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If you have a capital loss, you can use it to offset capital gains and lower your income accordingly. However, if you don’t have capital gains, the Canada Revenue Agency allows you to carry your losses forward or backward to apply them to different years’ returns. The time limits and specific application rules depend on the type of capital gain, as well as other factors.
Carrying Losses Backward
The CRA allows you to carry net capital losses back up to three years. If you have capital gains from previous years, this is a great way to offset them.
To calculate your carryback, you have to check the inclusion rate for the year to which you are applying your losses. If it is different from the current year’s inclusion rate, you have to adjust your claim.
However, if the inclusion rate for the three previous years is the same as the current year. This means you don’t have to worry about any adjustments.
To carryback a capital loss, fill out section II on form T1A – Request for Loss Carryback. You do not have to file an amended return for the year to which you want the loss applied.
The losses reported on form T1A lower your taxable income, resulting in either a refund or a reduction of your back taxes owed. However, this adjustment does not change your net income, nor your eligibility for benefits as you cannot obtain retroactive benefits as a result of carrying a capital loss backward.
Carrying Losses Forward
If you don’t have capital gains in either the current tax year or any of the previous three, you may opt to carry your losses forward. Each year, the accumulated value of your capital losses becomes your net capital losses, which you may carry forward indefinitely.
If you have not claimed your net capital losses by the time of your death, your representative can apply them to your final return to offset your capital gains for that year.
Claiming Carried Forward Losses
Because you can carry capital losses forward indefinitely, you can apply losses from infinitely far back to your current return. To carry losses forward, check your CRA My Account to obtain the current balance of your unclaimed losses. If you are not a CRA My Account holder, you can find this amount on your last notice of assessment from the CRA.
Fill out chart 4 of the T1A and enter the results on line 25300 of your income tax return (T1). Keep in mind that you must apply the oldest losses first.
Variable Rules on Carrying Losses Forward
In most cases, you can only use capital losses to offset capital gains. There are, however, a few exceptions to this rule. For example, if you have allowable business investment losses (ABIL) or certain farming losses, you can claim them against your income.
You may carry an ABIL back three years or forward ten years, and claim it against regular income. If you have not claimed it within that time period, the ABIL becomes part of your net capital losses, which can only be claimed against capital gains.
Note that you can carry farm losses forward up to 20 years.