Author Topic: Noob question: How does carrying forward a capital loss actually work? (Canada)  (Read 254 times)

Gerard

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Hi folks, apologies for the noob question.

I'm about to sell my house for a loss of about $16,000. This is my non-primary residence for tax purposes ('cause I sold my condo for a large profit and thus deemed that my primary residence).

I understand that I fill out a schedule 3 on my tax return to identify this loss, and then can use it in the future to offset capital gains. But... I currently have no investments subject to capital gains tax (everything's in RRSPs or TFSAs). I've never previously had enough money to even think about non-sheltered investments. But now I have (or will have) cash from the house/condo sales to invest.

So... what do I do (if anything) to take advantage of this? Are there particular investments whose appreciation is more likely from capital gains? Will I need to buy and sell things more often so that the capital gains tax is triggered and I get to offset it? Or do I just buy whatever I planned to buy anyway, and let the gain/loss thing take care of itself?

Thanks in advance for any help, and your patience.

marty998

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Appears in Canada you can deduct up to $3000 of capital losses against other income in the current tax year. You can also carry it back against capital gains in any of the three preceding years. If you don't have any gains, you can carry forward the loss to use against future gains indefinitely until you die.

In Australia, we can only carry forward capital losses. I've still got tens of thousands from 2008/09 to utilise :)

scottish

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I don't think you can apply capital losses to income in Canada.   The rest is correct.   

Reference:  https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains-2016.html#P2313_116906


Goldielocks

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If you can't use it, you carry it forward and hope you can use it in future.  Note that the value of the loss does not increase with inflation, so it declines in relative value to you, too, as the years go by.

When it makes sense for you in future to have a non-registered portfolio (or secondary real estate investment), then you would select something that would generate capital gains preferentially to interest or maybe even dividend income, all else being equal*.  (*Which it rarely is).

Basically, just buy what you would anyway, but if you are adjusting your decisions for taxes, know that you can have the first $32k in gains tax free, (like investing in a TFSA).