What is tax-loss selling?

One of the most popular year-end tax-planning strategies is tax-loss selling, which can help you reduce your capital gains tax. Particularly with the recent strong performance in the Canadian stock market, you may have significant taxable capital gains, triggered by selling stocks at a profit. Half of your net capital gain is taxable at your marginal rate. However, you can offset your capital gains with capital losses. While no one likes selling a stock at a loss, it can make sense when the stock no longer meets your investment objectives – and you can use the loss to reduce your taxes. Your investment advisor can help you identify which stocks are suitable candidates for tax-loss selling.

Key dates:
For Canadian tax purposes, a sale takes place on the “settlement date” – normally three days after you initiate the sale. If you are considering a tax-loss sale, make sure you allow enough time for the transaction to settle in 2015.

Initiate sale by:

Canadian securities - Thursday December 24, 2015

US securities - Monday December 28, 2015.

Offsetting gains in past or future years: Capital losses have to be used to offset capital gains the current year first. If the losses exceed the gains, then you can apply the excess amount against capital gains in the three previous years (2012, 2013, or 2014) or you can carry it forward indefinitely.

Superficial losses: Simply selling a stock to trigger a loss, and then buying it back within 30 days is considered a “superficial loss” by the Canada Revenue Agency, which means that the loss will be denied. The superficial loss rule also applies when your spouse or a corporation controlled by either you or your spouse acquires or reacquires the same security 30 days before or after the sale.


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