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Net capital loss and requesting a carry back
July 16, 2022
2:08 pm
piggybank
British Columbia
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I'm using Wealthsimple Tax to prepare my 2021 return. it says I have a "net capital loss" of about $100, and says I can carry back a loss to 2020 or 2019 or 2018. My questions:
1. How do I know which year to choose?
2. how do i know if it will make a difference anyway?
3. can I save this loss for a future year?

July 16, 2022
2:51 pm
AltaRed
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You are a bit late doing your 2021 taxes but whatever motivates you I suppose.
1. Look at each of the marginal tax rates at which you paid tax in 2018, 2019, 2020. That is readily apparent on Page 5 (Step 5) of your Federal T1. Pick the one with the highest marginal tax rate to maximize your tax savings, or if they are about the same, pick 2018 because that opportunity to do so will be lost after 2021.
Caveat: You have to have enough capital gains in the tax year you pick to offset that capital loss, i.e. you can only use capital losses against capital gains. Look at line 12700 (Schedule 3) to be sure.

2. Assuming you have enough capital gains in the tax year of choice to offset your $100 capital loss, what you will get back is 50% of your combined provincial+federal marginal tax rate. At best you will get about $25 back in taxes.

3. Yes. That would be the easiest thing to do. $100 of capital losses is a piddly amount to be doing a T1-ADJ form on for either 2018, 2019 or 2020.

July 16, 2022
3:04 pm
piggybank
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You are a bit late doing your 2021 taxes but whatever motivates you I suppose.

I'm late, but it looks like I don't owe anything to the CRA. so it's all good. 🙂

1. Look at each of the marginal tax rates at which you paid tax in 2018, 2019, 2020. That is readily apparent on Page 5 (Step 5) of your Federal T1.

Would you know if I can easily this info in "My CRA account" online? I don't file by paper and I don't want to try to remember which online service I used. 🙂

Caveat: You have to have enough capital gains in the tax year you pick to offset that capital loss, i.e. you can only use capital losses against capital gains. Look at line 12700 (Schedule 3) to be sure.

2021 is the first year I got into investing. I don't think I have any capital gains in 2018, 2019 or 2020. This means I can't do a "carry back", right?

3. Yes. That would be the easiest thing to do. $100 of capital losses is a piddly amount to be doing a T1-ADJ form on for either 2018, 2019 or 2020.  

I didn't know I had to do another form (the "T1-Adj" you mentioned). I thought the CRA folks would do all the time-wasting calculations, lol. In the words of Wealthsimple, "Carrying back a loss won't impact your 2021 tax, it will trigger an automatic reassessment of your prior year return." When I read the words "automatic reassessment", I imagine that I won't be doing any work on this readjustment.
So just to confirm, my 2021 capital loss of about $100 can be carried forward indefinitely? It doesn't expire?

July 16, 2022
3:09 pm
AltaRed
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The capital loss does not expire.

CRA does not do anything for you. It is up to you to file a tax return, either manually by paper, or by tax software and either mailed, or submitted electronically via Netfile.

CRA does an automatic re-assessment of a prior year tax return once you actually complete the T1-ADJ and file it.

July 16, 2022
3:49 pm
piggybank
British Columbia
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AltaRed said
The capital loss does not expire.
  

As I think of future tax years, I'm asking myself: Will CRA keep track of this unused 2021 $100 loss? Or must I make a note of this somewhere?

I mean to say... what if in 2030 I have a huge capital gain that this $100 loss would come in handy, but I forget about it in 2030?

July 16, 2022
4:26 pm
Bill
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If you read your NOA you'll see it (cumulative) noted there every year as available to offset against taxable capital gains.

July 16, 2022
5:22 pm
piggybank
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Thanks, Bill and AltaRed

July 16, 2022
6:07 pm
Norman1
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It is not T1-ADJ to carry back capital losses to previous years. One isn't correcting an error in the previous returns.

It is Part 5 of a T1A (Request for Loss Carryback).

It is not automatic because taxpayer can choose how much of the capital loss to carry back and how much to apply to each of the previous three years.

July 16, 2022
6:45 pm
piggybank
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Thanks Norman1

December 25, 2022
2:53 pm
TommyT
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piggybank said

As I think of future tax years, I'm asking myself: Will CRA keep track of this unused 2021 $100 loss? Or must I make a note of this somewhere?

I mean to say... what if in 2030 I have a huge capital gain that this $100 loss would come in handy, but I forget about it in 2030?  

Inflation will "eat " your deduction from capital gains. Use it as soon as possible unless you jump to a higher tax bracket in future years then use it. Legally the tax law was and is unconstitutional the way CRA changed it and it would have been shot down in one of the supreme courts. Hopefully the tax law will still be repealed and the people compensated for all the years they were cheated out of their own money as the change in the tax law borders on communism.

December 26, 2022
12:50 pm
Doug
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AltaRed said
The capital loss does not expire.

CRA does not do anything for you. It is up to you to file a tax return, either manually by paper, or by tax software and either mailed, or submitted electronically via Netfile.

CRA does an automatic re-assessment of a prior year tax return once you actually complete the T1-ADJ and file it.  

My understanding is while the capital loss does not expire, you can only carry back any capital losses to any of the preceding three income tax years (presumably, that would be the current tax year and the prior two), or carry forward them indefinitely until and including the year of your death?

Cheers,
Doug

December 26, 2022
2:03 pm
Jimmy
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I applied a capital loss years ago. For 2021 you could apply it to 2020, 2019 and 2018. In my case I split the losses to all three years using only what was necessary to reduce the capital gain to zero.

Off topic, but I also filed for the disability amount for my mom. You could have the disability credit applied to prior returns also as it depends on when the condition started to deteriorate. In my mom's case it was the two prior years.

December 26, 2022
6:47 pm
Norman1
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Only a net capital loss for a year, shown on line 19900 of Schedule 3, can be carried back or forward.

Individual capital losses have to be applied that taxation year towards line 19900 and cannot be carried back or carried forward.

If one has a $10,000 capital gain and a $9,000 capital loss in a year, one cannot decide to carry the $9,000 capital loss forward or back and report a $10,000 net capital gain that would be covered anyways by Basic Personal Amount credits.

December 27, 2022
10:18 am
RetirEd
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TommyT: Communism? Seriously? You still get to keep all your productive property (investments) and that is definitely not communism, where all the means of production are state-controlled and -owned.

Mind you, some people call all taxation "communism." But then some people still call Beanie Babies a "good investment."
RetirEd

January 5, 2023
1:34 pm
TommyT
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RetirEd said
TommyT: Communism? Seriously? You still get to keep all your productive property (investments) and that is definitely not communism, where all the means of production are state-controlled and -owned.

Mind you, some people call all taxation "communism." But then some people still call Beanie Babies a "good investment."
RetirEd  

The change in the tax law still borders on communism. In fact it is communist. The change just robs taxpayers of their own money and puts in into Revenue Canada's pockets.

January 5, 2023
2:04 pm
Bill
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TommyT, it would help if you elaborated on which particular change in the tax law you're referring to - ?

Also Revenue Canada doesn't exist, it's been an agency, CRA, for some time now. And CRA's pockets don't actually get to keep the taxes, the Agency has the job of collecting taxes and depositing them into the nation's treasury where it's used for the roads you drive on, etc.

January 6, 2023
9:18 am
RetirEd
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What Bill said, TommyT. What are you talking about?
RetirEd

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