It sounds like you are aware that you can carry back capital losses, Ramesh. If you have a net capital loss on your 2023 tax return, you can carry it back up to three years. So, you can ask the Canada Revenue Agency (CRA) to apply that loss to capital gains you had in 2022, 2021 or 2020.
When should you carry back a capital loss?
You can apply some or all of the loss to one or more of those years. If you had capital gains in more than one of the past three years, there are three primary considerations.
1. 2023 is the final year you can carry back losses to 2020. In 2024, the furthest you can carry back a capital loss is 2021.
2. If you had a high income in one of those three years, you might be better off carrying the loss back to the year with the highest income. That way, you can maximize the resulting tax refund.
3. If your income and tax rate were relatively low in one or more of the past three years, you might want to defer claiming the loss. Capital losses can be carried forward indefinitely to use against capital gains in a future higher-income tax year.
You are not restricted, Ramesh, to claiming a capital loss on securities against a capital gain on securities. So, in your case, you could carry back a capital loss on securities to claim against a previous capital gain on a rental property.
How to carry back a capital loss
In order to carry back a capital loss, you have to complete Section III – Net capital loss for carryback on Form T1A, Request for Loss Carryback on your tax return. Although it can be printed, filled out and submitted to the CRA, a taxpayer or their accountant would generally submit the form as part of their annual tax filing.
After your tax return for the current year is assessed, you will later receive a notice of reassessment from the CRA with a tax refund for a previous year, if applicable.
Jason Heath, CFP
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