Tax-loss selling—also known as tax-loss harvesting—is a technique for proactively realizing capital losses in your portfolio. It might seem counterintuitive: why would you want to “sell low”? In fact, harvesting losses in an ETF portfolio is a smart strategy that can allow you to offset taxable gains you have realized in the past, or defer taxes on gains you’ll realize in the future.
My colleague Justin Bender and I co-wrote a white paper on tax-loss selling with ETFs way back in 2013. Justin updated the paper late last year, and it turned out to be good timing: the market crash of spring 2020 provided an ideal opportunity to put this strategy to the test.
Justin’s latest video provides an overview of the main concepts in the white paper, including the superficial loss rule. According to this rule, if you sell a security to crystallize a capital loss, you cannot:
- buy, or have the right to buy, the same or identical property, during the period starting 30 calendar days before the sale, and ending 30 calendar days after the sale; and
- still own, or have the right to buy, the same or identical property 30 calendar days after the sale.
If you violate these conditions, your loss will be deemed “superficial,” and you won’t be able to use it to reduce taxable gains.
The superficial loss rule can be confusing, and the subtleties can trip up investors who are trying to harvest losses in their ETF portfolio. We’ve cobbled together some of the most common head-scratchers and provided clarification to make sure you don’t fun afoul of the Canada Revenue Agency.
I use the iShares Core S&P/TSX Capped Composite Index ETF (XIC) for my Canadian equities. If I sell this fund to harvest a loss, can I replace it with the BMO S&P/TSX Capped Composite Index ETF (ZCN)? Surely these two ETFs are not “identical property,” since they are from different fund providers.
Your logic makes sense, but the taxman disagrees. Way back in 2001, the CRA issued a bulletin stating that two index funds tracking the same benchmark are identical properties in this context. So if you sell XIC and replace it with ZCN, your trade will result in a superficial loss, as both ETFs are pegged to the S&P/TSX Capped Composite Index.
Many tax specialists have argued this tax bulletin is badly outdated, now that index-tracking funds are far more common that they were 20 years ago. Specifically, the CRA argues that identical properties are “the same in all material respects, so that a prospective buyer would not have a preference for one as opposed to another.” But funds tracking the same index might not fit that description.
Example: suppose you harvested a loss in the iShares MSCI Emerging Markets Index ETF (XEM) and then swapped it for the BMO MSCI Emerging Markets Index ETF (ZEM). These two funds track the same benchmark, but they are hardly “the same in all material respects.” XEM has a fee of 0.80% and gets its exposure by holding an underlying US-listed ETF. The BMO version has a much lower fee of 0.27% and holds its stocks directly, which is more tax-efficient. Investors could certainly argue they would “have a preference for one as opposed to another,” but a strict interpretation of the bulletin would render this a superficial loss.
Picking a fight with CRA is a bad idea, so if you sell any ETF at a loss, we recommend replacing it with one tracking a slightly different index. For Canadian equities, you could replace XIC with the Vanguard FTSE Canada All Cap Index ETF (VCN). For emerging markets, if you sell XEM or ZEM, your replacement could be the iShares Core MSCI Emerging Markets IMI Index ETF (XEC), which tracks a broader index.
We’ll have more suggestions for tax-loss selling pairs in my next post.
Just over a month ago, I sold XIC to harvest a loss and purchased VCN as a replacement. Now that the 30-day waiting period is over, should I sell VCN and buy back XIC?
One benefit of using total-market ETFs for tax-loss selling is that the benchmark indexes do not vary much. The S&P/TSX Capped Composite Index (tracked by XIC) and the FTSE Canada All Cap Domestic Index (tracked by VCN) are not identical, but their differences are tiny. In the revised white paper, Justin compared the performance of the two benchmarks over the 10 years ending in 2018 and found their monthly tracking error to be a minuscule 0.118%, which means they moved almost in lockstep. And since both ETFs have the same low fee, they’re effectively interchangeable.
There’s another reason not to switch back to your original ETF after harvesting a loss: if the market recovers quickly, you might end up realizing a capital gain. This spring provided a textbook example. If you swapped XIC for VCN near the market bottom on March 23, 2020, you would have paid less than $23 for units of your new Vanguard ETF. Then the market rebounded amazingly quickly, and by April 29 the fund was trading at over $30. Selling VCN at that point would have realized a capital gain of about 30%, defeating the purpose of your original tax-loss selling trade.
What if I harvest a loss and then my replacement ETF falls even further? Should I harvest that loss, too?
