Tax-loss harvesting in Canada: how your worst investment cuts your tax bill

If you sold something at a profit this year, you'll owe tax on it. An investment that's down can shrink that bill. You sell it, the loss cancels part of your profit, and you buy something similar right away so you stay invested. In Ontario, a $5,000 loss saves someone earning $85,000 $741. It's called tax-loss harvesting, and for 2026 the last day to do it is Wednesday, December 30.

It only works in a regular investing account. In a TFSA, RRSP or FHSA, gains and losses aren't reported at all, so there's nothing to cancel.

How gains and losses get taxed

Say you buy shares for $10,000 and sell them for $14,000. That $4,000 is a capital gain. Only half of it counts as income, so $2,000 gets added to your taxable income, and at a 30% tax rate that's about $600 owed to the Canada Revenue Agency (CRA).

A loss works the same way in reverse: buy at $10,000, sell at $6,000, and you have a $4,000 capital loss. A loss can't lower your salary or anything else. It can only cancel gains. A $4,000 loss against a $4,000 gain means you pay no tax on that gain.

A $741 example

Say you earn $85,000 in Ontario. In October you sold some shares for a $10,000 gain. You also own an ETF you paid $20,000 for that's now worth $15,000. If you sell it, you lock in a $5,000 loss, and that cancels half your gain:

At your income, every extra $1,000 of taxable gain costs you $296.50 in federal and Ontario tax. You're taxed on $2,500 less, so you save $741. And you haven't left the market, because you buy a similar ETF right after the sale.

What the same $5,000 loss saves depends on what you earn. In Ontario, with $10,000 of gains this year:

The more you earn, the more you save, because the gain you're cancelling would have been taxed at a higher rate.

No gains this year? The loss still counts

If you haven't sold anything at a profit in 2026, you don't lose the loss. It becomes a net capital loss. You can use it against gains from any of the last three years, or hold on to it for future years. It never expires.

Going back three years is where you get cash. You file Form T1A, and the CRA recalculates that earlier year and sends you the difference. You don't redo the old return.

Say you sold shares in 2024 for a $12,000 gain and paid tax on the taxable half, $6,000. This year you sell a loser for a $12,000 loss and carry it back to 2024. At a 30% tax rate, about $1,800 comes back to you.

How to do it

1. Find what's down. Your broker shows what you paid for each holding (the adjusted cost base) next to what it's worth now. Sort by the biggest drop.
2. Add up this year's gains. Count everything you sold at a profit in a regular account since January 1. Gains from a rental property or a cottage count too.
3. Sell the loser. Sell the whole position. Sell half and you only get half the loss.
4. Buy something similar, but not the same thing. More on that below.
5. Report it. The loss goes on Schedule 3 of your tax return, and your broker's tax slip shows the sale. To carry it back, file Form T1A.

If you own shares priced in US dollars, convert the sale at the exchange rate on the day you sold and what you paid at the rate on the day you bought. A US stock can lose money in US dollars and show a smaller loss in Canadian dollars, or the reverse.

The 30-day rule

You can't sell at a loss and buy the same thing right back. That's the superficial loss rule, and the CRA won't let you claim the loss if both of these are true:

• You, or someone affiliated with you, bought the same or an identical investment in the 30 days before or the 30 days after your sale.
• That person still owned it 30 days after the sale.

Affiliated means your spouse or common-law partner and any corporation you control. Your own RRSP and TFSA count too.

So these all cancel your loss:

• Selling, then buying the same ETF back the next day.
• Selling, and your spouse buying it that week.
• Selling, then buying it in your TFSA two weeks later. That one's gone for good.

If you rebuy in a regular account, the loss isn't gone for good: it gets added to the cost of the new purchase and comes back when you sell that one. If you wait 31 days before rebuying the original, the loss counts.

Count the 30 days from the day the sale settles, which is the business day after you click sell. Canadian stocks and ETFs settle one business day later.

What counts as similar

The CRA looks at this case by case, and its test is whether two investments are the same in all material respects. Two funds that follow the same index from different companies are risky. Two funds that follow different indexes are the usual way around it.

For example, the iShares fund XIC tracks the S&P/TSX Capped Composite Index, and the Vanguard fund VCN tracks the FTSE Canada All Cap Domestic Index. Both hold most of the Canadian stock market, but they follow different indexes, so selling one at a loss and buying the other is the standard move among Canadian index investors. If you're still choosing funds, Couch Potato investing covers the ones most beginners start with.

The deadline

A sale counts in the year it settles. Trades settle one business day after you place them, and the TSX is closed on December 25 and 28 this year, so Wednesday, December 30, 2026 is the last day to sell and have it settle on December 31. Sell on the 31st and it settles in January, which makes it a 2027 loss.

You pay some of it back later

Go back to the ETF you paid $20,000 for. You sell it at $15,000 and buy a similar one for $15,000. Your cost on the new ETF is $15,000, not $20,000. So whenever you sell the new one, your gain is $5,000 bigger than it would have been. You saved $741 now, and that tax shows up again at the end.

It's still worth doing, for three reasons:

• You have the $741 today, and you can invest it.
• You may sell the new ETF years from now, in retirement for example, when your income is lower and the same gain is taxed at a lower rate.
• A loss carried back gets you real money from a year that's already closed.

Check what your broker charges per trade, too. On a $400 loss, Ontario at that same rate saves about $59, so if you pay commissions, make sure the saving beats what the two trades cost.

Do your TFSA and RRSP first

If you haven't filled your TFSA, start there: the growth is never taxed. Then your RRSP, where contributions lower this year's tax bill. Harvesting is for whatever you invest in a regular account after that. And if you trade for a living, the CRA may treat your results as business income, and none of the capital-loss rules here apply.

Open your broker, switch to the gain and loss view, and sort by the biggest loss. If you sold a winner this year, you have until December 30.