Are your investment losses actually worth money? Here's how tax-loss harvesting pays you back

The loss is then used to offset gains you've realized elsewhere in your portfolio — reducing your overall taxable income.

Keep in mind, this strategy only applies to non-registered, taxable investment accounts. Losses inside registered accounts — like a Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA), Registered Education Savings Plan (RESP), Registered Disability Savings Plan (RDSP) or a First Home Savings Account (FHSA) — are not deductible (1).

To effectively use this strategy you need to understand two key terms:

• Capital gains: Profits realized when you sell an investment for more than you paid
• Capital losses: Losses incurred when you sell an investment for less than you paid.

How does tax-loss harvesting it work in Canada?

In Canada, capital gains are taxable — and under the current rules, 50% of your net capital gains are included in your income and taxed at your marginal rate. That 50% is known as the capital gains inclusion rate, which remains unchanged after Prime Minister Mark Carney cancelled a proposed increase to 66.67% on March 21, 2025 (2).

So, how does it work? When you sell an investment at a loss, that loss is first applied to any capital gains you realized in the same tax year. Let's assume that in a given year, you realize a $5,000 capital loss and a $1,000 capital gain. The loss is applied against the gain, resulting in a net capital loss of $4,000. Put another way, you no longer owe tax on the $1,000 capital gain.

If your losses exceed your gains — or you have no gains at all — the leftover capital losses aren't wasted. They can be carried forward indefinitely to offset capital gains in any future year, or carried back to offset capital gains from any of the previous three tax years (3).

You can check your available capital loss balance by logging into the Canada Revenue Agency (CRA) My Account and navigating to "Carryover Amounts" under Tax Returns.

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No long-term vs. short-term distinction in Canada

One important point for Canadians who have read U.S.-focused investing content: Canada does not distinguish between "long-term" and "short-term" capital gains for tax purposes.

In the U.S., assets held for more than one year are taxed at a preferential rate but that rule does not exist in Canada.

In Canada, all capital gains are taxed at the same 50% inclusion rate, regardless of how long you've held the investment. This makes the mechanics of tax-loss harvesting somewhat simpler for Canadian investors to understand.

Watch out: The superficial loss rule

The CRA has a rule designed to prevent investors from gaming the system: the superficial loss rule. Under this rule, your capital loss claim is denied if you — or an affiliated person, such as a spouse or a corporation you control — repurchase the same or an identical security within 30 calendar days before or after the settlement date of the sale, and you still hold that property at the end of the 30-day period (4).

For example, if you sell shares of a Canadian bank at a $3,000 loss to harvest the tax benefit, but your spouse buys the same bank shares in his TFSA three weeks later, your loss claim will be denied.

However, there is a workaround: buy shares in a similar but not identical company.

If you've sold shares in one Canadian bank, you can replace this asset with shares of a different bank, or invest in an ETF that tracks the banking sector. This keeps your market exposure without triggering the superficial loss rule.

Don’t get caught in the superficial rule, accidentally

In order to not get caught in the superficial loss rule, you will need to understand settlement cycles and trade dates.

As of May 27, 2024 (5), Canada moved to a T+1 settlement cycle. That means trades now settle one business day after the trade date. The change in May 2024, was to shorten the trade date from the previous two-business-day window to one business day. As a result, the last trading day for tax-loss selling in Canada is December 30 in most years, to ensure settlement falls within the same calendar year (6).

Be aware: Older articles and advisers may still reference December 24 as the optimal tax-loss selling date but that date was based on the old T+2 settlement cycle and factored in Boxing Day. That date is no longer accurate.

Advisors generally recommend completing any tax-loss selling by mid-December to avoid last-minute market volatility or missed deadlines.

Canadian platforms that offer tax-loss harvesting tools

Some Canadian brokerages and robo-advisors have built tax-loss harvesting tools directly into their platforms:

Wealthsimple: Trusted by more than 3 million Canadians, Wealthsimple manages over $100 billion in assets and provides $1 million in eligible coverage through the CDIC for chequing accounts and CIPF for investments. Plus, as licensed fiduciaries, Wealthsimple's advisors must put your financial interests first. Wealthsimple offers commission-free trading and, for eligible clients, Wealthsimple portfolios automatically provide tax-loss harvesting. The feature can be turned on or off in account settings and is designed for passive investors rather than those who actively manage their portfolios (7).

For a limited time get a $25 bonus when you open your first account and fund at least $1 within 30 days. Plus, transfer $25,000 or more into an eligible Wealthsimple account and earn up to a 3% match, plus a chance to win a $3-million home. Offer ends March 31, 2026. Visit Wealthsimple for up-to-date terms and conditions.

Questrade: One of Canada's largest independent online brokerages, Questrade offers zero commission stock ETF purchases and $0 minimum to open an account. Its robo-advisor arm — Questwealth Portfolios — automates portfolio rebalancing and tax-loss harvesting, with management fees as low as 0.20% to 0.25% (8). To open an account use code MONEY26 to start saving on trading fees at Canada’s leading online trading platform.

Benefits of tax-loss harvesting

The most obvious benefit of tax-loss harvesting is a smaller tax bill.

At Canada's current 50% capital gains inclusion rate, selling a losing position to offset a $10,000 gain could effectively shelter $5,000 of income from taxation (9). At a marginal tax rate of 40%, that's $2,000 back in your pocket.