Net capital loss
A net capital loss is something a taxpayer can have for a year when its allowable capital losses are more than its taxable capital gains; the Income Tax Act defines it by formula in section 111. CRA says it can generally be applied to taxable capital gains of the three preceding years and to any future years.
A seller with capital losses from earlier dispositions may meet this term when a business sale produces a gain. CRA’s T4037 guide says that, generally, if allowable capital losses are more than taxable capital gains, the difference becomes part of the calculation of the net capital loss for the year. The Act’s definition is a formula, and the deduction sits in paragraph 111(1)(b).
How it is used
The guide says that, generally, you can apply net capital losses to taxable capital gains of the three preceding years and to any future years. For a taxpayer such as a corporation, subsection 111(4) says that, despite subsection 111(1) and subject to subsection 111(5.5), if the taxpayer is at any time subject to a loss restriction event, no amount of a net capital loss from a year that ended before that time is deductible for a year that ends after it.
What to check or ask
- Whose loss is it, and which return reports the gain it would offset?
- Has any of it already been applied to earlier years?
- Will the transaction be a loss restriction event for the corporation holding the loss?
See what happens for tax when a business sells at a loss and non-capital loss.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Canada Revenue AgencyGovernmentCapital Gains – 2025
- 02Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
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