If you have a loss from a source such as a business or property, it will automatically offset income from another source in the same taxation year. However, your income cannot be negative. Therefore, your losses from sources in excess of your positive income from sources (“non-capital loss”) cannot be used in that year.
However, such a non-capital loss can be carried back 3 years, or forward 20 years (for losses from 2006 and later years), to offset all other sources of income for those years.
Net capital losses
One-half of your capital losses are allowable capital losses (“ACLs”) and one-half of your capital gains are taxable capital gains (“TCGs”). Your ACLs for a taxation year offset your TCGs for the year, but you cannot have negative net TCGs. Any excess ACLs cannot be utilized against other sources of income for the year.
However, the excess ACLs, called “net capital losses”, can be carried back 3 years or forward indefinitely to offset TCGs in those other years. They cannot offset other sources of income.
(However, upon death, the ACLs can offset other sources of income in the year of death or the immediately preceding year.)
Allowable business investment loss (“ABIL”)
An ABIL is a type of allowable capital loss that arises on the disposition (including certain “deemed” dispositions) of shares or debt in a small business corporation. Unlike regular ACLs, an ABIL can offset all sources of income and not just TCGs.
Unused ABILs in a year can be carried back 3 years and forward 10 years to offset all sources of income. ABILs carried forward beyond 10 years convert to regular ACLs and therefore can only offset TCGs.
Listed personal property losses
Most capital losses from personal property are deemed to be nil and are therefore not recognized for tax purposes.
However, if the loss is from the disposition of a listed personal property (“LPP”), it can offset gains from disposition of LPP in the same year. If there is a net gain, one-half is a TCG included in income. If there is a net loss, the excess loss can be carried back 3 years or forward 7 years to offset gains from LPP in those years (but not other properties).
- Art work;
- Rare books, folios and manuscripts;
- Stamps; and
Limited partnership losses
If you are a limited partner of a partnership, your share of the losses from the partnership for a year is limited to your “at-risk amount” in respect of your interest in the partnership. In general terms, the at-risk amount reflects your adjusted cost base of the interest (what you paid for the investment), reduced by certain amounts that you owe to the partnership or benefits or guarantees that you may be entitled to receive that are meant to reduce the impact of any losses from the partnership (i.e. it is meant to reflect only the money that you have “at risk”).
The limited partnership losses in excess of your at-risk amount can be carried forward and used in future years, but again subject to your at-risk amounts in those future years. Limited partnership losses cannot be carried back.