Tax-Loss Selling Before Year-End

What tax-loss selling accomplishes

An investor sells an investment with an accrued capital loss so the loss can offset realized capital gains, subject to the rules. The strategy changes the investment portfolio; it should not be done solely for tax if selling conflicts with the investment plan.

Start with realized gains and available losses

Review the current-year realized-gain report and prior-year net capital-loss balances. Do not use unrealized gains as though they have already been taxed. Confirm whether gains are capital or business income and whether any losses are restricted.

Settlement timing

A trade placed on the last business day of December may settle in the next calendar year depending on market settlement conventions. Confirm the disposition date used for tax reporting and the broker's year-end deadline.

Superficial losses

The loss may be denied when the taxpayer or an affiliated person acquires identical property during the period beginning 30 days before and ending 30 days after the sale and still owns it at the end of the period.

This can include a spouse or a controlled corporation. Repurchasing in an RRSP or TFSA can be especially harmful because the denied loss may not create a useful ACB adjustment inside the registered account.

Example

Leah has a $12,000 realized capital gain and shares with an $8,000 unrealized loss. She sells the shares on December 10. Her spouse buys the same shares on December 20 and still owns them on January 9.

The superficial-loss rule may deny Leah's loss. The family should review the acquisition before trading rather than discovering the issue at tax time.

Maintain market exposure thoughtfully

An investor who wants continued exposure may buy a different, non-identical investment, wait until the period ends or accept a period out of the market. Whether two funds are identical is a legal and factual question; similar investment objectives do not always decide it.