When you sell a capital property for less than your adjusted cost base, you will have a capital loss. One-half of the capital loss is an allowable capital loss, and offsets any taxable capital gains that you have.
However, the capital loss will be denied if you or an “affiliated person” acquire the same property or an identical property within the period that begins 30 days before you sold the property and ends 30 days after that, and you or the affiliated person owns that property at the end of the period. This is the “superficial loss” rule.
The one upside of the rule is that the cost of the property for the person acquiring the property (whether that is you or someone else) is bumped up by the amount of your loss that was denied under the rule.
An affiliated person includes your spouse or common-law partner, a corporation that you control, among others. Interestingly, it does not include your children or other relatives.
Example
On day 1, I sold 100 shares in XCorp for $90,000. My adjusted cost base in the shares was $100,000, so I incurred a capital loss of $10,000.
On day 12, my spouse bought 100 shares in XCorp for $91,000 (they went up slightly in value). She continued to own them through to day 31.
Result: My $10,000 loss is a superficial loss, so my capital loss is zero. My spouse’s adjusted cost base equals the $91,000 she paid for the shares plus the $10,000 denied loss, for a total of $101,000.
As can be seen, although my initial loss is denied, the loss is not “lost” forever, but rather is deferred. For example, if my spouse later sells the shares for $91,000, they will have a $10,000 capital loss because their cost in the shares was bumped up by my denied loss (assuming my spouse or an affiliated person does not acquire the shares within 30 days after their sale, etc.).
