With just over a month to go until the end of 2013, here’s a quick look at some year-end tax tips you may wish to keep in mind to ensure you don’t miss out on tax savings for 2013.
Tax Loss Selling
Tax-loss selling involves selling investments with accrued losses at year end to offset capital gains realized elsewhere in your portfolio. Any capital losses that cannot be used currently may either be carried back three years or carried forward indefinitely to offset capital gains in other years. Note that if you purchased securities in a foreign currency, the gain or loss may be larger or smaller than you anticipated once you take the foreign exchange component into account.
In order for your loss to be immediately available for 2013 (or one of the prior three years), the settlement must take place in 2013, which means the trade date must be no later than December 24, 2013.
A reminder that if you plan to repurchase a security you sold at a loss, beware of the “superficial loss” rules that apply when you sell property for a loss and buy it back within 30 days before or after the sale date. Under the rules, your capital loss will be denied and added to the adjusted cost base (tax cost) of the repurchased security. That means the benefit of the capital loss can only be obtained when the repurchased security is sold.
Similarly, while it may at first glance be tempting to transfer an investment with an accrued loss to your RRSP or TFSA to realize the loss without actually disposing of the investment, such a loss is specifically denied under our tax rules. To avoid this problem, consider selling the investment with the accrued loss and contributing the cash from the sale into your RRSP or TFSA. If you want, you can then buy back the investment inside your RRSP or TFSA once the 30-day superficial loss waiting period is over.
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