OTTAWA — Thanks to a rally this fall, the Toronto Stock Exchange is up for the year so far, but that doesn't mean you don't have any losers in your portfolio.
Now might be the time to cull those picks that haven't worked out like you had hoped and use them to offset the taxes you owe on your winners, tax experts say.
Jamie Golombek, managing director of tax and estate planning at CIBC, says it has been a great year in the market for many, but that doesn't mean investors don't have losing stocks that could be sold.
"If you can do it before the end of the year, you're going to able to use that capital loss to offset other capital gains that you might have realized earlier this year," he said.
Even if you don't have any capital gains this year, taking a loss now can still save you money if you have had capital gains in recent years or expect to have them in the future.
Losses must first be applied to any capital gains you have in the year you incur the loss, but once they have all been offset, the rest of your losses can be either carried back up to three years or saved to offset capital gains in future years. That means if you had a big capital gain that you recorded in 2014, this is your last chance to offset it with a loss.
"What you're looking for is the ability to either reduce a gain this year which would save you tax or carry it back to a prior year and actually request a refund," said Bruce Ball, vice-president for tax at CPA Canada.
Ball notes there are some limits.
"You have to make sure that you don't have a loss that is going to be denied," he said, noting that the Canada Revenue Agency will deny what it calls superficial losses.
You can't rebuy the same the same stock within 30 days of selling it because it will be ruled a superficial loss and you will be denied the claim.
That means if you sold shares in a company for a loss, you or anyone affiliated with you — such as your spouse — can't buy the same shares until 30 days after the sale settles.
The sale also has to settle by the end of the year.
Gabriel Baron, a tax partner at EY, says it's important to be proactive and look at the whole picture when working with a tax professional.
"Tax is one aspect of an overall financial plan, it shouldn't be the only aspect of the plan," he said.
Baron said it's important to understand the opportunities you have from a tax planning perspective, but not to let tax decisions override everything else.
Selling investments just to trigger a loss may not be your best decision, Golombek says.
"Don't let the tax tail wag the investment dog."
Craig Wong, The Canadian Press