Can a capital loss reduce my salary or other income?

No. A net capital loss can only be applied against taxable capital gains. Unused losses carry back three years using Form T1A or forward indefinitely, but always against gains only (ITA paragraph 111(1)(b)).

What is a superficial loss?

A loss on property that you, or an affiliated person such as your spouse or a corporation you control, buy back (the same or identical property) during the period from 30 days before to 30 days after the sale, and still own at the end of that period. The loss is denied and instead added to the adjusted cost base of the repurchased property, so it is deferred, not lost.

Can I sell in my taxable account and buy the same fund in my TFSA or RRSP?

The loss is superficial if the registered account buys the identical property within the 30-day window, and because the property is now inside a registered plan there is no cost base to add the denied loss to. The loss is gone for good. Wait 30 days or buy something different.

Is selling one index ETF and buying another allowed?

Identical property means the same security. Two funds that track different indexes are different properties, so the loss stands. The CRA's definition of identical property is on its capital losses page and in Guide T4037; when in doubt, choose a replacement that is clearly different.

How much tax does a $20,000 gain cost?

Half the gain is taxable. For someone in Ontario with $150,000 of employment income, a $20,000 realized gain costs about $4,479 of 2026 tax; realizing a $20,000 loss in the same year brings that to zero.

Do losses on my cottage, car or collectibles count?

Losses on personal-use property are denied outright. Losses inside a TFSA, RRSP or FHSA are also never claimable, because gains inside those plans are never taxed.

When is the deadline to sell for this tax year?

The trade must settle in the calendar year. Guide T4037 explains which date the CRA uses for securities; sell a few business days before December 31 so the settlement lands in the year you want.

Capital-loss harvesting and the superficial-loss rule (Canada, 2026)

This guide is part of Tax-saving strategies for Canadians (2026).

Who this is for

Anyone holding investments in a non-registered account that are worth less than they paid, especially in a year with realized gains from selling a property, a business or other investments. It does nothing for TFSA, RRSP or FHSA holdings, where losses are never claimable.

How it works

The capital gains inclusion rate is 50% for 2026: half of a capital gain is added to income, and half of a capital loss (the “allowable capital loss”) is subtracted from taxable capital gains. Three steps:

Same year first. Allowable capital losses offset taxable capital gains in the year they are realized.
Carry back three years. A net capital loss left over can be applied to capital gains in any of the three previous years using Form T1A, which triggers a refund of tax already paid.
Carry forward indefinitely. Anything still unused carries forward to any future year, claimed on line 25300 against that year’s gains.

A net capital loss can only be used against capital gains, not against salary, interest or dividends (ITA paragraph 111(1)(b)). Harvesting a loss with no gain to offset just banks a loss for later.

Worked example: $150,000 salary plus a $20,000 gain (Ontario, 2026)

Tax is computed from the 2026 federal and Ontario brackets in our data files.

Line	Amount
Employment income	$150,000
Realized capital gain	$20,000
Taxable capital gain (50%)	$10,000
Marginal rate at $150,000	43.41%
Tax on the gain	$4,479
Sell a losing position with a $20,000 loss in the same year	Allowable loss $10,000 cancels the taxable gain
Tax on the gain after the loss	$0

If the gain had been realized in 2024 instead, the 2026 loss is carried back with Form T1A and the 2024 tax on the gain is refunded.

The rules that trip people up

The 30-day window runs both ways. A loss is superficial if the same or identical property is bought during the 61-day period from 30 days before the sale to 30 days after, and is still held at the end of that period (ITA section 54). The denied loss is added to the cost of the replacement property, so it comes back when that property is finally sold.
Affiliated persons count. Your spouse or common-law partner, and a corporation or trust you control, are affiliated. If your spouse buys the security back, your loss is superficial.
Registered accounts are the worst case. Buy the identical security back in your RRSP, TFSA or FHSA within the window and the loss is denied with no cost-base add-back: it is permanently lost.
Identical property. The same security is identical; a fund that tracks a different index is not. Switching to a similar but not identical fund keeps you invested and keeps the loss.
Personal-use property. Losses on a cottage, car, boat or collectibles are denied.
Year-end timing. The trade must settle inside the year. Guide T4037 sets out the date rule for securities; do not leave it to the last trading day.
Investments come first. The replacement holding has to fit your plan. A loss harvested into a worse portfolio is not a saving.

What to do next

Enter your sale in the capital gains tax calculator to see the tax on the gain and what a matching loss removes. The income tax estimator gives your marginal rate, and GIC vs HISA shows what the interest side of a non-registered account costs in tax. More strategies: Tax-saving strategies for Canadians (2026).

Questions people ask

Can a capital loss reduce my salary or other income?: No. A net capital loss can only be applied against taxable capital gains. Unused losses carry back three years using Form T1A or forward indefinitely, but always against gains only (ITA paragraph 111(1)(b)).
What is a superficial loss?: A loss on property that you, or an affiliated person such as your spouse or a corporation you control, buy back (the same or identical property) during the period from 30 days before to 30 days after the sale, and still own at the end of that period. The loss is denied and instead added to the adjusted cost base of the repurchased property, so it is deferred, not lost.
Can I sell in my taxable account and buy the same fund in my TFSA or RRSP?: The loss is superficial if the registered account buys the identical property within the 30-day window, and because the property is now inside a registered plan there is no cost base to add the denied loss to. The loss is gone for good. Wait 30 days or buy something different.
Is selling one index ETF and buying another allowed?: Identical property means the same security. Two funds that track different indexes are different properties, so the loss stands. The CRA's definition of identical property is on its capital losses page and in Guide T4037; when in doubt, choose a replacement that is clearly different.
How much tax does a $20,000 gain cost?: Half the gain is taxable. For someone in Ontario with $150,000 of employment income, a $20,000 realized gain costs about $4,479 of 2026 tax; realizing a $20,000 loss in the same year brings that to zero.
Do losses on my cottage, car or collectibles count?: Losses on personal-use property are denied outright. Losses inside a TFSA, RRSP or FHSA are also never claimable, because gains inside those plans are never taxed.
When is the deadline to sell for this tax year?: The trade must settle in the calendar year. Guide T4037 explains which date the CRA uses for securities; sell a few business days before December 31 so the settlement lands in the year you want.

Sources

Every figure in this guide comes from one of these primary sources, checked on September 11, 2026.