My wife and I have a capital loss realized from sale of rental property in 2019. We wish to apply this capital loss as a carryback to 2018, when submitting our 2019 Income Tax. In 2018, there is no actual capital gain, but we had a large income tax owed to CRA. We read that applying the capital loss carryback could still help reduce the 2018 income tax owed and reduce what needs to be paid from 2018. I’ve seen the T3 and T1A forms but need confirmation it will work as we hope. Even though there is no actual capital gain in 2018. Please comment and maybe confirm how the CRA would implement this.
Hello,
A Capital Loss is used to reduce the current tax year's Capital Gain (Schedule 3) and if a Capital Loss remains you can reduce any Capital Gain from the prior three tax years (section II on form T1A), or carry the Loss forward to a future tax year. A Capital Loss that is carried back to a prior year is limited to reducing the taxable Capital Gain that was reported in that year, and will not reduce the taxable income further even if there was an amount of taxes paid from other sources of income.
For reference:
1) Carrying Capital Losses Backward or Foreward: https://turbotax.intuit.ca/tips/carrying-capital-losses-backward-or-forward-6249
2) Line 25300 Net Capital Losses of Other Years: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-253-net-capital-losses-other-years.html