What tax-loss selling does
Tax-loss selling means realizing a capital loss on a holding that’s underwater and using it to offset capital gains you’ve realized elsewhere in the year. Because losses net against gains before the inclusion rate, a well-timed loss directly reduces the taxable portion — and therefore the tax — on your winners.
Mind the settlement deadline
To count for a given tax year, the sale must settle within that year, not merely be entered. Canadian and US markets use a one-day settlement cycle, so the practical cut-off is a couple of business days before December 31 — leave a buffer for holidays. A trade placed on the 31st that settles in January counts for the next year.
The superficial loss rule can undo it
The single biggest mistake is repurchasing too soon. If you (or your spouse, or a corporation you control) buy the identical security within 30 days before or after the loss sale and still hold it at day 30, the loss is denied and added to the ACB of the shares you kept.
Where the loss goes
Net your capital losses against capital gains for the year first. If losses exceed gains, the leftover net capital loss can be carried back up to three years to recover tax already paid on past gains, or carried forward indefinitely. It can never offset ordinary income like salary — only capital gains.