A capital loss occurs when you sell an asset for less than you paid for it. In Canada, capital losses can only be used to offset capital gains, not regular income.
Example
If you bought shares for $10,000 and sold them for $7,000, your capital loss is $3,000. You can use this loss to offset taxable capital gains in the same year, carry it back up to three years, or carry it forward indefinitely.
Why It Matters
- Tax relief: Capital losses reduce taxable capital gains, lowering taxes owed.
- Planning: Helps investors manage tax efficiency over multiple years.
Final Thoughts
Capital losses are not wasted—they can be valuable tax tools when managed properly. Strategic use of losses can smooth investment returns and reduce taxes over time.