Tax-loss selling and the superficial loss rule

Selling something for less than you paid does not, by itself, do anything for your taxes. It becomes useful only when the loss meets a gain, and there is one CRA rule that quietly cancels the whole exercise if you are not watching for it.

This page is about the mechanics. It is not advice about whether to sell anything.

What a capital loss can actually do

A capital loss offsets a capital gain, and in the ordinary case nothing else.

If your losses in a year exceed your gains, the excess becomes a net capital loss, and CRA lets you move it in time. In its own words: carry back three years, carry forward indefinitely. So a loss realised this year can be applied against taxable capital gains in any of the three preceding years, or held against any future year with no expiry.

The limit people are surprised by is the other one: "Usually, you can apply net capital losses of other years only against taxable capital gains." A capital loss does not reduce your employment income, and it does not reduce interest or dividend income.

The rule that undoes it: superficial loss

This is the part worth understanding before anything else.

If you sell at a loss and the identical security comes back into your hands, or into the hands of someone affiliated with you, around the same time, CRA denies the loss. It is not lost forever in most cases: the denied amount is added to the adjusted cost base of the repurchased units, so it reduces a future gain instead of this year's.

Two conditions have to be true. The first is the purchase: you, or a person affiliated with you, buys or has a right to buy the same or identical property. CRA calls it the substituted property, in the period starting 30 calendar days before the sale and ending 30 calendar days after it. The second is that you, or a person affiliated with you, still owns or has a right to buy that substituted property 30 calendar days after the sale. If only the first is true, the loss is not superficial.

"Affiliated with you" is broader than it sounds

This is where most of the accidental cases come from. CRA's own examples of affiliated persons:

• you and your spouse or common-law partner;
• you and a corporation controlled by you or your spouse or common-law partner;
• a partnership and a majority-interest partner of it;
• a trust and its majority-interest beneficiary.

That last one is why a repurchase inside your RRSP counts, which surprises almost everyone: a registered plan is a trust and you are its majority-interest beneficiary. And in that case the denied loss really is gone. There is no non-registered ACB for it to be added to, because the units live inside the plan.

The same logic reaches a TFSA, and it reaches a purchase your spouse makes in their own account without either of you thinking about it.

Two accounts, one pool, one very easy mistake

Because Canada pools identical property per taxpayer rather than per account, the rule does not care which institution the buy and the sell happened at.

Sell a position at a loss at one brokerage while a monthly contribution quietly buys the same ETF at another, and both conditions can be satisfied without a single deliberate decision. Neither brokerage can see the other, so neither can flag it, and neither one's year-end slip will show it. This is the same reason a cost base computed from one account is arithmetically incapable of being right, the rule and the pool have the same scope.

If you hold the same security in more than one place, the only reliable way to see this is a view that spans every account, including registered ones.

Timing, and the one thing this page will not tell you

The disposition has to fall in the tax year you want the loss in. What that means in practice is a cut-off some days before December 31, because a trade placed at the very end of the year may not settle inside it.

Deliberately, this page does not give you that date. CRA's guidance on capital losses does not address settlement or trade dates at all, and the cut-off follows the settlement convention your brokerage applies rather than a tax rule. Ask your brokerage what their last eligible trade date is for the current year, and be aware that the superficial-loss window extends 30 calendar days into January regardless of where the year ends.

What Luum does and does not do here

Luum tracks adjusted cost base with the average-cost method across your accounts and across years of partial sales, so the pool the rule operates on is visible in one place rather than one login at a time.

Luum does not apply superficial-loss adjustments. Its capital gains figures do not account for the rule. If you have sold at a loss and the same security was bought anywhere in your affiliated group inside the window, the treatment is yours to work out, and how Luum tracks adjusted cost base sets out exactly which adjustments it applies automatically and which it leaves to you.

If it is specifically the superficial-loss calculation you need, there are Canadian tools that do handle it, and that page says plainly which of the two is ahead on this point.

This is educational information about how the rules work, not advice about whether to sell anything. Verify with the CRA or a qualified tax professional before you file.

One structural note on what you can harvest at all: a blended fund reports one price, so a decline in part of the market may leave it showing no loss to realise. That trade-off is covered in one-ticker ETF portfolios.

Common questions

What is the superficial loss rule?

It denies your capital loss when two conditions are both met: you or an affiliated person acquires the identical property in the window running from thirty days before the sale to thirty days after it, and that property is still held at the end of that window. Both have to be true. If only one is, the loss stands. What counts as identical is why switching between two funds from different families is a different case from selling and rebuying the same one, which XEQT vs VEQT works through.

Does rebuying the same ETF in my TFSA cancel the loss?

It can. The rule reaches affiliated persons and your own registered accounts, so repurchasing the identical security inside a TFSA or RRSP within the window can deny the loss in your taxable account, and in that case the loss is lost rather than merely deferred.

Does Luum apply the superficial loss rule to my records?

No. Luum keeps an adjusted cost base record on the average-cost method and does not apply superficial loss adjustments, which is stated plainly in the documentation. If that rule is in play for you, the arithmetic needs to be done separately or with a tool built for it.