In most cases, yes. When the market falls hard and fast there may indeed be an opportunity to harvest more than one loss in the same asset class. The COVID crash of 2020 provided just such an opportunity.
Here’s a real example: one of our clients had a large holding in VCN that was showing a decline of about 6% and $9,000 on March 10. We sold it to harvest the loss and replaced it with XIC. But the Canadian market continue to plunge, and by March 27 that new holding was down another 14% and more than $21,000. We harvested this loss, too.
Of course, because our second tax-loss trade came only 17 days after the first, we could not just switch back to VCN. That would have resulted in a superficial loss. So in this unusual case, we had to choose a third Canadian equity ETF to use as our replacement. We ended up using the iShares S&P/TSX 60 Index ETF (XIU), though other options would have been the Franklin FTSE Canada All Cap Index ETF (FLCD) or the TD Canadian Equity Index ETF (TDAM).
This year, I made my RRSP contribution at the deadline on March 2, and I bought an iShares ETF. I also held the same ETF in my taxable account, and when the market tanked later that month, I harvested the loss and replaced it with a similar Vanguard ETF. Now my accountant is saying the loss will be declared superficial. How can this be?
This part of the superficial loss rule confuses many investors. Most people understand they can’t buy the same ETF immediately after selling it to harvest a loss: they know they have to wait 30 days. What they often overlook is that you also cannot buy the same ETF (or identical property) during the 30 days before you harvest the loss.
As described in our white paper, it’s helpful to think of a 61-day period surrounding the tax-loss trade: you need to be aware of any transactions you make during the 30 days before the settlement date, and the 30 days following.
This is why you should check your recent transaction history before making a tax-loss selling trade. If you made any purchases of the same or identical property in your other accounts during the prior 30 days, your loss could be deemed at least partially superficial.
Remember, too, that in order for the loss to be disallowed, you need to still hold the identical property 30 calendar days after the sale. So if you had noticed your mistake shortly after harvesting the loss in your taxable account, you could have immediately sold the ETF in your RRSP and dodged the bullet. As long as the RRSP trade settled less than 30 days after the sale in the taxable account, the loss would have still been allowed.
My husband and I keep our finances separate: I manage my own ETF portfolio, but he uses an advisor. What could go wrong?
Having more than one portfolio manager for your household accounts can cause problems if you’re doing tax-loss selling. We’ve already seen that your loss can be declared superficial if you buy an identical property in one of your other accounts within the 61-day window. Well, the same is true of your spouse buys that ETF in his or her account. (It’s also true if you buy the same or identical property in a corporate account controlled by you or your spouse.)
We’ve seen this potential danger in our own practice. Occasionally a client or their spouse will have a self-directed account in addition to the portfolio we manage for them. Since we make relatively frequent tax-loss selling trades, we recommend these clients avoid using the same ETFs we hold in their managed accounts to make sure we don’t inadvertently create superficial losses.
If you and your spouse manage your investments separately, or if your family uses more than one advisor, be extra diligent when tax-loss selling. The easiest way to stay out of trouble is to avoid using the same securities: for example, if you both invest in ETFs, you could agree to use different fund providers.
I hold the same ETFs in my TFSA and my taxable account. I have a dividend reinvestment plan (DRIP) set up for all the holdings in my TFSA. Will this be a problem if I harvest a loss?
Yes, using DRIPs makes it easy to create superficial losses accidentally. Each reinvested dividend involves purchasing new ETF units, so if any of these transactions falls within the 61-day window, it could result in a superficial loss.
Suppose you held 1,000 shares of VCN in both your non-registered account and your TFSA. In late March 2020, you sold your non-registered holding to harvest the loss and replaced it with XIC. So far so good. But then VCN declared a dividend of $0.16 per unit on March 31, and if you had a DRIP set up in your TFSA you would have received five new shares. That would result in a partial superficial loss, which would apply to five of the 1,000 shares you sold.
As you can imagine, this creates a bookkeeping nightmare. If you regularly engage in tax-loss selling, you may want to cancel your DRIPs altogether, or consider using different ETFs in your various accounts so this doesn’t happen.
What about the other way around, where you are intentionally trying to realize a capital gain because you have capital losses elsewhere you want to offset? If you sell an etf, do you have to wait 30 days before buying the same etf in order to realize the capital gain? And if so, do the same rules apply where you need only pick an etf tracking a different benchmark and the 30 days is waived?
@Sam: There is no such thing as a superficial gain. CRA is quite happy to have you pay the taxes on your gains now rather than deferring them!
