As we enter new economic conditions, some companies will have a harder time than others. Now may be a good time to consider the benefits of tax-loss selling: Kim Parlee speaks with Tannis Dawson, a High Net Worth Planner at TD Wealth, about tax management and how to take advantage of it.
Print Transcript
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- We all have seen what COVID-19 has done to everything from public health to the stock markets. But if you have sold stocks at a loss, or you own stocks and are looking to do some tax planning, this Ask MoneyTalk could be for you.
Tannis Dawson is standing by in Winnipeg. This question, Tannis, is with the markets down, should I be thinking about tax-loss selling?
- This is an absolutely great time to look at the tax planning opportunity. And so with the markets lower, now we might have stocks at a loss. And so we can sell those stocks and incur that loss. And we can apply it against other capital gains. So what happens is-- it's for a calendar year, though.
So for 2020, if we sell the lots right now, we have gains in this year. It's going to reduce it, which will reduce our tax liability that when we file our tax returns next March or April, and so reduce the cash and the tax that we'll pay. If there is no gains in 2020, and we incur those losses, we also have the ability to go back three years.
So I have clients that had sold their business or sold stock. And they have capital gains two years ago. This has been a great opportunity to look at the market and say, hey, now I have these losses. I'll sell these stocks, have this loss. Then I know I'm going to carry it back. And now I'm going to get a refund on those taxes I paid within the last three years.
If you don't have the gains, the loss can be carried forward. But we're not-- we don't always do it for that, because we don't know. And it's not an immediate cash benefit to us. But if you are looking, and you know that you're going to have gains this year, for the past three, this is a great opportunity.
The only downside is that we just-- if you're out of the market. So if you want to buy those stocks back, we have to be careful, because we need 30 days before we can purchase the same stock. You can purchase a different stock with the money. And so if the market recovers within those 30 days, that's the only kind of downside of this.
And I guess the other thing you have to be careful of is, you know, this only applies in certain types of accounts. This wouldn't work for registered, like RRSPs and TFSAs and those types of things.
- Correct. For an RRSP and TFSAs, we don't really care that the markets are down or up unless you're starting to take money out of it, because then we're realizing it. So if you sell something in your RRSP, it's just actually realizing that loss. So from an RRSP point of view, and if it's a RRIF and you're taking your minimum, they're looking at the fair market value already. So to actually realize that loss, there's no benefit for you. There's no tax saving.
- And last thing-- and you alluded to this at the beginning-- is just that this needs to be part of an overall plan. You need to be how to keep your investment objectives in mind and your tax objections in mind. It needs to be holistic in terms of how you see things.
- You're right. And everything that we do, it's all connected. You need to work with your financial advisor. You need to work for your tax advisor, making sure that everybody is on the same page and have all the same information.
So I know that I'm working on a few files right now. And we're looking. And we're working very closely with their financial advisor and their tax advisor and making sure that we have all the information and that there is gains there to be used to offset it, because we want to make sure there's a benefit. Or otherwise, there's no point.
- Great to talk to you, Tannis. Thanks so much.
- Thanks, Kim.
[MUSIC PLAYING]
- We all have seen what COVID-19 has done to everything from public health to the stock markets. But if you have sold stocks at a loss, or you own stocks and are looking to do some tax planning, this Ask MoneyTalk could be for you.
Tannis Dawson is standing by in Winnipeg. This question, Tannis, is with the markets down, should I be thinking about tax-loss selling?
- This is an absolutely great time to look at the tax planning opportunity. And so with the markets lower, now we might have stocks at a loss. And so we can sell those stocks and incur that loss. And we can apply it against other capital gains. So what happens is-- it's for a calendar year, though.
So for 2020, if we sell the lots right now, we have gains in this year. It's going to reduce it, which will reduce our tax liability that when we file our tax returns next March or April, and so reduce the cash and the tax that we'll pay. If there is no gains in 2020, and we incur those losses, we also have the ability to go back three years.
So I have clients that had sold their business or sold stock. And they have capital gains two years ago. This has been a great opportunity to look at the market and say, hey, now I have these losses. I'll sell these stocks, have this loss. Then I know I'm going to carry it back. And now I'm going to get a refund on those taxes I paid within the last three years.
If you don't have the gains, the loss can be carried forward. But we're not-- we don't always do it for that, because we don't know. And it's not an immediate cash benefit to us. But if you are looking, and you know that you're going to have gains this year, for the past three, this is a great opportunity.
The only downside is that we just-- if you're out of the market. So if you want to buy those stocks back, we have to be careful, because we need 30 days before we can purchase the same stock. You can purchase a different stock with the money. And so if the market recovers within those 30 days, that's the only kind of downside of this.
And I guess the other thing you have to be careful of is, you know, this only applies in certain types of accounts. This wouldn't work for registered, like RRSPs and TFSAs and those types of things.
- Correct. For an RRSP and TFSAs, we don't really care that the markets are down or up unless you're starting to take money out of it, because then we're realizing it. So if you sell something in your RRSP, it's just actually realizing that loss. So from an RRSP point of view, and if it's a RRIF and you're taking your minimum, they're looking at the fair market value already. So to actually realize that loss, there's no benefit for you. There's no tax saving.
- And last thing-- and you alluded to this at the beginning-- is just that this needs to be part of an overall plan. You need to be how to keep your investment objectives in mind and your tax objections in mind. It needs to be holistic in terms of how you see things.
- You're right. And everything that we do, it's all connected. You need to work with your financial advisor. You need to work for your tax advisor, making sure that everybody is on the same page and have all the same information.
So I know that I'm working on a few files right now. And we're looking. And we're working very closely with their financial advisor and their tax advisor and making sure that we have all the information and that there is gains there to be used to offset it, because we want to make sure there's a benefit. Or otherwise, there's no point.
- Great to talk to you, Tannis. Thanks so much.
- Thanks, Kim.
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