Net capital losses before the year of death

Source URL

http://www.cra-arc.gc.ca/tx/ndvdls/lf-vnts/dth/nt/bfr-eng.html

Disclaimer

We do not guarantee the accuracy of this copy of the CRA website.

Scraped Page Content

Net capital losses before the year of death

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, report it at line 253.

Note

You cannot use the net capital losses of other years to create a negative taxable income for any year.

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 2016, 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 2016 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 2016.

To apply a previous year loss to 2016, 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 the lower of:

  • the adjusted net capital loss; and
  • 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 2016 taxable capital gain as described above, 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.

Example

A woman died in August of 2016. You have these details about her tax matters:

  • Net capital loss in 1999 which was never applied: $18,000
  • Taxable capital gain in 2016: $ 6,000
  • Capital gains deductions claimed to date: $ 4,000

You decide to use the 1999 loss to reduce the 2016 taxable capital gain and to use any amount left to reduce other income for 2016.

You have to adjust the 1999 net capital loss before you can apply it. Multiply it by 2/3 to get the adjusted net capital loss:

$18,000 x 2/3 = $12,000

To reduce the 2016 taxable capital gain, use the lower of:

  • $12,000 (adjusted net capital loss); and
  • $6,000 (2016 taxable capital gain).

After you use $6,000 of the loss to reduce the gain to zero, you still have $6,000 ($12,000 − $6,000) left. You can use this amount to reduce the deceased's other income for 2016.

To determine the amount to use, you have to readjust the $6,000. Because the loss occurred in 1999, multiply the amount left by 3/2 to get the readjusted balance:

$6,000 x 3/2 = $9,000

From the readjusted balance, subtract all capital gains deductions claimed to date:

$9,000 − $4,000 = $5,000

You can use $5,000 to reduce the deceased's other income for 2016. If you decide not to use the total of this balance in 2016, you can use the amount that is left to reduce other income for 2015.

Note

If you claim a capital gains deduction for the year of death or the year before the year of death, subtract it from the balance of net capital losses you have available to reduce other income in those years. For more details about capital gains and losses, as well as the capital gains deduction, see the Guide T4037, Capital Gains.

Forms and publications

Date modified:
2017-01-04