A capital loss and a non-capital loss are not the same thing, and mixing them up costs you money. The short version: a non-capital loss offsets any income and lasts 20 years. A net capital loss only offsets capital gains, but it never expires.
Every rule below was verified against the Canada Revenue Agency on 1 August 2026.
| Capital loss (net capital loss) | Non-capital loss | |
|---|---|---|
| What triggers it | Selling capital property (stocks, real estate, other investments) for less than it cost you | A loss from business, property or employment: your everyday income sources |
| What income it offsets | Only taxable capital gains | Any income, including salary, business and investment income |
| Carry-back period | 3 years | 3 years |
| Carry-forward period | Indefinitely | 20 years (losses arising after 2005) |
| Form and line | Line 25300; carry back on Form T1A | Line 25200; carry back on Form T1A |
Key takeaways
- A net capital loss carries forward indefinitely, but it can only offset taxable capital gains. A non-capital loss carries forward 20 years and can offset any income. That trade-off is the whole game.
- Both loss types carry back three years. You claim the carryback on Form T1A, Request for Loss Carryback, not by refiling the old return.
- A non-capital loss comes from business, property or employment and is claimed on line 25200. A net capital loss is claimed on line 25300.
- An allowable capital loss is 50% of your capital loss, matching the 2026 capital gains inclusion rate of 50%. The proposed increase to two thirds was cancelled.
- An allowable business investment loss (ABIL) is a capital loss you can deduct against any income, the one case where the capital side behaves like the non-capital side.
Capital loss vs non-capital loss: what actually separates them
Both are losses, and both can lower a tax bill in another year. The difference is what they are allowed to touch.
A capital loss comes from selling capital property for less than it cost you: shares, a rental, a piece of land, units in a fund. A non-capital loss comes from your ordinary money-making activities, mainly a business that ran at a loss, but also losses from property or employment. Canada treats these two streams separately on purpose, so a loss on one side cannot freely wipe out income on the other.
That single rule drives everything else. A capital loss is quarantined to capital gains. A non-capital loss roams across your whole return. Once you understand which bucket a loss falls into, the carry-back and carry-forward periods and the CRA line numbers follow from there.
What is a non-capital loss, and how does it carry forward?
A non-capital loss is a loss from a business, from property or from employment: the everyday sources of income. If your deductible expenses for the year beat that income, the shortfall is a non-capital loss. Most often it is an operating loss from a business you actively run, the loss most owner-managed businesses in Durham Region incur. Farming and fishing losses and limited partnership losses are their own categories with their own limits.
The rules are generous. A non-capital loss carry forward runs up to 20 years, the carryback reaches back three years, and in both directions the loss offsets any source of income. You claim losses from previous years on line 25200 of your tax return. To carry one back, you file Form T1A, Request for Loss Carryback, with your current return rather than refiling the old year. That carryforward window of 20 years applies to losses arising after 2005; older losses had shorter runs, but by 2026 those are almost all expired.
A Whitby example: carrying a business loss back for a refund
A Whitby contractor has a rough year. Her renovation business loses $40,000 in 2025 after a large client walked away. In 2024 she had $70,000 of net income and paid tax on it. She files Form T1A with her 2025 return and carries the $40,000 non-capital loss back to 2024. The CRA reassesses that year, cuts her 2024 taxable income to $30,000 and refunds the tax she overpaid.
She could instead carry the loss forward and use it against future profit. The choice is cash now versus a cushion later, and it turns on when she expects to be in a higher bracket. Not sure what you are sitting on? Your unused balances appear on your latest notice of assessment and in CRA My Account. A non-capital loss you never use simply expires at the 20-year mark, which is the main reason to apply your oldest losses first.
What is a capital loss, and how long can it carry forward?
A capital loss happens when you sell capital property for less than its cost. Only half of it counts: an allowable capital loss is 50% of the capital loss, the same inclusion rate that applies to capital gains. That rate is confirmed at 50% for 2026, after the proposed increase to two thirds on gains above $250,000 was deferred and then cancelled.
