November 29, 2022Money Education Financial literacy Good reads Monthly commentary
Tax Loss Selling
When we look at performance over the past year, the markets have been tumultuous and often relatively unkind. It likely won't come as news to many as even quality dividend-paying stocks and fixed income have seen volatility and downward pressure. With very little time left in the year, the overall S&P/TSX Index is off around 4%, the dividend payers have regained quite a bit of ground, but the bond market is still down over 10%. How can you turn this situation into something positive for your overall financial plan?
This time of the year, we always advocate that you evaluate your portfolio's potential gains and losses. The markets have been favourable over an extended period, resulting in significant unrealized capital gains in many portfolios. How can we make the "negative" of the 2022 performance work to your advantage?
The answer is simple—tax loss selling.
In other words, we can lock in the loss on positions that are down by selling them and, in turn, use those losses to offset capital gains on other investments. The Canada Revenue Agency (CRA) has rules around tax losses that can be used to improve your overall tax situation. For instance, a net capital loss can be carried back for three years and forward indefinitely. This could mean the difference in recouping some capital gain taxation already paid in one of the last three years or offsetting a capital gain experienced in the future. If the sold position, or something similar, still has a place in the portfolio, we can discuss how to get the exposure back into the account once the required window of non-exposure has elapsed.
At Allan Bush Investment Team, we are happy to pull the figures for your adjusted cost base and compare them to the current market value to better understand the best strategy for your personal situation. In 2022, December 28 will be the last day to submit tax loss selling trades and have them settled before year-end.