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Use a Capital Gain To Off Set a Capital Loss

capital gains lossesBefore your year-end is the time to plan for potential tax losses. If you have a losing position you can use that to offset capital gains.

You must first apply a capital loss against a capital gain in the current year. Any excess can be applied against capital gains in the past 3 years or used to offset capital gains in a future year.

Can’t Offset Capital Losses in Registered Accounts

You can’t apply a capital loss against gains in registered accounts, such as:

  • Registered Retirement Savings Plans (RRSP)
  • Registered Educational Savings Plans (RESP)
  • Registered Retirement Income Fund (RRIF)
  • Tax-Free Savings Accounts (TFSA).

You will lose the opportunity to apply a capital loss if you transfer a losing position from a non-registered account into a registered account.

If you sell a stock at a loss you 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 30 days, CRA will determine that the trade was a “superficial loss,” and you won’t be able to use that loss to offset a capital gain.

Sell Before December 31 or After?

If you decide to sell an investment at a profit in 2013, consider timing and whether there’s benefit to wait until 2014 to make the sale?

As we near December 31, consider waiting until the New Year to sell profitable positions. That will defer the payment of your taxes by a full year. You won’t be required to pay the taxes owing until you file your 2014 tax return in April 2015.

Be aware though that deferring the sale leaves you open to the fluctuations of the market and the realized gain may be less by waiting. Or worse your gain could become a loss.

Key Dates

  • December 24, 2013 – Last day to sell Canadian equities to realize loss for 2013
  • December 26, 2013 – Last day to sell US equities to realize loss for 2013
  • December 31, 2013 – Last day for RESP contributions, charitable contributions and TFSA contributions for 2013
  • March 3, 2014 – Last day for RRSP contributions for 2013

Consult with a financial advisor before selling stocks or securities to ensure you time the sale appropriately.

At FBC we offer our clients a year-end tax planning service that allows us to work with you to forecast your year-end financial position and provide you with a personalized tax-saving strategy based on your business and financial goals.