In general, a capital loss arises when the selling price for a capital investments is lower than the purchase price. There are various rules in the Income Tax Act that could suspend the capital loss or deny it. Capital losses may reduce any capital gains and therefore the taxable income for the year.
We mused in the past about investments in mutual funds and their tax consequences. The stock market was very volatile in 2015. The sale of securities during a depressed market period could generate a capital loss that could be used in the future to offset capital gains. To be able to claim such losses in the future (or carry them back to the previous three years), the loss must be reported in Schedule 3 of the Income Tax Return.
For income tax purposes, the original purchase price for securities (adjusted cost base or ACB) can be affected by various transactions that happened through the years. The most common example would be the purchase of securities in tranches. For tax purposes, the cost for similar securities averages. The annual gain or loss investment report is a good starting point to compute the capital losses for securities. Your accountant can provide additional information regarding the adjustments required to the ACB.
Canada Revenue Agency published a generic guide regarding capital losses and their deductibility. A special type of capital loss is the business investment loss (BIL). The allowable portion of the business investment loss (ABIL) can be used against any other type of incomes, not just against capital gains. For more information regarding ABIL visit businessloss.ca .
Your trusted accountant provides tax advice for calculation of capital losses on disposition of securities.