Capital Losses vs Non-Capital Losses
Capital Losses vs Non-Capital Losses
Capital Losses Vs. Non-Capital Losses
Capital Loss
A capital loss arises when you sell a capital property you own for less than its adjusted cost base. A capital loss can be carried back three years and forward indefinitely. The inclusion rate for a capital loss is as follows:
| Year | Inclusion Percentage |
| Before 1988 | 50% |
| 1988 and 1989 | 67% |
| 1990 to 1999 | 75% |
| Jan 1 to Feb 27, 2000 | 75% |
| Feb 28 to Oct 16, 2000 | 67% |
| Oct 17 to Dec 31, 2000 | 50% |
| 2001 to present | 50% |
Non-Capital Loss (Business loss)
A non-capital loss arises when you incur any loss from employment, property or a business. The carry-forward periods are:
| Year of Loss | Carry Forward Period | Carry Back Period |
| Taxation years ending March 22, 2004 | 7 Years | 3 Years |
| Taxation years ending after March 22, 2004 | 10 Years | 3 Years |
| Taxation years ending after 2005 | 20 Years | 3 Years |
Capital Losses vs. Business Losses
A capital loss can only be applied to reduce a capital gain. However, a business loss has more flexibility and it can be applied to reduce a capital gain or other income. In the case of Mr. Prochuk vs. Queen he tried to argue his losses were business losses and could be used to reduce other income. Mr. Prochuk was not successful in arguing his claim because he did not meet the criteria for a business loss. Mr. Prochuk was an engineer turned investor, he should have considered the following seven factors to determine if his losses were capital or non-capital.
The factors to be considered for a investment transaction to determine the type of loss:
- The number of transactions
- The intention of the purchaser when buying the securities
- The length of time that the securities are held
- The quality of the securities
- The time devoted to stock market transactions
- The extent of borrowing
- The taxpayer’s expertise or special knowledge in the securities market
The court concluded that Mr. Prochuk had acquired his investment for a long-term and was a passive investor, therefore his losses would be capital losses not business losses.
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