When you incur a capital loss, the Canada Revenue Agency gives you 3 options:
- Apply the capital loss to the current tax year.
- Carry the capital loss backwards to any of the three previous tax years.
- Carry the capital loss forward to any future year.
If you have a capital gain in the currency tax year, any capital losses for the same year must be used to offset those gains. You may carry capital losses backwards or forwards only when your capital losses exceed your capital gains.
A net capital loss (the portion of a capital loss that exceeds capital gains) can only be carried backwards to the previous 3 tax years. So a capital loss incurred in 2017 can be applied backwards only for the 2014, 2015, and 2016 tax years.
The CRA provides details on the procedure for carrying back capital losses here: How is a 2013 loss carried back to previous years.
To carry back a capital loss, you’ll need to fill out Section III on Form T1A and send it by mail to your nearest tax centre (a list of tax centres can be found here). Assuming you are only applying for a capital loss carryback, only Section III needs to be filled out.
Even if you’re filing your income taxes online with tax software, this form still needs to be completed separately and sent via snail mail.
The comment above about capital losses carry back and / or carry forward is clear, with one exception.
If I were to have a 25,000 capital gain in 2013 and I now have a 10,000 capital loss in 2016 which I apply to that earlier taxed gain, will I receive a partial refund ( as in a cheque in the mail!) of the capital tax paid in 2013?
Secondly do I understand correctly that a capital loss can be carried forward indefinitely? I .e. no tax motivated reason to make an investment, or liquidate an investment to capture the benefit of the tax loss carry forward, other than basic economics?
Ben,
Yes, a capital loss applied towards a previous tax year should result in your taxes being retroactively reduced for that year, resulting in a refund. And a capital loss can be carried forward indefinitely.