Cumulative net investment loss (CNIL) rules

The cumulative net investment loss (CNIL) rules are intended to prevent individuals from reducing their income by claiming investment losses, such as rental losses, interest expense and other carrying charges, and subsequently recouping the losses by selling the underlying investment and then not paying any tax on the resulting gain by using the capital gains deduction. With the elimination of the $100,000 capital gains deduction on other property, your CNIL is only relevant if you have a gain from the disposition of qualified farming or fishing property or a share of a qualified small business corporation.

What is a CNIL?

Your CNIL account is the cumulative excess of your investment expenses over your investment income. Investment expenses include losses from rental property, non-active partnership losses (such as tax shelters), interest on money borrowed for investments and 50% of resource- related deductions.

Investment income includes all income from property (including rental income, interest income and dividends), non-active partnership income and 50% of the recovery of resource-related deductions. Investment income doesn’t include taxable capital gains, although capital gains that cannot be sheltered by the capital gains deduction reduce the impact of the CNIL account.

Tax tip: If you’re an owner-manager of a corporation and have a CNIL problem, you should consider receiving enough interest or dividend income from your corporation to eliminate the balance in your CNIL account.