Show Transcript
Tax deadlines are nearing and it can be a good time to review your year-end finances before 2022 arrives. Kim Parlee talks to Nicole Ewing, Director, Tax and Estate Planning at TD Wealth, about managing tax-loss selling, reporting obligations for those who hold cryptocurrency, and why now can be an opportune time to consider a charitable donation.
Originally aired December 1, 2021
Print Transcript
The year is drawing to a close, which means we have some tax tips you should be thinking about for year end. Here to take us through them is Nicole Ewing. She's director of tax and estate planning with TD Wealth. Nicole, fantastic to see you. I'm going to just run through these really fast. There's a lot. The first thing, of course, to keep in mind is tax-loss selling.
Yes. Great to think about this as part of our overall strategy. Some people call it tax-loss harvesting, and so we're essentially taking some of our securities that may not have done as well. We might be in a loss position for those, and we're going to trigger those losses so we can offset them against some gains that we might have in our portfolio with the objective of minimizing our overall tax liability. Mindful that we're only dealing here with securities that are our non-registered accounts. So we're not talking about RRSPs or TFSAs for this. But what's really important is to think about this from a holistic perspective because we can use these losses against our last three years as well as carry them forward indefinitely. So there's some really great planning strategies that we can we can do here. Now, something to be mindful of, though, is the superficial loss rule. Some people call this a 30-day rule or the 61-day rule. And what you essentially says is if I have realized a loss, triggered a loss, if I acquire that same property, so an identical property, within 30 days on either side of that, my loss is going to be denied. And so that's not the outcome we're looking for. And so we want to make sure that if we do want to reacquire that property, if we really, really like that security, that we're perhaps waiting past that 30 days, or we're reaching out to our investment advisors and asking them whether there's not some similar stock that can fulfill a similar purpose within our portfolio, but isn't going to be subject to those rules. And something Kim, I think really important here for people to keep in mind, is that that's going to apply to affiliated persons. So that's not just myself, but my spouse. So if my spouse also is buying and selling and we're not coordinated in our portfolios, we might be falling into these superficial loss rules without realizing it. So this is a year end strategy, but I encourage you to think about this as a, at the latest, December 28 strategy because we do have to be mindful of the time it takes to settle those transactions and not wait until the very last minute.
Yeah, absolutely. You don't want to be doing a panic strategy at the last minute. A lot of people, Nicole, have been dipping their toe into crypto and this is something that people need to think about come tax time. So maybe give some of the considerations around that.
There's a lot of confusion with crypto. Some people think that because it might be held at an intermediary in another country or somewhere other than Canada, that they're not subject to tax. And as a Canadian resident, you are subject to tax on your worldwide income, regardless of where it may be held, wherever your cryptocurrency might be held. So firstly, you are going to be exposed to tax from a Canadian perspective. You may also be exposed to tax in those other jurisdictions. And so making sure you understand what your obligations are, whether or not there's opportunities for foreign tax credits or treaties to minimize the double taxation. But really thinking here that we are, as Canadians, likely going to be subject to tax in Canada. You might be subject to tax in other countries. And even if you're not transacting throughout the year, if you're simply holding your cryptocurrencies, you might have some tax filing obligations as well. So if they qualify as specified foreign property, you're going to need to be reporting those on your T1135. So a lot to think about here and probably a good idea to get some tax advice.
And just to stick with this for a minute too because it's an asset. It's just like any other asset you have. I'm assuming you would have to pay capital gains or deal with losses on the other side with that transaction. But the frequency of which people are trading or buying and selling crypto could also impact things, could it not?
It could. So I just want to really clarify for folks that cryptocurrency is not currency for CRA purposes, it's a commodity. And so because it's a commodity, it can be treated as business income or it could be treated as a capital property. So depending on how you're interacting with that, the CRA may regard you as being in the business of dealing with cryptocurrencies, so things like how often you're trading, the length of the time in between trades. Whether or not you are approaching this with a business mind. Do you have a business plan? Are you executing the way a business person would? And if so, for example, if you're day trading, that's likely to get you into the question of whether or not this isn't a commercial activity, which is important because the tax on a commercial activity, you are taxed on them 100% of the income. Whereas if it's a capital property, our current inclusion rate is 50%. So again, significant differences in the way that this would be treated.
Nicole, I've only got about 90 seconds, but another important thing to keep in mind for year end is charitable giving.
So wonderful, wonderful opportunity to do some good and to give back to our communities while also minimizing our taxes and hopefully maximizing the type of gifts that we can be giving to charities. And so being mindful that December 31st is the deadline for getting your donations in and getting access to that tax credit, which we would then use to minimize our overall tax. Credits are really, really valuable because those are going directly against the bottom line tax that we're owing. So we have tax payable, we apply our credit, it fully reduces that. As we think about year end planning, perhaps instead of losses, maybe we have some gains and we have some shares with accrued gains where we can be donating securities instead of cash. And that would allow us to offset that gain. We're not going to be taxed on the full value of the gain, but we are going to get that charitable receipt for that full gift. So a very, very powerful opportunity to eliminate the tax so we would have otherwise had to pay on those gains while benefiting the charity and receiving a full tax credit for that donation.
