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Tax-loss selling can cut your tax bill today

As we come to the end of 2017, now is a good time to review your portfolio and identify
under-performing securities for tax-loss selling to help with year end tax planning and savings.
What is Tax-Loss Selling?
  • Tax-loss selling is a year-end strategy an investor can use to reduce their tax liability. By selling securities with accrued capital losses, an investor can help offset taxes otherwise payable in respect of other securities that have been sold at a capital gain. The proceeds from the sale of these securities can then be reinvested in different securities with similar exposures to the securities that were sold, to maintain market exposure.
  • Even if capital gains are not available in the current year, the realized losses may be carried back for three years to shelter gains realized in those years or carried forward to reduce capital gains in upcoming years.
  • The ability to recognize a capital loss for tax purposes may be restricted in certain circumstances, including where the acquired security is identical to the security that is sold. You should not repurchase the loss security within 30 days of the loss sale. You should consult with your advisor to ensure that restrictions do not apply.

Tax-Loss Selling Example

  • Realized capital gains from previous transactions or capital gains distributions from mutual funds can be offset by selling securities, which are trading at a lower price than their adjusted cost base.
  • An Investor can then use the proceeds from the security that was sold to invest in a different security.
  • In addition to common shares, tax-loss selling can also be applied in respect of other financial instruments that are on capital account, such as bonds, preferred shares, ETFs, mutual funds, etc.

Important Date to Remember

December 27, 2017 – Last day for Canadian and U.S. tax-loss selling

Related Information
Tax Changes
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