The deceased may have had a net capital loss before the year of death but never applied it. If so, you can apply the loss against taxable capital gains on the final return. If the net capital loss arose after 1987 and before 2001, you will need to make an adjustment to the inclusion rate as explained below. If there is still an amount left, you may be able to use it to reduce other income on the final return, the return for the year before the year of death, or both returns. If you decide to claim this loss on the final return, enter it at Line 25300.

You have to apply net capital losses of earlier years before you apply net capital losses of later years. For example, if you have net capital losses in 1997 and 1999 and want to apply them against your taxable capital gains in 2022, you have to follow a certain order. First, apply your 1997 net capital loss against your taxable capital gain. Then apply your 1999 net capital loss against it.

The inclusion rate used to determine the taxable part of a capital gain and the allowable part of a capital loss has changed over the years. If the inclusion rate of 1/2 for 2022 is different from the inclusion rate in effect the year the loss occurred, you will need to adjust the loss before applying it to the taxable capital gain in 2022.

To apply a previous year loss to 2022, you will need to adjust the loss as follows:

• For a net capital loss from 1987 or earlier, there is no adjustment required
• For a net capital loss from 1988 or 1989, multiply the loss by 3/4
• For a net capital loss from 1990 to 1999, multiply the loss by 2/3
• For a net capital loss from 2000, multiply the loss by [1 ÷ (2 x IR)], where IR is the inclusion rate for 2000. This rate is from line 16 of Part 4 of the deceased's Schedule 3 for 2000, or from the deceased's notice of assessment or latest notice of reassessment for 2000
• For a net capital loss from 2001 or later, there is no adjustment required

When you make these calculations, you get the adjusted net capital loss.

Now you can reduce taxable capital gains in the year of death. To do this, use whichever of the following amounts is less:

• the adjusted net capital loss
• the taxable capital gains in the year of death

After you reduce the taxable capital gains, some of the loss may be left. You may be able to use this amount to reduce other income for the year of death, the year before the year of death, or for both years. However, before you do this, you may have to calculate the amount you can use.

If you had to adjust the loss before applying it to the 2022 taxable capital gain, you will now have to readjust the loss that remains as follows:

• For a net capital loss from 1987 or earlier, there is no adjustment required
• Multiply any adjusted net capital losses from 1988 or 1989 by 4/3
• Multiply any adjusted net capital losses from 1990 to 1999 by 3/2
• Multiply any adjusted net capital losses from 2000 by 2 x IR, where IR is the inclusion rate for 2000
• For a net capital loss from 2001 or later, there is no adjustment required

The result is your readjusted balance of net capital losses. From this balance, subtract all capital gains deductions claimed to date, including those on the final return. If there is an amount left, you can use it to reduce other income for the year of death, the year before the year of death, or for both years.

Forms and publications

• Guide T4011, Preparing Returns for Deceased Persons
• Guide T4037, Capital Gains