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Tax losses can reduce this year’s bill, recoup from last 3 years

Total losses exceed $100,000. If I understand the rules, I can deduct a capital loss to reduce other capital gains.  Are there limits to the loss and for how many years?

Q. Last year, I sold under-performing stocks at a loss of more than $40,000. I also invested in a start-up company in 2007. The company declared bankruptcy last June. Total losses exceed $100,000. If I understand the rules, I can deduct a capital loss to reduce other capital gains. Are there limits to the loss and for how many years?
— Eric

A. A tax loss can be used if the taxpayer has capital gains in the current year or any of the three prior years to reduce taxes this year and/or recoup taxes paid in the prior three years. It can only reduce capital gains and not other sources of in­come from employment, business, rental etc.

Your investment in a now bankrupt company may qualify not just for a capital loss but an allowable business investment loss (ABIL). A purchase of shares in publicly traded company generally results in a capital gain/loss. On the other hand, an ABIL may arise from realized losses from the sale of shares or debt of a small business corporation (SBC). Fifty per cent, similar to a capital loss, can be applied. These rules are complex and you should speak to a professional.

– Henry Choo Chong, CGA, can be reached at choochonghcga@yahoo.ca

 
 
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