Introduction
Most crypto investors focus on gains. But losses can be valuable too—if you’re willing to strategically harvest them for tax purposes.
Tax loss harvesting is the practice of intentionally realizing losses to offset capital gains and reduce overall tax liability. In 2024-2025, many crypto investors face significant gains from Bitcoin, Ethereum, and other holdings. Tax loss harvesting can reduce the tax burden significantly.
This guide covers exactly how tax loss harvesting works for crypto investors in Canada, the CRA’s superficial loss rules you must follow, and specific strategies to maximize tax savings.
How Capital Loss Deductions Work
The Basics
In Canada, capital gains are 50% taxable. Capital losses are 100% deductible against capital gains.
Simple example:
Without tax loss harvesting:
- Sell Bitcoin at $30,000 profit
- Capital gain: $30,000
- Taxable amount (50%): $15,000
- Tax owing (43.4% Ontario rate): $6,510
With tax loss harvesting:
- Sell Bitcoin at $30,000 profit
- Sell Ethereum at $20,000 loss (harvested loss)
- Net capital gain: $30,000 – $20,000 = $10,000
- Taxable amount (50%): $5,000
- Tax owing: $2,170
- Tax savings: $4,340
That $20,000 loss becomes worth $8,680 in tax savings (50% capital gains rate × 43.4% tax bracket).
Multi-Year Loss Carryovers
Capital losses don’t expire after one year. Unused losses can be carried:
- Backward: 3 years to offset prior capital gains (get refunds)
- Forward: Indefinitely to offset future capital gains
Example: You realize $50,000 crypto loss in 2025
- You don’t have any 2025 capital gains
- Carry loss backward to 2024 (offset $30,000 of 2024 gains) → $3,258 refund
- Carry remaining $20,000 loss forward to 2026
- Use in 2026 against any capital gains that year
Over multiple years, one large loss can offset tens of thousands in taxes.
The Superficial Loss Rule: What You MUST Know
This is where many investors make critical mistakes.
The rule: You cannot buy back the same security within 30 days of selling it at a loss (for tax loss harvesting purposes).
The 30-day window:
- 30 days BEFORE the sale
- Day of sale
- 30 days AFTER the sale
Buy within this 61-day window, and your loss is disallowed.
Example:
- December 1: Sell 1 BTC at $30,000 loss (to harvest loss)
- December 15: Buy 1 BTC at $25,000
- Result: Loss is disallowed by CRA
CRA will recalculate:
- Adjusted cost basis: Original cost + new purchase cost
- No loss can be claimed
You can’t get the tax benefit AND get the position back.
Crypto-Specific Tax Loss Harvesting Strategies
Strategy 1: Swap to Similar (But Different) Crypto
The superficial loss rule applies to the same security. It doesn’t apply to different securities.
How to execute:
1. Hold Bitcoin that’s down $20,000
2. Sell Bitcoin at loss (harvest the loss)
3. Immediately buy Ethereum (or other major crypto)
4. You’ve harvested the loss AND maintained crypto exposure
5. After 30 days, swap Ethereum back to Bitcoin if desired
Why it works:
- Crypto markets are correlated but distinct
- CRA considers each crypto a separate security
- You’ve harvested loss + maintained market exposure
Caveat: This is aggressive. Some tax professionals argue CRA might view Bitcoin→Ethereum→Bitcoin as “same property.” Be prepared to defend if audited.
Strategy 2: Use Stablecoins as Placeholder
More conservative approach:
1. Sell losing crypto position (harvest loss)
2. Buy stablecoin (USDC, USDT) instead
3. After 30 days, buy back original crypto
Advantages:
- Clearly different securities (stablecoin vs. Bitcoin)
- No price risk during 30-day window (stablecoin is $1)
- CRA cannot reasonably argue “same property”
Disadvantage:
- You’re out of crypto market for 30 days
- Price could move in your favor (or against you)
Strategy 3: Harvest Losses, Rebalance Portfolio
Use tax loss harvesting as opportunity to rebalance.
Example:
- You own: 60% Bitcoin, 30% Ethereum, 10% Altcoins
- Bitcoin is down 30%, Ethereum up 40%
- Sell down 10% of Bitcoin (harvest $30,000 loss)
- Buy Ethereum with proceeds (rebalance to 50/40)
- Harvest loss AND improve portfolio allocation
Strategy 4: Harvest Losses from Multiple Positions
If you have several losing positions, prioritize strategically:
1. Harvest positions with highest losses first (largest tax benefit)
2. Consider acid test: Which losing positions will you want back?
3. Consider wash sales: Avoid buying back within 30 days
4. Track all transactions meticulously for CRA
Example: You have three losing positions
Harvest Altcoin A first (don’t want it back anyway), then Bitcoin (with 30-day replacement strategy), then Ethereum (only if needed).
