Tax-Loss Harvesting in Canada 2025

Updated March 2025 · 11 min read

Tax-loss harvesting is a strategy where you deliberately sell investments that are showing a loss in order to realize those losses for tax purposes, using them to offset capital gains elsewhere in your portfolio. In Canada, this is a legitimate and widely used tax-planning technique — but it comes with important rules, particularly the superficial loss rule, that investors must understand to avoid costly mistakes.

How Capital Gains and Losses Work in Canada

When you sell an investment in a non-registered (taxable) account for more than you paid, you realize a capital gain. When you sell for less than you paid, you realize a capital loss. In Canada, capital gains are included in your income at a 50% inclusion rate — meaning only half the gain is added to your taxable income. Capital losses can only be applied against capital gains, not against other types of income.

Capital losses can be:

• Applied against capital gains in the current tax year
• Carried back up to 3 years to offset gains from prior years
• Carried forward indefinitely to offset future capital gains

What Is Tax-Loss Harvesting?

Tax-loss harvesting means strategically selling investments at a loss to generate capital losses that offset capital gains. For example, if you sold BCE shares earlier in the year for a $5,000 capital gain, and you hold XEF (international ETF) that is currently showing a $3,000 unrealized loss, you could sell XEF to realize the $3,000 loss. Your net capital gain for the year drops from $5,000 to $2,000 — reducing your tax bill.

Importantly, tax-loss harvesting doesn't mean permanently abandoning the investment. You can repurchase a similar (but not identical) investment immediately after selling, maintaining your market exposure while capturing the tax benefit.

The Superficial Loss Rule: Canada's Key Restriction

The CRA's superficial loss rule prevents investors from selling a security at a loss and immediately repurchasing the same security — which would create a paper tax benefit without any real change in economic exposure. If a superficial loss is triggered, the loss is denied and added to the adjusted cost base of the repurchased security instead.

When a Superficial Loss Is Triggered

A superficial loss occurs when:

• You sell a security at a loss, AND
• You (or an affiliated person — spouse, corporation you control) repurchases the identical security within 30 calendar days before or after the sale

The "30-day window" runs in both directions: 30 days before the sale and 30 days after.

What Counts as "Identical"?

The CRA considers securities identical if they are the same class of shares in the same company or ETF. XIC and XIU are both Canadian equity ETFs but they are not identical (they track different indices). Selling XIC at a loss and immediately buying XIU is acceptable — you maintain similar Canadian market exposure without triggering a superficial loss.

Practical Tax-Loss Harvesting Pairs for Canadians

The key to harvesting a loss while maintaining market exposure is to swap into a similar but non-identical ETF. Common pairs:

• Canadian equity: Sell XIC → Buy XIU (or VCN) — similar Canadian market exposure
• US equity: Sell VFV → Buy ZSP (or XUS) — same S&P 500 exposure, different provider
• International equity: Sell XEF → Buy VIU — similar developed market international exposure
• Canadian bonds: Sell VAB → Buy ZAG (or XBB) — similar aggregate bond exposure
• All-in-one ETF: Selling VGRO and buying XGRO is generally acceptable (different providers, similar but not identical holdings)

Tax-Loss Harvesting Only Applies to Non-Registered Accounts

Capital gains and losses inside registered accounts (TFSA, RRSP, FHSA) are sheltered from tax. There are no capital gains to report when you sell inside these accounts, so there's nothing to harvest. Tax-loss harvesting is exclusively a non-registered account strategy.

Year-End Tax-Loss Harvesting

The most active period for tax-loss harvesting is November and December. To realize a capital loss in the 2025 tax year, the sale must settle by December 31, 2025. Since Canadian securities now settle T+1 (one business day), you must execute the sale by approximately December 30, 2025 (verify the exact last settlement date with your brokerage each year, as it depends on the trading calendar).

Adjusted Cost Base (ACB) Tracking

To calculate capital gains and losses accurately, you must track the Adjusted Cost Base of every holding in your non-registered accounts. The ACB is your average cost per unit, adjusted for commissions, return of capital distributions, and reinvested distributions. ACB tracking is a legal requirement for Canadian investors. Tools like adjustedcostbase.ca simplify this tracking. Errors in ACB can result in over- or under-reporting capital gains on your tax return.

Is Tax-Loss Harvesting Worth It?

For most Canadian investors with portfolios under $100,000, tax-loss harvesting provides modest benefits — the tax savings are real but small, and the administrative complexity is non-trivial. For investors with larger non-registered accounts ($200,000+) and significant realized capital gains in a year, tax-loss harvesting can save thousands of dollars. It becomes increasingly valuable as portfolio size and capital gains grow — which is why Wealthsimple's Generation tier ($500,000+) includes automated tax-loss harvesting as a premium feature.