With year-end approaching, many Canadian investors begin reviewing their non-registered portfolios to identify positions sitting at a loss. Tax loss selling — deliberately realising those losses before December 31 — is one of the most straightforward, legal strategies for reducing the capital gains tax you owe for the year. Done correctly, it can save thousands of dollars. Done carelessly, it can run afoul of the superficial loss rule and deliver nothing but paperwork. This guide covers everything you need to know about tax loss selling in Canada for the 2025 tax year.
Tax loss selling (also called tax loss harvesting) is the practice of selling an investment that has declined in value in order to realise a capital loss. That realised loss can then offset capital gains you have already recognised during the same tax year, reducing the amount of taxable income you report to the Canada Revenue Agency.
For example: suppose you sold a rental property earlier in 2025 and triggered a $40,000 capital gain. Later in the year you notice your portfolio holds shares of a tech company now worth $15,000 less than you paid. By selling those shares before year-end, you realise a $15,000 capital loss that directly offsets $15,000 of that earlier gain — reducing your net capital gain from $40,000 to $25,000.
The strategy only applies to investments held in non-registered accounts. Losses inside an RRSP or TFSA are not available to you for tax purposes (more on that below).
The rules for using capital losses follow a specific order set out in the Income Tax Act:
Same year first. Net capital losses in a given year must first be applied against capital gains realised in that same year. If your 2025 losses exceed your 2025 gains, you have an excess net capital loss.
Carry back up to three years. If losses remain after offsetting 2025 gains, you can carry them back to reduce capital gains reported in 2024, 2023, or 2022. To do this, file CRA Form T1A — Request for Loss Carryback — with your 2025 return (or as a standalone request). CRA will reassess the earlier year and issue a refund of the tax you overpaid.
Carry forward indefinitely. Any unused losses that you do not carry back can be carried forward to offset capital gains in any future year. CRA tracks your carry-forward balance on your Notice of Assessment each year.
One important limitation: capital losses can only be applied against capital gains, not against employment income, business income, or other sources. They must also apply to gains from the same type of property — losses from listed securities offset gains from listed securities; losses from real property offset gains from real property, and so on.
The superficial loss rule is the mechanism CRA uses to prevent investors from selling a position purely to create a tax loss while immediately buying back the same investment. If the rule applies, your capital loss is disallowed.
The rule triggers when: you (or an affiliated person) sells a security at a loss, and you (or an affiliated person) acquires the same or identical property within 30 days before or after the sale date, and you (or an affiliated person) still holds that property at the end of the 30-day period after the sale.
The 30-day window runs in both directions — 30 days before the sale and 30 days after. A disallowed loss is not permanently lost; instead, it is added to the adjusted cost base (ACB) of the repurchased security, deferring the loss until you sell that security at some future date without triggering the superficial loss rule again.
Who counts as an affiliated person? Under the Income Tax Act, affiliated persons include your spouse or common-law partner, a corporation controlled by you or your spouse, and a trust of which you are a majority interest beneficiary. Transactions through any of these entities count the same as transactions you make personally.
What counts as identical property? CRA applies a broad interpretation. Selling RBC common shares and repurchasing RBC common shares within 30 days is the clearest example of identical property. However, selling one bank stock and buying a different bank stock is generally not caught — they are different securities. The more nuanced area involves ETFs: selling one S&P 500 ETF and buying a different provider's S&P 500 ETF may or may not be considered identical property. CRA has not issued definitive guidance on every scenario, and the agency's general position leans toward a broad reading. If you are unsure whether two ETFs constitute identical property, speak with a tax professional before executing the trade.
For a capital loss to count in the 2025 tax year, the trade must settle on or before December 31, 2025. In Canada, most equity trades settle on a T+1 basis — meaning the trade settles one business day after the trade date.
In practical terms: for Canadian and US exchange-listed stocks settling T+1, you should plan to sell by approximately December 27 or 28, 2025 to ensure settlement falls within 2025. The exact last trading day depends on the holiday calendar and your broker's cut-off times. Confirm the precise deadline with your brokerage before year-end — missing settlement by even one day moves the loss into 2026.
Mutual funds may have different settlement timelines, sometimes T+2 or longer. Check the fund's prospectus or call your advisor well before the last week of December.
If you realise a net capital loss in 2025 and want to apply it to gains from 2024, 2023, or 2022, you file Form T1A — Request for Loss Carryback — attached to your 2025 T1 return. You specify which prior year you want the loss applied to, and CRA will reassess that year and refund the excess tax paid.
You are not required to carry back losses — you can choose to carry them forward instead. However, carrying back often makes sense if you paid significant capital gains tax in a prior year, because it generates an immediate refund rather than a future credit. The decision depends on your marginal tax rate in each year and whether you anticipate gains in the near future. The tax professionals at Swift Accounting Calgary can model both scenarios and recommend the approach that produces the better after-tax outcome for your situation.
This is one of the most misunderstood points in Canadian tax planning. If you hold a stock inside your RRSP or TFSA and it declines, selling it does not generate a capital loss you can use anywhere. The loss is trapped inside the registered account and provides no tax benefit outside of it.
This is one practical reason why many advisors suggest holding your highest-risk, most volatile investments in your non-registered account — not because registered accounts are bad (they are excellent), but because if those risky positions go wrong, you at least retain the ability to harvest the loss for tax purposes. Stable, dividend-paying investments and fixed income are often better suited to registered accounts from a loss-harvesting perspective.
Effective tax loss selling is not simply about selling every losing position in December. Consider these factors before executing trades:
If your situation involves significant capital gains from a business sale, real estate disposition, or large portfolio rebalancing, a structured year-end review with Swift Accounting is worth your time well before December.
It depends on whether CRA considers the two ETFs to be identical property. Switching from one provider's S&P 500 ETF to another provider's S&P 500 ETF that tracks the same index carries some risk of being considered identical property under CRA's broad interpretation. Switching to an ETF that tracks a meaningfully different index or asset class is less likely to be caught. There is no published safe-harbour list, so when the amounts are significant, confirm the trade structure with a tax professional before settling.
For T+1 settling securities on Canadian and US exchanges, you generally need to execute the sale by December 27 or 28, 2025. The exact date depends on the holiday schedule and your broker's processing cut-offs. Confirm directly with your broker — missing the settlement deadline by one day pushes the loss into 2026.
The unused net capital loss can be carried back to offset capital gains reported in 2024, 2023, or 2022 by filing Form T1A with your 2025 return. If you choose not to carry back, or if the prior-year gains are insufficient to absorb the full loss, the remainder carries forward indefinitely and can be applied against capital gains in any future tax year.
Yes. Your spouse or common-law partner is an affiliated person under the Income Tax Act. If you sell shares at a loss and your spouse purchases identical shares within 30 days before or after your sale, the superficial loss rule applies and your loss is disallowed. The disallowed loss is added to the ACB of the shares your spouse holds. Both spouses' accounts — including RRSP and TFSA accounts — are considered when evaluating whether the superficial loss rule has been triggered.
Tax loss selling is a legitimate and often underused year-end planning tool, but the superficial loss rule, settlement deadlines, and ACB tracking make it easy to get wrong. If you want a review of your portfolio's loss-harvesting opportunities before December 31, contact Swift Accounting to schedule a year-end tax planning consultation. We work with Calgary investors and business owners to make sure capital losses are captured correctly, applied in the most advantageous year, and documented properly for CRA.
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