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Superficial Losses and Other Disallowed Losses
Income Tax Act s. 53(1)(f), s. 54, s. 251.1(1) IT-456R Capital Property (Archived)
If shares (or other capital properties) are disposed of at a loss, this is considered a superficial loss and may not be deducted as a capital loss in the following circumstances:
 | the shares (or identical shares) are repurchased within 30 calendar days (before or after the disposal) by you, your spouse, or certain other persons affiliated with you, and |
| you, or a person affiliated with you, still own or have a right to buy the shares 30 calendar days after the sale. |
A person affiliated with you includes, but is not limited to:
| your spouse or common-law partner |
| a corporation controlled by you or your spouse or common-law partner |
| after March 22, 2004, a trust, including an RRSP, TFSA or RRIF, of which you or a person affiliated with you is a beneficiary (e.g. your or your spouse's registered account) |
The superficial loss is added to the adjusted cost base (ACB) of the repurchased or substitute shares. When the repurchased or substitute shares are sold, the loss can be claimed.
Exceptions to Superficial Loss Rules
In some situations, such as when the disposal of the shares is the result of the expiry of an option, a superficial loss is deemed not to have occurred. See CRA's information on Non-superficial Losses.
Call and Put Options - Can They Be Identical Properties?
From the last paragraph of Tax Interpretation 2008-0284441C6 F – Stock Options / Superficial Loss:
It appears to us that in general, all stock options of a particular corporation having the same exercise price and the same exercise date would constitute "identical properties". However, it also seems possible to us that two stock options of a particular corporation that have a different exercise price or a different exercise date might be such that a prospective buyer would have a preference for acquiring one rather than the other, because of the different features of the two options, and therefore might not constitute identical properties.
Partial Disposition of Shares
If only some of the shares were disposed of during the 61-day time period (30 days prior + date of disposition + 30 days after), the remaining shares are considered "identical shares", and the superficial loss on that number of shares will be added to the ACB of the remaining shares.
See Technical Interpretation (T.I.) 2004-0073011E5 - Superficial Loss.
Canada Revenue Agency's administrative policy, outlined in the above T.I., indicates how the superficial loss should be calculated when fewer items are bought during the 61-day period than were sold during that period. Formula from the T.I.:
SL (superficial loss) = (least of S, P and B)/S x L, where
| S = number of items disposed of at that time, |
| P = number of items acquired in the 61-day period, |
| B = number of items left at the end of the period, and |
| L = loss on the disposition as otherwise determined. |
Example using CRA administrative policy formula, assuming a loss of $1,000 on the sale of 50 shares, when the number of shares left at the end of the period are less than the number of loss shares sold in the period:
| S = 50 |
| P = 20 |
| B = 20 |
| L = $1,000 |
SL = 20/50 x 1,000 = $400
Example where the number of shares left at the end of the period are greater than or equal to the number of loss shares sold in the period (assume 20 shares owned prior to the period):
| S = 50 |
| P = 150 |
| B = 120 |
| L = $1,000 |
SL = 50/50 x $1,000 = $1,000
Tax Tip: If no shares are acquired during the 61-day period by you or a person affiliated with you, then P above is zero, so there is no superficial loss.
See also Jamie Golombek's article about Superficial Losses.
Transfer Capital Losses to a Spouse
Using the superficial loss rules, capital losses can be transferred to a spouse or common-law partner by selling the loss shares and having your spouse purchase those shares within 30 days (before or after you sell the shares). You are denied the superficial loss (see above), but the loss amount is used to increase the cost basis of your spouse's investment. Your spouse must hold the shares for more than 30 days after your disposition for this to work.
Example:
| If you have shares with an ACB of $10,000 which are now worth $6,000, you have a capital loss of $4,000. |
| You sell the shares for $6,000 and your spouse immediately purchases them for $6,000. |
| This is a now a superficial loss which you will not report on your tax return because you cannot claim it. |
| The superficial loss of $4,000 that you were denied is added to the cost basis of the shares purchased by your spouse. |
| The new cost basis of the shares to your spouse is $10,000. |
| As long as the shares are held longer than 30 days after being sold by you or purchased by your spouse, the spouse will have the capital loss. |
Of course, this can't be done with shares that are held in a joint account with a spouse.
Losses will also be disallowed if shares are transferred to a Registered Retirement Savings Plan (RRSP) or to a Tax Free Savings Account (TFSA) at a loss. You may decide you have a good reason to make a transfer of a loss investment to this type of account. If so, when completing your tax return, do not enter this disposal on your Schedule 3, as the loss cannot be claimed.
Losses Within the TFSA
If shares are disposed of at a loss inside your TFSA, there will be no superficial loss if the shares are repurchased within the TFSA within 30 days, as gains and losses in a TFSA are not taxable or deductible. If shares in your TFSA are in a loss position and you transfer them out of the TFSA to a non-registered account, superficial loss rules have no effect on this transaction. The market value at the time of the transfer will become the ACB of the shares in your non-registered account.
TaxTips.ca Resources
Transfer Investments to Your Registered Account - but not at a Loss!
Canada Revenue Agency (CRA) Resources
IT-387R2 Meaning of Identical Properties
Line 12700 - Taxable capital gains > Shares, funds and other units
Summary of loss application rules
Tax Tip: If you have sold shares at a loss, do not buy them back within 30 calendar days before or after the disposal (really a 61-day rule).
Revised: September 22, 2024