What about funds of funds ETFs like asset allocation ETFs? Can they create a superficial loss if the underlying holdings are the same as the ETF sold to harvest a loss?
@Hyacinthe: It’s fine to re-purchase an asset allocation ETF, even if it includes one of the underlying holdings you have just sold. These would not be considered identical property.
I have a large paper profit which I am winding down over a number of years to avoid jumping tax brackets and triggering OAS clawback. I am also holding onto some losing positions as a hedge in case of a sudden forced wind-down into my estate. Do I actually have to hold onto the losing security to postpone declaring the loss, or can I take the loss and bank it for future offset against gains?
Does the comment about the spouse also apply to common-law tax filings?
@Dan: Yes, it does:
@Mathman: If you harvest a loss and you do not have gains in the current tax year, then you can carry forward the loss indefinitely:
Once someone has large sums in asset allocation funds, does the bid/ask and stress of pulling such large trades make it worthwhile.
Is it time to use an advisor to handle these large trades?
I am sorry, perhaps I was not being clear. I have gains for the current tax year. I also wish to sell other assets at a loss today, not use them to offset gains for the current year, but use them to offset gains in a future year when it has more impact (e.g. when RRSPs have to be collapsed and QPP taken at 71). Ideally, I would like to be able to defer the decision on how much loss to take for the tax year when I file returns to be able to run my income right to the edge of my tax bracket and OAS clawback threshold.
@Mathman: If you have realized gains in the current tax year and then you realize losses in that same year, then you must first use those losses to offset the current gains. You can’t carry them forward unless you end up with a net loss overall. For example, say you realize $10,000 in gains and $12,000 in losses. You cannot choose to pay the tax on the $10,000 and carry forward the $12,000 loss. You must first use the losses to offset the $10,000 gain, and then, since you will have $2,000 in additional losses, you can carry those forward. Hope this makes sense.
@Emily: Large trades can be stressful, but I’m not sure it makes sense to use an advisor solely for that reason. In any case, an advisor can’t do anything about the bid-ask spread: these are the same for everyone.
Does the same rules you explained apply to passive income of investments inside a corporates business? If a business buys a security and the price drops suddenly the same day , to take advantage of capital loss, the directors need to wait 30 days to sell it?
@Reza: The superficial loss rules are the same for corporations as they are for individuals. But there is no need to wait 30 days after a purchase to realize a loss. The second part of the rule states that if you buy a security within 30 days before selling it to crystallize a loss, the loss will be declared superficial only if to still hold it 30 days after.
This question is a little off-topic – your mention of corporate account jostled some neurons – so maybe you could point me in the correct direction? I have a chunk (~230K) sitting in my business account earning nada. That pains me! I’ve not ventured into investing in my corporate account as some sources suggest that, if you have cash in your corp account – and don’t require it for operating expenses (I don’t) – to just leave it and draw it as dividends into retirement. Is there something that one can invest in that is zero risk and where any gains don’t affect business income in the year they’re earned (i.e., only when they’re redeemed/withdrawn as part of dividends in retirement)? Thank you for pointing me where to start!
@PDN: Investing in a corporate account is big subject, but here’s a start. Once you set up a corporate investment account with an online brokerage you can invest in the same products you would use in a personal account, i.e. stocks, bonds, ETFs, and so on. If you’re looking for something with “zero risk,” however, then you would need to stick to savings accounts and GICs.
Investment income in a corporation is taxed at a much higher rate than active business income.
This is a very good overview on the topic:
@Canadian Couch Potato Thank you. That was exactly the information I was looking for. Given that, it makes sense for me to hold onto my (near) worthless assets until I can use them effectively.
Hi Dan, I noticed a subtle detail in your post. Did vanguard change VCN to follow the Domestic Canadian index? I recall one of the previous minor flaws was the market cap weighting from a foreign perspective (ex. BCE). Thanks,
I hold VGRO in my CCPC corporate account as well as in a personal no registered account.
Is the ACB considered as one for both of the accounts? Or can I essentially look at the two accounts as separate?
If they are considered as one, would you suggest that someone maybe buys VEQT in the personal account instead?
Now that I am looking, the Vanguard website says “Seeks to track the performance of the FTSE Canada All Cap Domestic Index to the extent possible and before fees and expenses.” and BCE has the same weighting as it does in XIC. I always appreciate your blog posts and looking forward to the next one!
