You might have heard of the Darwin Awards. The awards, created by author Wendy Northcutt, are given to people who die in such an idiotic manner that their action ensures the long-term survival of the species, by selectively allowing one less idiot to survive. Maybe not surprisingly, a study a few years ago showed that 88.7 per cent of people receiving a Darwin Award are men.
Now, suppose you don’t have capital gains to offset the capital losses. But let’s assume your spouse has capital gains. There’s a way to transfer those capital losses to your spouse so that they can offset the gains. This can allow your spouse to save tax on the capital gains and could even allow your spouse to recover taxes that might have been paid in one of the past three years.I first used this idea many years ago when a gentleman, named Peter, came to me with a problem.
Step 1: Peter sold his Bre-X Minerals Ltd. shares on the open market. At the time, the shares were still trading, so he was able to sell the shares for $10,000 and realized a $400,000 capital loss in the process. But since he couldn’t use the losses, we didn’t stop there. So, Peter’s capital loss was denied. But it didn’t disappear forever. Our tax law will cause the loss that is denied to be added to the adjusted cost base of the newly acquired securities. The reason? So that the eventual sale of the newly acquired securities will give rise to a smaller capital gain or a larger capital loss. So, the $400,000 loss denied to Peter was added to Wendy’s $10,000 cost amount, resulting in a total ACB for her of $410,000.