Carrying Forward Capital Losses to Deduct Future Gains

Did you know that while capital gains are taxable, capital losses can be deducted? And with certain conditions, you can even carry those losses forward to offset taxes on future capital gains. Let’s break down what qualifies as a capital loss and explore how you can take advantage of it, step by step.

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A capital loss occurs when you sell a capital property for less than its adjusted cost base (ACB), which includes the cost of acquiring the property and associated expenses. Capital property can include a variety of items, such as real estate, precious metals, artwork, intellectual property like patents or trademarks, and financial products like stocks or bonds. It’s important to note that capital property can be tangible, like land or vehicles, or intangible, like financial assets or intellectual property.

However, it’s crucial to distinguish listed personal property (LPP) for tax purposes. While LPP is considered capital property, any losses incurred from selling it are not tax-deductible as capital losses because the CRA categorizes them as personal losses. It’s worth noting that determining whether a specific item, such as a painting in your home, qualifies as capital property or LPP may require filing a ruling with the CRA.

Unfortunately, you cannot deduct capital losses from other types of income such as salary or dividends. Capital losses can only be deducted from capital gains, which are taxed separately. If your capital losses exceed your capital gains in a given year, you can carry the remaining losses forward to future years and apply them against future capital gains.

To carry forward your capital losses, you should report them on line 25300 of your income tax return (T1). You also need to take into account the inclusion rate for the year in which the loss was incurred, which is the percentage of the capital gain that is subject to tax. For example, if you had a capital gain of $100,000 in a year with an inclusion rate of 50%, $50,000 of the gain would be taxable. Similarly, if you had a gross capital loss of $100,000, the eligible amount you can carry forward is also $50,000. Please note that the inclusion rate varies from year to year, so you should check with the CRA to ensure that you are using the correct rate for the year in which the loss occurred.

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It can take time for you and your business to recover from setbacks, but you’ve shown great tenacity. However, how can you ensure you have the correct number of losses from past years? Here are two ways to stay on top of all eligible claims. Firstly, you can find all eligible losses in your latest notice of assessment. Additionally, you can access the information in your CRA My Account. After logging in, click on the Tax Returns tab at the top of the page and select Carryover Amounts.

To find a reliable tax advisor who specializes in capital gains tax, you can browse online directories that list several tax professionals. To narrow down your search, consider the following factors:

In Canada, it’s important to note that tax returns are always filed separately for you and your partner, couple. However, if you use tax software, you may have the option to prepare both returns at the same time.

Filing individual returns together can be beneficial in optimizing tax returns as it can identify ways to reduce taxes and maximize benefits for both partners.

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Whether you’re married or living common-law, the process of filing your tax returns does not result in any significant changes. Nevertheless, it’s essential to understand what you need to know when filing taxes with a partner.

When you get married or start living together in a common-law relationship, it’s important to inform the Canada Revenue Agency (CRA) and Revenu Québec if you are a resident of Quebec about your change in marital status. You should inform them within a month after your status changes by using the CRA website, by phone, or by mail.

For instance, if you got married in June 2022, you should notify the CRA and/or Revenu Québec no later than July 31, 2022. Failure to inform the CRA and Revenu Québec in time may result in delays in processing your tax returns or payments, so it’s crucial to do this as soon as possible.

Also Read: Carrying Forward Capital Losses to Deduct Future Gains

It’s worth noting that when you tie the knot or begin cohabiting with your partner, the amount of benefits you receive may change since they are determined by your combined household income for capital losses. This could also mean that you become eligible for various credits or benefits that were previously unavailable to you.

When filing your taxes as a couple, you have the option to transfer certain credits to your partner, as long as you don’t need to use them first. These credits include the tuition amount, disability amount, age amount, pension income amount, and more. To transfer credits from your partner, you will need to calculate them on Schedule 2 and enter the amounts on line 32600.

When filing taxes as a couple, you have the option to combine certain expenses so that one spouse can claim the full tax credit. These expenses include medical expenses for you, your spouse, and children, as well as charitable donations made by both of you. Combining these expenses can help you reach the threshold required for a tax credit and capital losses, especially when it comes to medical expenses, where the threshold is 3% of your net income or $2,421, whichever is lower. Additionally, combining charitable donations totaling over $200 can result in a larger deduction, thereby maximizing the credit you receive.

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