Strong markets mean that there are fewer tax-loss candidates this year, but almost 20 Canadian stocks have declined by at least 10 per cent. Investors have until Dec. 30 to sell securities to book losses against capital gains in their taxable accounts. They need to be mindful of the Canada Revenue Agency’s (CRA) superficial loss rule, which prohibits repurchasing a security, like a stock or fund, within 30 days following a tax-loss sale.
This rule applies to affiliated people such as a spouse and precludes buying the same security 30 days before the sale. If this occurs, the CRA will deny the loss and the purchase is added to the adjusted cost base of the repurchased investment. However, investors can buy non-identical securities, such as a different stock or exchange-traded fund (ETF), in the same industry sector during that period. Daniel Straus, a managing director of ETFs and financial products research at National Bank of Canada Financial Markets in Toronto, says buying an ETF that holds a stock sold for tax-loss purposes reduces fear of missing out on a bounce-back in the next 30 days. There are fewer tax-loss candidates this year given that the S&P/TSX Composite Index has gained around 21 per cent, but he says about 20 stocks were off by at least 10 per cent as of Nov. 8. The companies have a 6.2-per-cent and 1.8-per-cent weighting, respectively, in iShares S&P/TSX Capped Information Technology Index ETF. Typically, one notices performance-chasing in the ETF market, but at this time of year, you see inflows into ETFs that have done poorly. After 30 days, there are some outflows from those ETFs, but they’re not as high as the inflows