If you have sold some assets and realized capital gains in the year, and you are holding other assets with unrealized losses, consider selling them as well. This will allow you to realize losses to offset the capital gains. This is often referred to as "tax loss selling". Tax loss selling usually takes place at year-end, when an investor knows his or her net taxable capital gains for the year. Capital losses realized during the year offset capital gains realized during the year for a net capital gain or loss. A net capital gain is taxable in the year. A net capital loss may be carried back 3 years or forward indefinitely to apply against net capital gains.
With tax loss selling, the selling transaction must settle before the last business day of the year. (Given a three business day settlement period, implies the deadline is about Christmas Eve, but why push it?) In addition, you should be aware of the so-called "superficial loss rules" (e.g. do not repurchase the losers within 30 days before or after the sale; alternatively, consider repurchasing similar securities, but not identical securities).
Superficial Loss Rules
If you sell a security to trigger a loss, and you or an affiliated person (for example your spouse or a corporation you control) purchases an "identical security" within 30 calendar days before or after the sale date, and that person still owns that security 30 days after the sale date, then the capital loss is denied to you and added to the cost base of the person who bought it. This rule also applies if you or the affiliated person buys an option or right to buy the security that was sold.
Shares of competing companies within an industry should not be considered "identical securities" for purposes of the superficial loss rules, while index funds which track the same index would be considered "identical securities" under the rules.
Given the complexities involved, professional tax advice will be required in many cases. For more information on how to save taxes before year-end or to receive our complimentary report entitled Tax Loss Selling, please contact my office.
Daniel Saikaley, CA CFP EPC - Investment Advisor, CIBC Wood Gundy
50 O'Connor St., Suite 800, Ottawa ON K1P 6L2 - Ph. 613.783.4674
email:daniel.saikaley@cibc.ca. Also, visit my website: www.danielsaikaley.com and click on This Month's Featured Solution.
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