Okay, look. I understand that this means the crypto market loses value, your portfolio’s hemorrhaging red ink, and you’re like, “Hey, this is a great opportunity! Not only will I sell my Bitcoin, lock in that double-digit capital losses to offset that gain I acquired earlier this year, but I will then turn around immediately after selling it at this cheap new price and buy it straight back. Sounds like easy money from the government, am I wrong?”
But the thing is, The Canada Revenue Agency is way ahead of you, and they have a law for this investment strategy, called the Superficial Loss Rule.
If you get this wrong, not only will you lose a tax deduction that you thought you would get, but you would put yourself in a logistical nightmare for years to come. I have seen many intelligent people make this same error time and time again, either because they get Canadian tax laws mixed up with the American Wash Sale laws, or because they think there is no tax law at all in the wild west world of crypto-currencies.
Spoiler alert: They apply.
In this post, I’m going to walk you through exactly how the superficial loss rule works in cryptocurrency for Canadians. I want to explain the math to you, this weird 30-day window, and some traps that catch people off guard, such as buying crypto in your spouse’s name. We’ll keep it simple, honest, and completely devoid of confusing legal jargon.
What Actually Is the Superficial Loss Rule?
Let’s start with the basics. In Canada, when you sell a capital asset like a stock or cryptocurrency for less than you paid for it, you generate a capital loss. This is usually a good thing for taxes because you can use that loss to cancel out capital gains, effectively lowering your tax bill.
However, the CRA has a condition. To claim that loss, the sale must be real. You have to actually exit the position.
If you sell a coin and then immediately buy it back, you haven’t really suffered a loss in the eyes of the CRA. You still own the asset. You just paid a transaction fee to reset your cost basis. That is where the superficial loss rule kicks in.
The rule states that if you sell a property for a loss and then you (or an affiliated person) buy the same or identical property back within a specific time window, and you still own it at the end of that window, the loss is denied.
It is superficial. It is fake. It doesn’t count.
The 61-Day Window Explained
This is the part that trips everyone up. Most people think they just have to wait 30 days after they sell. That is only half right.
The superficial loss rule applies to a 61-day period.
First, the 30 days before the sale. Did you buy any of that coin in the month leading up to the sale? Second, the day of the sale itself. Did you buy and sell on the same day? Third, the 30 days after the sale. Did you rebuy the coin in the month following the sale?
If you buy identical property at any point during this massive two-month window, and—this is the critical part—you or your affiliated person still own that property 30 days after the sale, your loss is suspended.
Think about that for a second. It means you can’t just check if you bought it after. You have to check if you bought it before too.
Let’s look at an example. Imagine you have 1 Bitcoin you bought years ago for $60,000. It drops to $40,000. You want to sell it to claim the $20,000 loss.
Scenario A: You sell it on November 1st. On November 15th, just 14 days later, you buy 1 Bitcoin back. Result: Superficial loss. Denied.
Scenario B: You buy 0.5 Bitcoin on October 15th. You sell your whole stash on November 1st at a loss. You still hold that October 15th Bitcoin 30 days later. Result: Part of your loss might be denied because you bought substituted property in the pre-sale window.
The logic here is simple: The CRA doesn’t want you to have your cake and eat it too. You either sell the asset and take the loss, or you keep the asset and ride the volatility. You can’t do both.
The Identical Property Trap
This is where things get really messy for crypto investors. The Income Tax Act uses the term identical property. In the stock market, this is easy. A share of Apple is identical to another share of Apple. A share of Tesla is not identical to a share of Microsoft.
But what about crypto?
The CRA generally views cryptocurrencies as commodities for tax purposes. This means the definition of identical property comes down to whether a prospective buyer would see any difference between the two assets.
Same Coin, Different Exchange
Is Bitcoin on Coinbase identical to Bitcoin on Binance? Yes. They are the exact same underlying asset. You cannot sell your BTC on one exchange and buy it back on another to avoid the rule. The CRA looks at your global holdings across all wallets and exchanges.
