Canada Tax-Loss Harvesting Guide
the tax-loss harvesting in Canada. The tax-loss harvesting is the "strategy of selling the investments at the loss to offset the capital gains and reduce the tax liability". The superficial loss rule (the "anti-avoidance rule") — the "loss is DENIED if the same or the identical property is purchased within the 30-day period before or after the sale" (the "30-day window"). The superficial loss applies to the TFSA and the RRSP — the "loss is denied if the identical property is purchased inside the TFSA or the RRSP within the 30-day window". The net capital loss can be carried forward indefinitely and carried back 3 years. The capital gains inclusion rate is 50% (the "first $250,000 of the capital gains for the individuals") — the "inclusion rate affects the loss harvesting strategy". The capital loss can ONLY be applied against the "capital gains" — the "capital loss cannot offset the other types of the income (the interest, the dividends, the employment income)".
Superficial Loss Rule
- 30-day window: The "loss is denied if the identical property is bought within the 30 calendar days before or after the sale". The "denied loss is added to the cost base of the new property (the 'superficial loss adjustment')".
- Identical property: The "same stock, the same ETF, the same mutual fund". The "different class of the shares (the 'voting vs non-voting') is considered the identical property". The "different ETF tracking the same index is NOT the identical property (the 'different fund provider = no superficial loss')".
- Related parties: The "superficial loss rule applies to the purchases by the 'affiliated persons'" — the "spouse, the common-law partner, the corporation controlled by the taxpayer, the trust in which the taxpayer is the beneficiary".
- TFSA and RRSP: The "purchase of the identical property inside the TFSA or the RRSP within the 30-day window triggers the superficial loss" — the "loss is permanently denied (the loss is NOT added to the TFSA or the RRSP cost base)".
Capital Loss Carry-Over
- Carry-back 3 years: The "net capital loss can be carried back to any of the 3 preceding tax years" — the "amend the prior year return to apply the loss".
- Carry-forward indefinitely: The "unused net capital loss can be carried forward to any future year" — the "no expiry date".
- Ordering rule: The "capital loss is applied against the capital gains of the same year first" — the "excess loss is carried back 3 years (the earliest year first)" — the "remaining loss is carried forward".
Tax-Loss Harvesting Strategies
- Year-end harvesting: The "review the portfolio in the November and the December" — the "sell the underperforming positions to realize the losses" — the "offset the realized capital gains from the same year".
- Tax-loss swap: Sell the "ETF A (the iShares XIC) at the loss" and buy the "similar but NOT identical ETF B (the Vanguard VCN)" — the "maintain the market exposure while realizing the loss". The "wait 31 days to buy back the original ETF".
- Partial harvesting: The "sell a portion of the losing position" — the "realize the loss up to the amount of the capital gains to be offset".
For the capital gains tax and the inclusion rate, see our Capital Gains Tax Guide →. For the tax-efficient investing and the asset location, see our Tax-Efficient Investing Guide →.