Capital Losses

Capital losses occur when an asset, such as an investment in stocks or mutual funds or real estate decreases in value.† This loss is not realized until the actual capital asset is sold at a price which is lower than initial purchase price.†

Capital losses do not reduce an individualís income.† These losses are only used to reduce or eliminate capital gains.† Individuals who have capital losses who cannot use them in the current year are able to carry back losses to any of the previous three taxation years.† As well, investors can carry forward capital losses for use in future years.†† This carry forward of capital losses do not expire and can be carried forward indefinitely.††

There is one instance where capital losses can be used to offset or reduce other income.† In the year of an individualís death, capital losses can be used to offset other income.† In addition, these capital losses can be used at death to offset income in the year prior to death.†

In certain cases, capital losses are disallowed.†These losses are known as superficial losses.

Investors should not solely make investment decisions based on how income is paid. Investors should make investment decisions based on their overall investment objectives, time horizon, level of experience and tolerance to risk.† Although tax effectiveness is important, ensuring an investment is suitable is more important.†

It is extremely important to obtain professional taxation advice as capital gains and losses have the potential to save investors or cost investors considerable sums of money depending on individual circumstances.

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