Bitcoin vs. Wrapped Bitcoin (WBTC)
This is a grey area, but most tax experts I talk to warn against it. Is WBTC identical to BTC? Technically, one is on the Bitcoin blockchain and the other is an ERC-20 token on Ethereum. However, since WBTC is pegged 1:1 to BTC and represents the same economic value, the CRA would likely argue they are identical properties. Do you really want to be the test case in court to prove otherwise? Probably not.
Bitcoin vs. Ethereum
Are these identical? No. If you sell Bitcoin at a loss and immediately use that cash to buy Ethereum, you are safe. The superficial loss rule does not trigger. You have fundamentally changed your economic position from one asset to another. This is actually a very common strategy.
Stablecoins
What about selling USDT to buy USDC? They are both pegged to the dollar. Are they identical? This is another tricky one. They have different issuers, different risks, and different smart contracts. A buyer might actually have a preference for one over the other. So, there is an argument they are not identical. But honestly, since stablecoins rarely fluctuate enough to generate significant capital losses, this rarely comes up.
The takeaway? If you are buying back the exact same token, even if it is on a different blockchain or exchange, you are likely triggering the rule.
The Affiliated Persons Gotcha
So you think you are clever. You think you won’t buy it back in your account, but you will just have your wife buy it in her account.
Nice try.
The superficial loss rule extends to affiliated persons. If you sell an asset at a loss and an affiliated person buys it back within the window, the loss is still denied.
Who counts as an affiliated person? Your spouse or common-law partner counts. The CRA sees you two as one economic unit for this rule. Corporations you control count too. If you sell BTC personally and your corporation buys it back, that triggers the rule. Trusts can also count, especially where you are a beneficiary.
This is designed to stop income sprinkling or loss shifting between family members. You can’t transfer the loss to someone else.
However—and here is a weird little loophole—your children, parents, and siblings are not considered affiliated persons under the Tax Act unless you are doing something complex with a trust. So technically, if you sell Bitcoin and your brother buys it, the rule doesn’t apply. But be careful. If you are just giving your brother the money to buy it for you, that is tax evasion. That is a crime. Don’t do that.
What Happens if You Trigger the Rule? (The Math)
Okay, so let’s say you messed up. You panic sold on a dip and bought back three days later because FOMO hit you hard. The CRA says your loss is superficial. Does that money just vanish?
Not exactly. The loss isn’t deleted; it is deferred.
Here is how it works mathematically. The amount of the denied loss is added to the Adjusted Cost Base (ACB) of the newly purchased property. Basically, the tax system pretends you never sold the first coins. It merges the old cost into the new coins.
Let’s walk through a real numbers example because this is where people get confused.
The Scenario
First, on January 1st, you buy 1 BTC for $50,000. Then, on March 1st, the market crashes. The price is $30,000. You sell your 1 BTC. Proceeds: $30,000 Cost (ACB): $50,000 Capital Loss: $20,000.
Then, on March 5th, you regret it. You buy 1 BTC back for $31,000.
Because you bought it back within 30 days, that $20,000 loss is superficial. You cannot claim it on your tax return for this year. Zero deduction.
The Adjustment
Now, you have to adjust the cost of your new Bitcoin.
Price paid for new BTC: $31,000. Plus the denied loss: + $20,000. New Adjusted Cost Base (ACB): $51,000.
So, for tax purposes, the CRA says you bought that new Bitcoin for $51,000.
Why does this matter? Let’s say in December, Bitcoin rallies to $60,000 and you sell it for real.
Sale Price: $60,000. New ACB: $51,000. Capital Gain: $9,000.
If you hadn’t adjusted the ACB, you would have calculated a gain of $29,000. By adding the denied loss to your cost, you reduced your future capital gain.
So you eventually get the benefit of the loss, but only when you permanently dispose of the asset. You don’t get the benefit now, which was probably your original goal.
Strategies to Avoid the Rule
If you are holding a bag of heavy crypto losses and you want to use them to offset some big gains from earlier in the year, you need to be strategic. You have to navigate around this 61-day minefield.
Here are a few ways to do it legally.
1. The 31-Day Wait
This is the simplest, albeit the most painful strategy. You sell your crypto, lock in the loss, and then sit on your hands for 31 days. You cannot buy it back. You cannot trade it.
