Canuckbusiness

Start a business, Do your taxes, Save money

What do I do with a capital loss?

The next few posts I’m going to talk about capital gains and capital losses.

The most common examples of capital property include stocks, mutual funds, and real estate.

Capital gains are reported on Schedule 3 of your Income Tax Return. If there is a gain, it flows through to Line 127. If there is a loss it is kept track of by the Canada Revenue Agency and your tax software for future (or past) uses.

To calculate a capital gain you can read about it all here. But really, all you need to do is enter the “proceeds” (money you received), the “Adjusted Cost Base”, and “carrying costs” on Schedule 3 and let TurboTax do it for you.

The tricky part is deciding what to do with a capital loss. You can use a capital loss to offset capital gains in any future year (not salary income unfortunately!). But what most people fail to realize is that you can also carry that loss back to any of the preceding THREE years. And generally, this is the wisest thing to do. Go back as far as you can and eat away at those gains before they become untouchable (ie. after three years).

To do this, you will need to file a T1A form as part of your current year tax return (included in TurboTax). You do not need to go back and re-do the tax return of the year that had the gain.

I’ll do another post about how to fill out the T1A in detail. Oh one more point! Always record your capital losses in the year in which they occur. Don’t say “I lost a bunch of money in stocks so no need to report it on my tax return.”

If you don’t record your losses in the current year it will screw up your Net Capital Loss carryforward amounts that the Canada Revenue Agency keeps track of.

Next post I’ll talk about how to use your past losses to offset capital gains in the current year.

 

Related Post:

What year should I carry my capital loss back to?

November 22, 2011 - Posted by | Personal Tax, Running Your Business, tax | , , , ,

8 Comments »

  1. Hey,

    This topic has very little coverage anywhere else on the net thanks for starting it. I couldn’t find the followup post, could you link it?

    My specific question is not how to facilitate the carryback loss (T1A), but rather which year going back is optimal to get the largest return?

    I.e.

    Year – 3 net income 50,000
    Year -2 net income 80,000
    Year -1 net income 100,000
    This year (10,000) loss

    Will I get more of a return for my loss if I apply it to Last year (Year-1) since it was my highest earning year?

    Thanks!

    Comment by Brandon Chu | March 5, 2012 | Reply

    • Hi Brandon,
      That’s a great question so I wrote a post about it today. Hope it helps.
      Go here to read it.

      Comment by jkswift | March 6, 2012 | Reply

    • I’ve same question: My this year’s income is extremely low (under $3,000 as retired), plus a Capital Loss of $30,000-. My last yea’s Capital Gain (not taxable) is $21,500. Can I claim this year’s Loss against last year’s Gain to get a refund from last year’s Gain? Can anyone tell me?

      Comment by CP | April 10, 2012 | Reply

      • Hi,
        You sure can claim this year’s loss against last year’s capital gain (or any of the previous three years gains for that matter). To do so, when you file this year’s taxes, fill out a T1A form. The T1A form is called a “Request for Loss Carryback” form and it will have several sections on it. You need to scroll down to Section 3: Net Capital Loss for Carryback. In your case, enter $10,750 (21,500 X 50% = Net capital loss) on line 6638 to carry your NCL back to 2010. But before you do this, make sure you fill out “Schedule 3” to record your capital loss for this year. You’ve got to record the loss before you can carry it back! Good luck!

        Comment by jkswift | April 11, 2012

      • Hello jkswift, thank you for the detail steps. I have done all steps, but I still have not got any refund. Is it because of my low income this year and pay no tax? But last year, I’ve paid tax on a Taxable Capital Gain of $21,000-; and this year I have a Capital Loss of $30,000- (Taxable Capital Loss will be $15,000-). Is anything I have done wrong?

        Comment by CP | April 13, 2012

      • Hello CP,
        Your refund will not show up anywhere on your 2011 tax return. After you file your 2011 tax return (with the T1A form completed asking to carry your loss back to last year’s return) CRA will reassess your 2010 taxes and mail you a cheque separately along with a new Notice of Assessment for the 2010 year. In other words, the T1A is processed separately from your 2011 taxes. Does that make sense?

        Also, I noticed you said you had a “Taxable Capital Gain of $21,000” last year. That means you actually had a Capital Gain of $42,000 last year. If this is correct, then you should carry back the entire amount of your Net Capital Loss of $15,000 to 2010. If your 2010 Capital Gain was actually only $21,000 then your Taxable Capital gain will be 50% of that ($10,500) and you will only be able to carry back $10,500 of your Net Capital Loss to last year. I know it can get confusing with all these NCL’s and TCG’s, but just remember when you’re filling out the T1A it should always be the Net Capital Loss you use (not the Capital Loss)!
        Hope that helps & sorry for the long-winded reply…
        JK

        Comment by jkswift | April 13, 2012

      • Hello jkswift, thank you so much for your explanation. Canada’s taxation is so complicated. I wonder why don’t they keep it simple?

        Comment by CP | April 14, 2012

      • Taxes kept simple? That makes too much sense 🙂 Glad I could help CP.

        Comment by jkswift | April 15, 2012


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