Generating tax savings as part of your long-term financial plan
As the COVID-19 pandemic continues to send shockwaves through the economy, we recommend that you do not lose sight of your long-term goals. That being said, current market conditions may provide an opportunity to take advantage of “tax-loss selling,” which can not only provide tax savings but, if implemented appropriately, can also allow you to stay on course with your investment objectives.
Tax-loss selling involves the disposition of investments in a non-registered account with accrued losses so that they can be used to offset capital gains realized on other non-registered investments in the same taxation year. Excess capital losses from one taxation year can be applied against capital gains in the previous three years, or against capital gains in any future year. Such planning is usually done close to year end; however, it may be accelerated in light of the current turbulent market.
In partnership with your Richardson Wealth Advisor and your accountant, you should consider four key questions. If the answer to these questions is “yes,” then now may be an appropriate time to implement some tax-loss selling in your non-registered portfolios:
- Do I have any taxable capital gains in my non-registered accounts that have already been realized up to now?
- If not, did I have any taxable capital gains from my non-registered accounts that were reported on my 2019, 2018, and/or 2017 income tax returns?
- Do I currently have investments in my non-registered accounts with accrued capital losses that no longer make sense to hold in my portfolio, based on my overall investment objectives and risk profile?
- Am I looking to change investment positions?
As with all tax strategies, care must be taken with implementing tax-loss selling. Traps include:
- Selling a non-registered investment with an accrued loss, followed by you, your spouse, or a corporation you control, repurchasing the same investment within 30 calendar days before and after the sale date. The capital loss will be denied in these circumstances. You will have to wait at least 30 calendar days before repurchasing the same investment in order for the loss to be allowed.
- Selling a non-registered investment with an accrued loss and repurchasing the same investment in a registered account (e.g., RRSP/RRIF or TFSA) within 30 calendar days before and after the sale date. The capital loss will also be denied in these circumstances. You will have to wait at least 30 calendar days before repurchasing the same investment in the registered account in order for the loss to be allowed.
- Attempting to transfer a non-registered investment with an accrued loss in-kind to a registered account (e.g., RRSP/RRIF or TFSA). The capital loss will be denied.
If you would like more information on tax-loss selling, please reach out to your Richardson Wealth Advisor for a copy of our education article.
