If you have investments in your securities portfolio that are in a loss position, you may realize capital losses when you dispose of these investments. Working with an investment advisor utilizing strategies to maximize the opportunities associated with tax loss selling can help reduce your tax liability or obtain refunds for taxes paid in previous years.
When you sell a security at a loss, 50% of this capital loss (called an “allowable capital loss”) will offset taxable capital gains that you realize in the same year. This may reduce your tax liability for that year. Unfortunately, losses realized in your investment portfolio may only be used against capital gains — they cannot be used to reduce other income you have earned in the year such as your employment income.
In order to be able to claim a capital loss on the sale of a security, it’s important to ensure that the transaction is not a superficial loss transaction. If a superficial loss is triggered, you will not be allowed to claim the capital loss and therefore will not be able to offset this amount against any taxable capital gains. The amount of the capital loss will be added to the adjusted cost base of the identical property acquired.
Tax loss selling strategies are one area where a business savvy investment advisor can add significant value to your non-registered portfolio. We all have to pay tax, but minimizing their effects on your investments will help you retain more of your hard-earned dollars.
If this is a new concept to you, or if you would like to learn more about tax loss selling, or any other investment strategy, please contact me.
Prior to implementing any tax planning strategies, a qualified tax advisor should be consulted about the tax implications specific to your situation.
Ashley Mangles is an Investment Advisor at RBC Dominion Securities (member–Canadian Investor Protection Fund), specializing in wealth strategies and investments for business owners and high-net-worth clients. He can be reached at Ashley.Mangles@rbc.com, or 250-334-1504.