Tax-Loss Harvesting in Canada: How It Works

Tax-loss harvesting is a strategy where you sell investments at a loss to offset capital gains and reduce your tax bill. It is a common year-end planning technique for Canadian investors with taxable (non-registered) accounts.

How Capital Losses Work in Canada

When you sell an investment for less than your adjusted cost base (ACB), you realize a capital loss. Capital losses can be used to:

• Offset capital gains in the current tax year
• Carry back to any of the three preceding tax years
• Carry forward indefinitely to offset future capital gains

Only 50% of a capital gain is included in taxable income (the inclusion rate as of 2025 for the first $250,000), so only 50% of a capital loss can offset that income. Losses and gains are netted before applying the inclusion rate.

The Strategy in Practice

Suppose you have the following in your non-registered account:

• Stock A: sold for a $10,000 gain
• Stock B: currently showing a $6,000 unrealized loss

By selling Stock B before year-end, you crystallize the $6,000 loss. Your net capital gain becomes $4,000, and only $2,000 is added to your taxable income (at the 50% inclusion rate).

The Superficial Loss Rule

Canada’s superficial loss rule prevents you from selling an investment at a loss and immediately buying it back. A loss is denied if you or an affiliated person (spouse, corporation you control) buys the same or identical property:

• Within 30 days before or 30 days after the sale, and
• Still holds it at the end of that period

The denied loss is added to the ACB of the repurchased property, so it is not permanently lost — it simply defers the tax benefit.

Working Around the Superficial Loss Rule

Common compliant strategies include:

• Wait 31 days before repurchasing the same security
• Buy a similar but not identical investment — for example, swap a Canadian equity ETF tracking the S&P/TSX 60 for one tracking the S&P/TSX Composite
• Ensure your spouse does not buy the same security within the 30-day window

The CRA has not published an exhaustive definition of “identical property,” so it is important to ensure any replacement investment is sufficiently different.

When Tax-Loss Harvesting Makes Sense

This strategy is most effective when:

• You have realized capital gains to offset in the current or recent years
• You hold investments with significant unrealized losses in a taxable account
• You want to rebalance your portfolio anyway
• You are in a high marginal tax bracket

When It Does Not Make Sense

Avoid harvesting losses if:

• The investment is in a registered account (RRSP, TFSA, FHSA) where gains are already tax-sheltered
• Transaction costs or bid-ask spreads outweigh the tax benefit
• You would lose a position you strongly want to hold

Year-End Timing

For Canadian stock exchanges, trades must settle by December 31 to count for the current tax year. Stock trades settle in one business day (T+1), so the last trading day is typically December 29 or 30. Check the settlement calendar each year.

Reporting on Your Return

Report capital gains and losses on Schedule 3, Capital Gains (or Losses). Track your ACB carefully, especially if you use a dividend reinvestment plan (DRIP) or make frequent purchases of the same security.

Sources

• CRA — Capital gains
• CRA — Superficial losses