Carrying forward and back your tax losses
Losses deductible
Section 111 allows unused losses from prior years to be carried back 3 years or forward 20 years and deducted against income in those years.
Plain-language explanation
Section 111 is the loss-carry mechanism — it prevents one bad year from being permanently lost for tax purposes.
Net capital losses (s.111(1)(b)): Allowable capital losses exceeding taxable capital gains in a year become a net capital loss. This can be carried back 3 years (to recover tax paid) or forward indefinitely — but only against taxable capital gains in the carry year.
Non-capital losses (s.111(1)(a)): Business, employment, and property losses that exceed income in the year become a non-capital loss. Carry-back: 3 years. Carry-forward: 20 years. These are "more flexible" — they can offset any source of income in the carry year.
Restricted farm losses (s.111(1)(c)): Farm losses where farming is not your chief source of income are restricted and can only offset farm income.
Loss utilization order: When you carry losses to another year, you generally want to apply them against income taxed at the highest rate first.
Change of control rules (s.111(5)): When a corporation undergoes a change of control, its non-capital loss carryforwards are restricted — they can only offset income from the same or similar business. This is an important consideration in M&A.
Example
In 2024, James had a net capital loss of $30,000 from stock sales. He had no capital gains in 2024. He carries the $30,000 back to 2022 when he had $50,000 in capital gains — his 2022 return is reassessed, and he gets a refund of tax paid on that $30,000.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Non-capital loss carry-forward period extended from 7 years to 20 years, effective for losses arising in tax years ending after March 22, 2006.
Before
7-year carry-forward for non-capital losses
After
20-year carry-forward for non-capital losses
Change of control loss restriction rules (s.111(5)) clarified and tightened to prevent acquisition of loss corporations as a tax-planning strategy; stop-loss rules extended.
Before
Loss streaming rules applied but had planning gaps around affiliated persons
After
Loss restriction event rules broadened to include non-arm's-length transactions triggering deemed year-end
Common questions
How far back can I carry a capital loss? +
3 years. You can apply a net capital loss to the 3 preceding tax years by filing Form T1A (Request for Loss Carryback). This generates a refund of tax paid in the carry-back year.
How long can I carry forward a business loss? +
20 years. A non-capital loss (from business, employment, or property) can be carried forward 20 years and deducted against any type of income in those years.
Can I carry a capital loss forward to offset employment income? +
No. Net capital losses can only be applied against taxable capital gains, not employment income. Non-capital losses (business, employment, property) can offset any income source.
Key terms
Related calculators
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 111. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.