@Cameron: This is a great question. When calculating ACB, your personal account and corporate account are independent, as you are both different taxpaying entities. The same would be true for you and your spouse: if you both hold the same ETF in your personal accounts, these would be treated separately for ACB purposes.
However, if you harvest a loss for tax purposes, then the superficial loss rule could still apply if your corp or your spouse purchased that same security within the 61-day window. The logic here is that CRA wants to prevent people from gaming the system by booking a loss and then having an “affiliated person” buy it back.
@Emkay: This was a good catch! At the time we made the trades mentioned in the above post and discussed in Justin’s video (March 2020), VCN tracked the FTSE Canada All Cap Index, but then it switched to the FTSE All Cap Domestic Index in late June. The latter index is slightly different in the way it treats companies such as BCE, as you note.
The Franklin ETF (FLCD) has always tracked the Domestic version of the index. So while VCN and FLCD would have been good tax-loss selling pairs earlier this year, they no longer are, as they both track the same index.
Thank you for your post. My question relates to loss harvesting. The purpose of having a loss is to offset the current and potential future gains. However I’m still struggling to understand the purpose of loss harvesting. What I mean is that the loss harvesting is “trying” to decrease the current tax bill with the assumption that an individual is in higher tax brackets while he is working. At the same time this transaction will reduce the ACB, which will trigger a higher tax bill (capital gain) when is time to sell and withdraw those funds, hopefully in retirement and with the assumption that the individual will be in a lower tax brackets.
Having said that, if an individual income during his working life is the same as in retirement- that individual will most likely end up just with the transaction cost and spread cost?
@Ale: This is a good question that others have also asked. It’s true that if you can defer all of your capital gains until retirement, when you expect to be in a low tax bracket, then you might not need to proactively harvest losses. However, there are many times during your investing career that you might have little choice but to realize gains during a year when you’re in a high tax bracket. The most obvious is when rebalancing which, by definition, involves selling securities that have appreciated in value. By harvesting losses when you’re able, you may be able to make future rebalancing trades without the tax consequences.
Don’t forget that you can also carry losses back three years. When we bring on new clients we may realize significant gains as we rebuild the portfolios (e.g. selling mutual funds and individual stocks to replace them with ETFs). If we have a bear market shortly afterwards, we can harvest losses and carry them back to offset those gains.
Many people think of tax-loss harvesting as simply selling and repurchasing the same asset class over and over. Then they reasonably ask whether this makes sense, compared with simply holding that ETF indefinitely and deferring any gains until retirement. But if you have a diversified portfolio with individual ETFs for each asset class you have more flexibility. For example, you might harvest a loss in Canadian equities and then use that next year to offset a gain in US equities.
Will CRA deny the loss on an ETF if you still own some of the ETF? For example, say you owned 100 shares of VCN that is underwater and decide to only sell 50 shares to crystalize half of the loss. Is the fact that you still own 50 shares of VCN grounds for CRA to declare it a superficial loss? Thank you.
@Martin: It’s fine to sell only part of a holding and crystallize that loss: you just need to make sure you don’t buy back more shares before the 30-day period.
Referencing your response to Martin, this includes activities in other accounts within the same household (i.e., joint, spouse’s account), registered accounts (i e., Rsp/work pension, tfsa) and different products too, but tracking same index correct?
@Jeffrey: Yes, a strict interpretation of the superficial loss rule would include a related person (a spouse or corp) transacting in an index ETF tracking the same index as the one you sold at a loss (for example, XIC and ZCN).
I know there is a formula to calculate the denied loss when you only sell part of your total holdings but it gets confusing if you sell all your holdings of an ETF in your non registered account but still have some in your registered accounts. For example; if someone owns a total of 800 units of VFV split as follows, 300 in TFSA, 400 in non registered and 100 in RRSP on March 25th all purchased several years ago. Adds 50 units of VFV in TFSA account March 31st but then sells all 400 units in the non registered account on April 24th for a capital loss of $1000. Assuming no other transactions how much of the $1k loss would be denied? Would it be 50 units purchased during 61 day period/400 units sold*$1k loss=$125 of the loss would be denied. Therefore allowable capital loss is now $875. The formula seems to say to take the lowest of; 1) the units sold of the loss transaction 2) the units purchased during the 61 day period or 3) the units remaining at the end of 61 day period. Once you take the lower of those 3, divide it by the shares sold of the loss transaction and multiply it by the $ loss to determine the denied loss.
Looking forward to your feedback.
