Tax Loss Harvesting in Canada: How to Use Capital Losses to Reduce Your Tax Bill — CPA Montreal Near You Explains

Introduction

Tax loss harvesting is one of the most powerful year-end tax strategies available to Canadian investors. By strategically selling investments that have decreased in value, individuals can use capital losses to offset capital gains, reduce tax owing, and improve long-term portfolio efficiency. Yet many Canadians misunderstand how loss harvesting works, when it should be used, and the strict CRA rules that must be followed — including the superficial loss rule, timing requirements, and special considerations for spouses and corporations. This guide explains how to harvest losses properly, how to avoid CRA traps, and how to maximize tax benefits from volatile markets.

What Is Tax Loss Harvesting?

Tax loss harvesting involves selling investments that are currently worth less than their adjusted cost base (ACB). The goal is to realize a capital loss now, so it can offset capital gains in the current year or future years. Capital losses can:
offset 100 percent of capital gains in the same year
carry back three years
carry forward indefinitely
This strategy is especially valuable for investors with large capital gains, those planning major asset sales, or those with heavily fluctuating portfolios.

When You Should Consider Tax Loss Harvesting

Loss harvesting is beneficial when:
you realized significant capital gains this year
you expect to realize gains in future years
your portfolio has underperforming or declining assets
you want to rebalance your investments
you want to transition to a more tax-efficient asset mix
It is often used near year-end but can be applied at any time of the year.

CRA’s Superficial Loss Rule: The Most Important Trap

The superficial loss rule denies capital losses if:
you or an affiliated person (spouse, corporation you control, RRSP, TFSA) buys the same or identical investment within 30 days before or after the sale
and you still own the investment after the 30-day window
If triggered, the capital loss is not gone — it is added to the ACB of the repurchased investment. But it cannot be used for tax purposes that year.
Examples of identical property:
same stock (e.g., RBC to RBC)
same ETF (e.g., XIC to XIC)
same crypto (Bitcoin to Bitcoin)
non-identical investments often include:
RBC → TD
S&P 500 ETF → NASDAQ ETF
Bitcoin → Ethereum
Proper planning avoids denial of losses.

How to Use Capital Losses Strategically

Offset gains this year

Losses can offset 100 percent of capital gains realized in the same tax year.

Carry losses back 3 years

Useful if you had large gains in prior years or sold a business or property recently.

Carry losses forward indefinitely

Losses never expire — they remain available for future gains such as real estate, stock, or business sales.

Offset gains from corporate accounts

Capital losses inside corporations can offset corporate capital gains, but cannot be transferred to personal returns.

How to Calculate Your Adjusted Cost Base (ACB)

ACB is essential for determining gains or losses. ACB includes:
purchase price
commissions
reinvested distributions
currency conversion adjustments
multiple purchase lots must be averaged. Incorrect ACB calculations are a major CSA and CRA audit trigger.

Tax Loss Harvesting for Cryptocurrency

CRA treats crypto as a commodity, not a currency. Capital losses apply when:
crypto is sold
crypto is swapped for another crypto
crypto is used to purchase goods
Superficial loss rules may apply if identical property is repurchased through:
exchanges
wallets
spouses
RRSP/TFSA
Crypto loss harvesting is highly effective but must be carefully documented.

Harvesting Losses in Corporate Accounts

Corporations can harvest losses, but:
losses stay inside the corporation
losses cannot offset personal gains
capital losses offset only capital gains, not business income
Harvesting strategies must be coordinated between personal and corporate accounts for maximum efficiency.

Using Loss Harvesting With RRSPs, TFSAs, and FHSAs

Tax loss harvesting is not available inside:
RRSP
RRIF
TFSA
FHSA
Losses in registered accounts cannot be claimed. In fact, triggering a loss inside a TFSA or RRSP may be permanently detrimental because the contribution room is not restored.

Tax Loss Harvesting and Spousal Rules

Superficial loss rules apply to spouses. If one spouse sells a stock at a loss and the other spouse buys it back within 30 days:
the loss is denied
the loss transfers into the spouse’s ACB
Planning between spouses is essential to avoid inadvertent denials.

Common Mistakes Investors Make

repurchasing the same investment too soon
triggering a superficial loss unknowingly
buying back the same ETF through automatic contributions
miscalculating ACB
selling registered investments expecting deductible losses
failing to keep transaction records
CRA frequently audits investors with repeated loss claims.

When to Harvest Gains Instead of Losses

Some investors benefit from tax-gain harvesting when income is temporarily low. Triggering gains at a low marginal tax rate prevents higher tax later. This applies especially to:
students
low-income retirees before RRIF conversions
new immigrants establishing residency
Loss and gain harvesting must be coordinated strategically.

Documentation CRA Requires

Investors must keep:
trade confirmations
brokerage statements
cryptocurrency wallets and logs
ACB calculations
records for at least six years
CRA demands proof for capital losses during reviews.

Mackisen Strategy

At Mackisen CPA Montreal, we help investors calculate ACB accurately, identify loss harvesting opportunities, avoid superficial loss traps, structure crypto and ETF harvesting, and minimize long-term tax exposure. We coordinate personal, corporate, and spousal strategies for maximum benefit and CRA compliance.

Real Client Experience

A Montreal investor saved thousands in tax by harvesting losses before selling a rental property. A crypto investor avoided superficial loss denial by restructuring wallet transactions. A high-net-worth client used harvested losses to offset gains from a business sale. A retiree preserved OAS by reducing capital gains using strategic loss planning.

Common Questions

Can I harvest losses every year? Yes. Do crypto losses count? Yes. Do superficial loss rules apply to ETFs? Yes if identical. Can losses offset business income? No, only capital gains. Do losses expire? No.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps investors use tax loss harvesting strategically to reduce taxes, optimize portfolios, and protect long-term wealth while staying fully compliant with CRA rules.