Here is the part people get backwards. A capital loss can only offset a capital gain. First it nets against your gains for the year. If your allowable capital losses come to more than your taxable capital gains, the excess becomes a net capital loss. You can carry that loss back three years or forward with no time limit, claimed on line 25300, but it can never touch your salary or your business income. Two smaller traps: a loss on personal-use property such as your car is not deductible at all, and the superficial loss rule denies your loss if you buy the same security back within 30 days.
An Ajax investor example: a net capital loss carried forward
An investor in Ajax buys shares for $50,000 and sells them for $30,000, a $20,000 capital loss. Half of that, a $10,000 allowable capital loss, is what she can actually use. She has no capital gains this year, so the $10,000 becomes a net capital loss. She can carry it back to recover tax on gains she reported in 2022, 2023 or 2024, or leave it carried forward indefinitely against future capital gains. What she cannot do is use it against her paycheque. That is the line between the two loss types in one transaction.
Allowable business investment loss (ABIL): a capital loss that acts like a non-capital loss
The allowable business investment loss is the exception that blurs the line, and it is worth real money when it applies. It starts life as a capital loss, specifically a loss on shares or debt of a Canadian small business corporation that failed. Normally half of a capital loss can only reach capital gains. An ABIL is different.
An ABIL is 50% of your business investment loss, and you can deduct it against any source of income for the year, the way a non-capital loss works. You report it at lines 21699 and 21700.
If you cannot use the full ABIL in the year, the unused part becomes a non-capital loss. That non-capital loss carries back three years and forward 10 years, not the usual 20. Anything still unused after 10 years converts into a net capital loss in the 11th year, and from that point it can only offset taxable capital gains again. One catch worth flagging before you claim: your ABIL is reduced by any lifetime capital gains exemption you have claimed in the past. This is the kind of loss we map out under tax planning and advisory work rather than leave to chance.
Net capital losses in the year of death
Net capital losses carry one more rule, and it matters for estates. Normally these losses only offset capital gains. In the year a person dies, and in the year right before, that wall comes down: net capital losses that go beyond the person's capital gains can be applied against any other income on those returns. The amount is reduced by any capital gains deduction the person claimed in earlier years. It is one more reason a final return in Oshawa or Pickering deserves a careful hand rather than a rushed filing, along with the CRA clearance certificate before the estate is paid out.
Frequently asked questions
What are the rules for capital loss carry forward?
A capital loss first offsets your capital gains in the same year. If your allowable capital losses come to more than your taxable capital gains, the excess becomes a net capital loss. You can carry it back three years to recover tax on past gains, or forward with no time limit. It only ever offsets taxable capital gains, never regular income.
How long can a capital loss carry forward?
Indefinitely. A net capital loss has no expiry date, so you can hold it for decades until you have a taxable capital gain to use it against. That is the sharp contrast with a non-capital loss, which expires 20 years after the year it arose.
What is the CRA 3 year rule?
It is the carryback window. Both a non-capital loss and a net capital loss can be carried back three years, which lets you recover tax you already paid in one of the prior three years. You request it on Form T1A, Request for Loss Carryback, rather than by refiling the older return.
Can I carry forward a capital loss?
Yes. Once an allowable capital loss becomes a net capital loss, you can carry it forward with no deadline. The catch is what it can offset: only taxable capital gains. If you need to shelter salary or business income instead, that job belongs to a non-capital loss.
Can a capital loss offset ordinary income in Canada?
Generally, no. A net capital loss can only be applied against taxable capital gains, either in the three years before it arose or in any later year. There are two exceptions. An allowable business investment loss (a loss on shares or debt of a Canadian small business corporation) can be deducted from any income for the year. And in the year a person dies and the year before, unused net capital losses can reduce other income, after subtracting any capital gains deduction the person claimed.
Claim the right loss against the right income
Losses are only worth something if you claim the right one against the right income before it expires, and the rules split in ways that are easy to get backwards. We handle capital and non-capital losses, carrybacks and ABIL claims for owner-managed businesses and investors across Oshawa, Whitby, Ajax, Pickering, Clarington, Bowmanville and Uxbridge. Book a free 30 minute consultation before you file, and we will make sure the right loss offsets the right income.
This article is for general information only and does not replace professional tax advice. Tax rules change, and your specific situation matters. Always confirm with a qualified CPA before making tax decisions.