We packed a lot in there in seven minutes Nicole, that's awesome. Thanks so much for running it through. And with all the volatility this year, I think there's going to be a lot of interesting things people should be paying attention to. So very sage insight, Nicole. Thanks so much.
Oh my pleasure.
Yes. Great to think about this as part of our overall strategy. Some people call it tax-loss harvesting, and so we're essentially taking some of our securities that may not have done as well. We might be in a loss position for those, and we're going to trigger those losses so we can offset them against some gains that we might have in our portfolio with the objective of minimizing our overall tax liability. Mindful that we're only dealing here with securities that are our non-registered accounts. So we're not talking about RRSPs or TFSAs for this. But what's really important is to think about this from a holistic perspective because we can use these losses against our last three years as well as carry them forward indefinitely. So there's some really great planning strategies that we can we can do here. Now, something to be mindful of, though, is the superficial loss rule. Some people call this a 30-day rule or the 61-day rule. And what you essentially says is if I have realized a loss, triggered a loss, if I acquire that same property, so an identical property, within 30 days on either side of that, my loss is going to be denied. And so that's not the outcome we're looking for. And so we want to make sure that if we do want to reacquire that property, if we really, really like that security, that we're perhaps waiting past that 30 days, or we're reaching out to our investment advisors and asking them whether there's not some similar stock that can fulfill a similar purpose within our portfolio, but isn't going to be subject to those rules. And something Kim, I think really important here for people to keep in mind, is that that's going to apply to affiliated persons. So that's not just myself, but my spouse. So if my spouse also is buying and selling and we're not coordinated in our portfolios, we might be falling into these superficial loss rules without realizing it. So this is a year end strategy, but I encourage you to think about this as a, at the latest, December 28 strategy because we do have to be mindful of the time it takes to settle those transactions and not wait until the very last minute.
Yeah, absolutely. You don't want to be doing a panic strategy at the last minute. A lot of people, Nicole, have been dipping their toe into crypto and this is something that people need to think about come tax time. So maybe give some of the considerations around that.
There's a lot of confusion with crypto. Some people think that because it might be held at an intermediary in another country or somewhere other than Canada, that they're not subject to tax. And as a Canadian resident, you are subject to tax on your worldwide income, regardless of where it may be held, wherever your cryptocurrency might be held. So firstly, you are going to be exposed to tax from a Canadian perspective. You may also be exposed to tax in those other jurisdictions. And so making sure you understand what your obligations are, whether or not there's opportunities for foreign tax credits or treaties to minimize the double taxation. But really thinking here that we are, as Canadians, likely going to be subject to tax in Canada. You might be subject to tax in other countries. And even if you're not transacting throughout the year, if you're simply holding your cryptocurrencies, you might have some tax filing obligations as well. So if they qualify as specified foreign property, you're going to need to be reporting those on your T1135. So a lot to think about here and probably a good idea to get some tax advice.
And just to stick with this for a minute too because it's an asset. It's just like any other asset you have. I'm assuming you would have to pay capital gains or deal with losses on the other side with that transaction. But the frequency of which people are trading or buying and selling crypto could also impact things, could it not?
It could. So I just want to really clarify for folks that cryptocurrency is not currency for CRA purposes, it's a commodity. And so because it's a commodity, it can be treated as business income or it could be treated as a capital property. So depending on how you're interacting with that, the CRA may regard you as being in the business of dealing with cryptocurrencies, so things like how often you're trading, the length of the time in between trades. Whether or not you are approaching this with a business mind. Do you have a business plan? Are you executing the way a business person would? And if so, for example, if you're day trading, that's likely to get you into the question of whether or not this isn't a commercial activity, which is important because the tax on a commercial activity, you are taxed on them 100% of the income. Whereas if it's a capital property, our current inclusion rate is 50%. So again, significant differences in the way that this would be treated.
Nicole, I've only got about 90 seconds, but another important thing to keep in mind for year end is charitable giving.
So wonderful, wonderful opportunity to do some good and to give back to our communities while also minimizing our taxes and hopefully maximizing the type of gifts that we can be giving to charities. And so being mindful that December 31st is the deadline for getting your donations in and getting access to that tax credit, which we would then use to minimize our overall tax. Credits are really, really valuable because those are going directly against the bottom line tax that we're owing. So we have tax payable, we apply our credit, it fully reduces that. As we think about year end planning, perhaps instead of losses, maybe we have some gains and we have some shares with accrued gains where we can be donating securities instead of cash. And that would allow us to offset that gain. We're not going to be taxed on the full value of the gain, but we are going to get that charitable receipt for that full gift. So a very, very powerful opportunity to eliminate the tax so we would have otherwise had to pay on those gains while benefiting the charity and receiving a full tax credit for that donation.
We packed a lot in there in seven minutes Nicole, that's awesome. Thanks so much for running it through. And with all the volatility this year, I think there's going to be a lot of interesting things people should be paying attention to. So very sage insight, Nicole. Thanks so much.
Oh my pleasure.