The risk, of course, is price movement. In crypto, 30 days is a lifetime. If you sell Bitcoin at $30,000 and it rips to $45,000 while you are waiting out the clock, you have missed the boat. You saved on taxes, but you lost on potential gains. This strategy works best if you believe the market will trade sideways or go down further.
2. The Proxy Play
This is my favorite approach. You sell the asset with the loss, and immediately buy a different asset that tends to move in the same direction.
For example, sell Bitcoin and buy Ethereum. They are highly correlated usually. If the market recovers, ETH usually goes up if BTC goes up. They are not identical property. You could also sell Altcoin A and buy Bitcoin. Move from risky alts to the safe haven of BTC.
By switching assets, you maintain your exposure to the crypto market without holding the identical property. You satisfy the rule, claim your loss, and stay invested.
3. Cleaning Up the Portfolio
Sometimes, you just need to accept that a coin is dead. If you hold a zombie coin that is down 99%, just sell it. Don’t buy it back. Use that loss to offset your gains on the winners. There is no superficial loss if you never re-enter the position.
Reporting to the CRA & Audit Risks
Here is the scary part: You do not report superficial losses on your tax return.
Wait, what?
That is right. There is no line on Schedule 3 that asks if you had a superficial loss. Instead, you are expected to handle the math yourself or pay your accountant to do it. You simply do not claim the loss. You omit it from your calculations and adjust your internal ACB logs.
The problem arises when the CRA reviews your file. If you use tax software, you need to make sure the Superficial Loss setting is turned ON and set to Canada.
If you turn it off because you want to see a bigger refund, you are filing a false return.
The Audit Trail
The CRA gets data from exchanges. They can see transaction timestamps. If you get audited, they will ask for your full trading history. They will run their own software. If their software spots a buy-back within 30 days that you claimed as a loss, they will reassess you.
Not only will you have to pay the tax you owe, but you will also pay interest on that tax from the day it was due, plus potential penalties for negligence. It is not worth it.
If you are a high-volume trader, this gets complicated fast. You might have partial superficial losses. If you sold 100 units but only bought back 50 units, only part of the loss is superficial. This is why using automated crypto tax software is non-negotiable for Canadian traders. Doing this manually in Excel is virtually impossible once you pass 50 trades a year.
FAQ: Questions I Hear All the Time
I wanted to hit a few quick questions that pop up constantly in forums and emails.
Does the rule apply if I sell on Wealthsimple and buy on Binance?
Yes. The CRA looks at you as a person, not your accounts. All accounts are combined.
Does it apply to TFSA or RRSP accounts?
Sort of, but in a worse way. If you sell a coin in your non-registered account at a loss and buy it back in your TFSA, the loss is denied PERMANENTLY. You don’t get to add the loss to the TFSA cost base. The loss just evaporates. Never transfer a loss into a registered account.
What if I day trade?
If you are a day trader, you might not be dealing with capital gains at all. You might be dealing with Business Income. If the CRA decides you are running a trading business based on frequency, knowledge, and time spent, the superficial loss rule doesn’t technically apply—instead, you are valuing inventory. That is a whole different tax bracket. Be careful what you wish for.
Can I sell December 31st and buy back January 2nd?
No. The calendar year doesn’t matter for the 30-day count. The window crosses year-end. If you sell Dec 31 to harvest a loss for the 2025 tax year, you must wait until January 31st to buy back.
Conclusion
The Superficial Loss Rule is not here to destroy your life, however much it may seem that way. Fairness in the tax system and assurance that claimed losses are real economic ones-that’s what it’s here for.
If you are a crypto investor in Canada, these are the rules you have to play by. The days of flying under the radar are long gone. The CRA is sophisticated and they understand how the blockchain works.
My advice? Don’t be greedy. If you have a losing bag, and you want to harvest that loss, do it clean. Sell the asset, buy Ethereum, or another project in which you believe. Wait the 31 days if you really want that specific coin back.
But don’t get too smart and start selling then rebuying in five minutes or trying it through your spouse’s account. The temporary tax savings aren’t worth the permanent headache of an audit. Keep your records straight, use good software, and when in doubt, just wait it out.