When people think of taxes, it doesn’t immediately trigger romantic feelings does it?
But how do you feel when you get a big refund cheque from the Government in the spring? Getting warmer? Saving cold hard cash on taxes … Now that IS sexy. (No wonder tax accountants get all the action right!)
This brings us to Tax Loss Harvesting…
Tax Loss Harvesting
As much as we’d like every one of our investments to go up all of the time, there are inevitable ebbs and flows to investments.
Tax Loss Harvesting is selling off investments that are currently losing money to create a capital loss. This capital loss is applied to capital gains you’ve made on other investments. By doing so you are saving on taxes.
Staying in the Game
But what if you want to hold on to that investment because you like it for the long term? The CRA doesn’t like you selling an investment and buying it right back, just to create a loss. They call this a Superficial Loss (they don't want you buying the investment back for a 30 calendar day period).
You can, however, buy non-identical securities. For example, you could sell Royal Bank and buy Toronto Dominion bank and switch back 31 days later. You’ll run the risk of one bank doing better than the other, but at least you’ll continue to have sector exposure (and have made money on the tax side).
Here is a link to the CRA’s website for more details.
RRSPs and TFSAs
Sorry folks, because RRSP and TFSA accounts are not subjected to capital gains, you can’t use this strategy.