As we progress through November, investors should begin thinking about the year ahead and planning for potential tax losses – selling their losing positions to offset capital gains. Based on Canadian tax law, capital losses can offset capital gains in any fiscal year. Losses must first be applied against capital gains in the current year; if any excess losses remain, they can be applied against capital gains made in the prior three years, or be used to offset capital gains in future years.
Capital-loss selling cannot be applied to registered accounts, such as Registered Retirement Savings Plans (RRSP), Registered Educational Savings Plans (RESP), Registered Retirement Income Fund (RRIF), or Tax-Free Savings Accounts (TFSA). As well, capital losses will be foregone when you transfer a losing position from a non-registered account into a registered account. If you are selling stock at a loss, you (and your spouse/common-law partner) must wait at least 30 days before repurchasing the same securities to avoid Canada Revenue Agency’s (CRA) “superficial loss” regulations. If you repurchase the shares within this 30-day window, CRA will determine that the trade was a “superficial loss”, and you will be denied the benefits of the transaction. Given the complexity of tax laws, consult your Investment Advisor before considering any tax-loss related strategies.
Waiting Until Next Year?
If you are selling securities at a profit in 2016, should you consider waiting until 2017 to make the sale? Waiting until the New Year to sell profitable positions will defer the payment of your taxes by a full year. Your taxes for 2016 won’t be due until you file your tax return in April, 2017. Caveat Emptor: Not wanting to pay tax in the current year may well be one of the worst reasons not to crystalize a capital gain.
Key Dates For 2016
- Friday, December 23, 2016 is the last day for tax-loss selling for Canadian taxpayers selling Canadian equities. There are no alternatives if you leave trades beyond this date.
- Tuesday, December 27, 2016 is also the last day for tax-loss selling of U.S. equities for Canadian taxpayers. Once again there are no alternatives should you wait beyond this date.
- Friday, December 30, 2016 is also the last day for RESP contributions, 2016 charitable contributions and 2016 TFSA contributions.
Highlighted in the attached report:
Tax-Loss Selling Is Concentrated
The Art of Window Dressing
S&P/TSX Sector Performance - Best to Worst
S&P/TSX Composite Index Best & Worst Performers
S&P/TSX 60 Best & Worst Performers
Dow Jones Industrial Average Best & Worst Performers
S&P 500 Index Best & Worst Performers
Tax-Loss Selling with ETFs
Click here to view the full report.