@Frank: I think the stumbling block here is that the formula only considers shares purchased within the 61-day period. The shares purchased before the 61-day period have no relevance. In your example, this would be the 100 shares in the RRSP and the original 300 in the TFSA.
In your example, the partial superficial loss would apply only to the 50 shares bought in the TFSA on March 25. The investor will be able to claim a capital loss on only 350 of the 400 shares he sold in the non-registered account. Therefore the allowable loss is $875.
I think this is confusing because you’re thinking of the original RRSP and TFSA shares as being “still held” 30 days after the loss is realized. But that’s only half of the two-part rule. To cause a superficial loss, those shares have to also be purchased within the 61-day window.
In other words, if you sell VFV in your non-registered account to harvest a loss, you don’t also need to sell long-held positions of VFV in your TFSA or RRSP (or in your spouse’s taxable account for that matter). You just can’t buy more shares within the window.
Hope this helps.
Just want to make sure i understood this correctly:
“still own, or have the right to buy, the same or identical property 30 calendar days after the sale.”
Does this mean i cant hold the same product or similarly tracking index product in any of my account (registered or non registered) that was sold for loss harvesting?
@Jeffery: I think your question is similar to @Frank’s (see above). If you hold the same ETF in your RRSP/TFSA and your taxable account, and then you sell the taxable holding to harvest a loss, you do not also have to sell the RRSP/TFSA holdings. As long as those holdings were purchased at least 30 days before your tax-loss harvesting trade, there is no issue with superficial losses.
It’s only a problem if you purchased those shares in the RRSP/TFSA within the 61-day window. The superficial loss rule has two parts, and both must be considered together.
@Canadian Couch Potato,
I have a loss situation with Options that will expire in January 15, 2021. I am planning to sell this Option with loss when it still has some value. However, I am planning to buy another option with a different strike price and expiration date with the same underlying stock in the same day. Would that be viewed as superficial loss? Even though the underlying asset is the same, these options totally carry different risks on investment. I would appreciate your feedback.
@HosHos: I don’t have any experience with options. I would suggest consulting a tax expert.
Thanks for this article! I have a follow up to your response to Frank’s question, which is similar to my present situation. I’ve tried reading around a lot on this, and I’ve noticed that there appears to be some conflict between your interpretation and other articles I’ve found online. For example, looking at Example #2 in this article: https://www.adjustedcostbase.ca/blog/what-is-the-superficial-loss-rule/
If we have a purchasing pattern as follows:
January 6th, 2014: Buy 100 shares for $50 per share
November 3rd, 2014: Buy 100 shares for $30 per share
November 4th, 2014: Sell 100 shares for $30 per share
December 2nd, 2015: Sell 100 shares for $80 per share
If I’m understanding your explanation correctly, you would not consider this a superficial loss because the original 100 shares were purchased outside the 61-day window, so therefore they are not considered. That means we’re just looking at the 100 shares purchased on Nov 3 and the 100 sold on Nov 4. And since the second part of the two-part rule doesn’t apply (none of the 100 shares purchased are held after the 61-day period), there’s no superficial loss.
The argument in that article is a bit different. The basic disagreement seems to come down to whether or not shares acquired before the 61-day period should be considered “held”. The article author believes they should be, and that since a purchase was made in the 61-day period, the two-part rule is met and a superficial loss occurs (because 100 shares were purchased, 100 were solid, and 100 are still owned). I find his logic compelling because it makes sense to me as a scenario which the superficial loss rule was envisioned to prevent: a purchase of 100 shares followed by an immediate sale of those 100 shares at the exact same price triggers a $1000 capital loss even though at the end of the transactions you’re left in the exact same spot: owning 100 shares. That seems to me to be the definition of a paper loss.
I’m asking because I made transactions earlier in the year that fit this scenario, and I can’t seem to find any official documentation or entirely compelling argument one way or the other. In my scenario, I have 200 shares of XIC in my RRSP and 100 shares in my unregistered account. There are no XIC transactions within my 61-day period, but I have a purchase of 50 shares of XIC in my unregistered account (for 150 shares total) the day before the sale of all 150 shares of XIC in my unregistered account for a loss. I still own XIC in my RRSP, but as I mentioned, I have no transactions in that account in the 61-day period.
By your interpretation, there is no superficial loss here because the 200 shares in my RRSP can be disregarded as they were acquired before the 61-day period. Therefore, I purchased 50 shares, sold 150, and now own 0 shares which were purchased in the 61-day period.
