When equity markets are down, it’s a good time to take a close look at your investment portfolios and consider tax-loss selling before the end of the year.
The goal of tax-loss selling in taxable investment accounts is to realize capital losses before the end of the calendar year. This can help lower taxes owed as a result of a capital gain by selling an investment that has an unrealized loss to offset the gain. This allows you to achieve a certain amount of tax savings.
Canadian investors who may consider tax loss selling:
individuals who are selling their investments at a loss and who have little or no capital gains in the current year
those who had capital gains, or their spouse had capital gains, in the past three years
“This tax loss selling infographic outlines how the strategy works, the benefits for investors, the carry-forward or carry-back rules, and eligible investments.”
Superficial Loss Rule
The superficial loss rule applies if property (or an identical property) sold at a loss is repurchased within 30 days, and is still held on the 30th day by you or an affiliated person. If the superficial loss is triggered, the capital loss is denied to you and added to the cost base of the person who bought it. This rule is specifically designed to prevent investors from taking advantage of the system to lower their income tax payments.
Be sure to help clients balance a short-term tax savings decision with their long-term portfolio objectives. While an asset has declined in value it may still be an appropriate investment for their goals and objectives.
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