A superficial loss is a capital loss that the Income Tax Act denies because the taxpayer, or an affiliated person, acquired the same or identical property within 30 days before or after the disposition and still owned it at the end of that period. The rule prevents a taxpayer from selling a property to crystallize a loss while effectively keeping the same investment.
A denied superficial loss is not lost permanently. It is added to the adjusted cost base of the substituted property, so the loss is deferred until that property is disposed of in a way that is not itself superficial. The rule commonly arises in year-end tax-loss selling of marketable securities, in transfers between a taxpayer and a spouse or a controlled corporation, and in repurchases through a registered account.