Execution Checklist for Tax Loss Harvesting
Before You Start
☐ Calculate total capital gains for the year
☐ Identify total unrealized losses in portfolio
☐ Determine optimal harvest targets (biggest losses first)
☐ Review 30-day calendar (don’t buy back within 30 days)
☐ Consult tax professional (optional but recommended)
During Execution
☐ Sell losing position
☐ Document sale date, price, and loss amount
☐ Immediately buy replacement position (if using swap strategy)
☐ Record swap date and price
☐ Add note to calendar: “30-day window expires [DATE]”
After Execution
☐ Wait 31+ days before buying back original position
☐ Track all transactions for tax return
☐ Document realized losses separately from other trades
☐ Prepare T776 or Schedule 8 (depending on trading status)
Tax Return Filing
☐ Report capital gains and losses on Schedule 8
☐ Show gross proceeds and adjusted cost basis
☐ Clearly identify realized losses
☐ Carry forward unused losses
☐ Keep documentation for 6+ years (CRA can ask)
Real-World Example: Canadian Crypto Portfolio
Situation: December 2025, one month before tax year-end
Your portfolio:
- 2 BTC purchased at $30,000 each = $60,000 cost basis
- Current price: $40,000 each = $80,000 current value
- Unrealized gain: $20,000 (not taxable yet)
- 5 ETH purchased at $2,000 each = $10,000 cost basis
- Current price: $1,500 each = $7,500 current value
- Unrealized loss: $2,500
- $30,000 in various altcoins purchased at $50,000
- Current value: $15,000
- Unrealized loss: $35,000
Also in 2025:
- Sold some crypto earlier, realized $40,000 capital gain
- Tax owing on gain: 43.4% × ($40,000 × 50%) = $8,680
Tax loss harvesting strategy:
1. Sell 5 ETH at loss ($2,500 loss)
2. Sell $15,000 of altcoins (crystallize $35,000 loss, but proportional)
3. Total realized losses: $37,500
Tax impact:
- 2025 capital gains: $40,000
- 2025 capital losses: $37,500
- Net capital gain: $2,500
- Taxable: $1,250 (50%)
- Tax owing: $542 (vs. $8,680 without harvesting)
- Tax savings: $8,138
After harvesting:
- 31+ days pass
- Buy back ETH (now own 5 ETH again)
- Keep altcoin positions in cash or different crypto
- You’ve harvested significant loss while maintaining exposure
Mistakes to Avoid
Mistake 1: Buying Back Within 30 Days
The #1 error: Sell at loss, then immediately buy back.
- Loss is disallowed by CRA
- You get no tax benefit
- You wasted trading commissions
Solution: Use 30-day placeholder (stablecoin or alternative crypto).
Mistake 2: Only Harvesting at Year-End
Tax loss harvesting can happen any time:
- Harvest losses throughout the year as they occur
- Offset gains as they arise
- Don’t wait until December
If you harvest loss in June and realize gain in December, you’ve optimally timed your tax.
Mistake 3: Not Tracking Adjusted Cost Basis
ACB (Adjusted Cost Basis) is the average cost of all your holdings.
- Don’t track it: CRA will calculate it (usually unfavorably)
- Track it: You control the narrative
Example: If you forget you bought more Bitcoin in Q2, you might miscalculate ACB and owe more tax than necessary.
Mistake 4: Treating All Losses Equally
Not all losses are worth harvesting:
- Harvest losses on assets you don’t want back
- Use swap strategy on assets you want to hold
- Prioritize harvesting largest losses first
Mistake 5: Not Keeping Documentation
CRA will ask for:
- Buy/sell dates
- Prices paid
- Exchange records
- Cost basis calculations
Keep digital copies (screenshots, exports) for 6+ years.
Tax Loss Harvesting With Exchanges
Canadian Exchanges
Kraken.ca, Coinbase.ca, Crypto.com allow tax loss harvesting:
1. Sell position (creates loss)
2. Buy replacement (keeps market exposure)
3. After 30 days, rebalance if desired
CRA Reporting
Exchanges operating in Canada will report to CRA in 2026+:
- Buy/sell dates
- Prices
- Amounts
So CRA will have your trading history automatically. Don’t try to hide transactions.
Advanced: Corporate Tax Loss Harvesting
If your crypto is in a corporation:
- Capital losses are still usable against capital gains
- Corporation can carry forward losses indefinitely
- Losses don’t help lower corporate tax, but they reduce future gains
- Exit planning: Realize losses before selling corporation
This is advanced and requires professional guidance.
Conclusion
Tax loss harvesting is a legitimate strategy for crypto investors to reduce tax burden. By strategically realizing losses and using the 30-day swap strategy, you can offset significant gains.
The keys:
1. Understand the 30-day superficial loss rule
2. Document everything meticulously
3. Prioritize highest losses
4. Use replacement positions to maintain exposure
5. Track adjusted cost basis carefully
6. Consult a tax professional
Done correctly, tax loss harvesting can save $5,000-$20,000+ annually for active crypto investors.
Related Articles
- Article 3: Crypto Regulation Changes in Canada 2026
- Article 6: DeFi Investing Strategies for Canadian Investors
- Article 12: Digital Currency and Tax Rules Canada 2026
