Reduce your Tax Bill through Tax Loss Selling
Tax Loss Selling - Often done at year end, Tax Loss Selling is a strategy that is used to trigger capital losses by selling positions (in a non-registered account) to offset capital gains that have been realized earlier in the year
Scenario 1: You have a realized capital gain of $100,000. You decide to sell a position that has a loss of $30,000. You have reduced your capital gain to $70,000.
Scenario 2: If your capital loss is greater that your capital gain, CRA allows you to apply the “excess loss” or the “net capital loss” to offset net capital gains 3-years prior. This could result in a refund
Scenario 3: If there is no net capital gain to offset 3-years prior, CRA allows you to carry forward your net capital loss into the future
Tax Tips
- To trigger the capital loss be sure the trade settles by the deadline
- Be mindful of the superficial loss rule
- Watch for changes in your capital gains inclusion rate (CGIR) or your tax bracket
*Investment decisions should never be made solely on taxation alone and should be based on your personal situation factoring all considerations within the context of your financial plan