’s gains. The CRA publishes the historical rates:
| Period the net capital loss arose | Inclusion rate |
|---|---|
| Before 1988 (including pre-May 23, 1985) | 1/2 (50%) |
| 1988 and 1989 | 2/3 (66.6667%) |
| 1990 to 1999 | 3/4 (75%) |
| 2000 | Per your Schedule 3 or notice of assessment for 2000 |
| 2001 to today | 1/2 (50%) |
An example of what that does. A $10,000 capital loss from 1995 produced a $7,500 allowable capital loss at the 75% rate of the day. Applied against a gain in a 50% year, it is adjusted by 50/75 — so $7,500 becomes $5,000 of usable loss. The economics are unchanged (it still shelters $10,000 of capital gain), but the number on your record is not the number you deduct. If you are carrying losses from the 1990s, this is worth getting right or getting help with.
See the taxable portion and the tax by province before you plan which losses to use.
When the normal rules do not apply
Four situations behave differently, and each one catches people out:
- The year someone dies. On a final return, net capital losses can be applied against other income, not just capital gains — a deliberate concession, since there are no future years left. This interacts with the deemed disposition rules covered in our guide to capital gains tax on inherited property.
- You bought the position back too quickly. If you repurchase the same or identical property within 30 days, there may be no loss to carry anywhere — see the superficial loss rule. That test comes first; carryforward only matters once the loss survives it.
- Personal-use property. A loss on a car, a boat, or a cottage used personally is generally not deductible at all, so there is nothing to carry forward. Listed personal property losses are a narrow exception, usable only against listed personal property gains.
- An allowable business investment loss (ABIL). A loss on shares or debt of a small business corporation gets better treatment: it can offset any income. Any unapplied part becomes a non-capital loss carried back 3 years and forward 10, and only turns into an ordinary net capital loss in the eleventh year.
Full details of every loss type sit in the CRA’s Capital losses guidance, and the carryback request itself is Form T1A.
Using losses on purpose
Because carryforward has no expiry, a realized loss is a durable asset. Two practical habits follow from that:
- Realize losses in a year you already have gains. Matching them in the same year is simpler than carrying anything anywhere, and it lowers this year’s bill directly.
- Keep the record clean. Track your adjusted cost base properly so the loss you claim is the loss you actually had — averaging rules for identical shares are a common source of overstated losses.
One thing worth saying plainly: never sell a good investment purely to bank a loss. The tax saving is a percentage of the loss, not the whole of it, and you are out of the market while you wait out the 30-day window. The tax tail should not wag the portfolio dog.
For the rest of the toolkit — gains, land transfer tax, compound growth — see our free financial calculators.
Frequently asked questions
Indefinitely. A net capital loss can be carried forward to any future year with no expiry date, and it can also be carried back to any of the three previous tax years.
No. Net capital losses can only reduce taxable capital gains, not employment, pension, or interest income. The main exception is the year a person dies, when net capital losses can be applied against other income on the final return. An allowable business investment loss is also treated differently and can offset any income.
File Form T1A, Request for Loss Carryback, with the return for the year you had the loss. The CRA reassesses the earlier year and refunds the tax you paid on the capital gain it now offsets. You can go back up to three years.
You should. Completing Schedule 3 in the loss year is what records the net capital loss on your CRA account so it is available later. Skipping it because there is no tax owing is the most common way people lose track of losses they are entitled to use.
Check your notice of assessment or the carryover amounts in CRA My Account. Unused net capital losses are tracked there, and you claim them on line 25300 of the return for the year you use them.
Because the inclusion rate has changed over time. Losses from 1988 to 1989 were computed at two-thirds and from 1990 to 1999 at three-quarters, so they are adjusted down when applied against a gain in a 50% inclusion year. A $7,500 allowable loss from 1995 becomes $5,000 of usable loss today, which still shelters the same $10,000 of capital gain.
Last updated: August 2026. Rules verified against Canada Revenue Agency guidance.
This article is general information, not tax advice. Loss application rules, inclusion rates, and filing requirements depend on your circumstances and can change. Confirm current rules with the Canada Revenue Agency and consider speaking with a qualified tax professional, particularly for losses from prior inclusion-rate eras, estates, or business investment losses.