The interpretation of the other article I linked, however, is that those 200 shares in my RRSP count as “held”, so when I made my purchase of 50 shares before my sale I triggered a superficial loss of 33% (since 50 shares is 1/3 of the 150 shares I sold).
While I would very much like your interpretation to be correct (since it means I don’t have a superficial loss here), the author of the linked article makes a compelling argument to the contrary. Is there any further reading you would recommend I do on the subject? Or is this just a matter of differing interpretations, and I should consult a tax professional for a definitive answer?
Thanks so much for taking the time to help everyone in the comments! I’ve learned a lot from these articles and your responses.
@Ryan: I don’t think there is any contradiction between my comment to @Frank and the article on ACB.ca. Note that in your summary above, you have the order of the transactions incorrect. In the ACB.ca article, the order is buy, sell, buy, sell. You have recorded this as buy, buy, sell, sell.
In the ACB.ca example, the taxpayer sold 100 shares at a loss, repurchased them one day later (violating Rule 1), and then continued to hold them for another 13 months (violating Rule 2). This is clearly a superficial loss.
Based on what you have described about your own situation, there is no superficial loss. The 200 shares in your RRSP do not negate the loss in your taxable account if they were purchased outside of the 61-day window. These do not violate Rule 1. The additional 50 shares your purchased in XIC the day before the sale do violate Rule 1, but since you sold them and did not repurchase them (in any of your accounts), they do not violate Rule 2.
Hope this makes sense.
You mention in the article about how you quite often “sell to harvest the loss” when managing your clients portfolios. Is this something we should be doing if we are managing the portfolios ourselves? I am worried I am missing out on potential gains by not currently doing any selling. I have been of the mindset to just consistently buy as I have a 25+ year time frame on my portfolio. Any help is greatly appreciated!
@Bill: If you have a large non-registered account and you’re in a high tax bracket, tax-loss selling can be a very useful tool for deferring (and in some cases reducing) taxes. But I’m not sure it’s fundamental. And of course it’s always a trade-off: if you had to pay someone else to do it, the gains might not cover the cost of the service.
Hi, if you were to switch from HQU to HQD, would they be considered the same in regards to the superficial tax loss rule in that they both track the same index, but one is long and one is short?
Hi Dan, Thank you for your article as it is very helpful and explained the rule that differentiated superficial loss vs a tax-loss selling. I was wondering whether this is in conflict with the idea of simple and passive. I have not done it myself, so there is a lot of chances that I could be wrong (i.e., tax-loss selling could be indeed very simple). I would like to hear your opinions on this one ;)! You are the financial guru and I sincerely appreciate your response in advance.
Thanks for this info. Would you mind explaining a little more why this rule was put in place?? I don’t understand why.
I’m a first year trader and I have been doing this throughout the year. But not for tax purposes, just to simply cut my losses. And then when things re-stabilized after a fall, I would buy it back. I don’t see the issue with this. Why does taxation?
I JUST found this thing out and it’s now a little worrisome that I might have to pay more taxes all because I was trying to be responsible and not sit through possible mass losses.
For example, say I have 1000 shares at $40. I don’t like the vibes when it has fallen to $38 so I sell. It ends up crashing to $30 but then seems to bottom out there, and I feel safe putting my money back in. So I tend to put all the money back in, so the $38K at now $30 a share. I’ve done this a number of times throughout the year, and often it’s mere days or weeks before I buy back.
Am I to understand that to prevent the “superficial loss”, I’m supposed to just watch my money crash and burn?? This doesn’t make sense to me. Rebounds don’t always happen after 30 days, they are very often in a few days or weeks.
And is it ok to buy more shares since they are now cheaper, like how is that assessed? For instance with $38K at $30, I’d probably get 1250 shares. Is that extra 250 another problem, or do they look at the gross $ amounts (like $38K vs $40K)??
How do regular career traders deal with “superficial loss”, there’s no way they’re selling 100% of the time for gains?!
@John: I don’t want to be a spokesperson for the CRA, but the general idea is that they don’t consider you to have suffered a meaningful investment loss if you sell a security and then repurchase it quickly. If you genuinely lose money on an investment, then CRA allows you to use that loss reduce gains on other investments. But if you sell a stock to lock in a loss for tax purposes and then immediately buy it back, they consider that to be gaming the system.
Remember, you are under no obligation to “just watch my money crash and burn.” You can sell and buy back whenever you want. You just can’t claim a tax advantage when you sell at a loss and then repurchase within 30 days.
If you are day trading, then all of this might be a moot point, as the CRA treats gains and losses from day trading as business income: