Taking a hit on your stocks is never pleasant. But tax loss selling rules allow you to use those losses to offset other capital gains. Scott Booth, Senior Analyst, Portfolio Advice and Investment Research, TD Wealth, explains how to use tax loss selling strategies to your benefit.
Print Transcript
00:00:00.000
00:00:04.770 Well, we all know what's certain in life-- death, and taxes.
00:00:07.271 And so we're going to help you a little bit, hopefully, today,
00:00:09.853 talking about the tax side of things.
00:00:11.490 We've all had that sinking feeling when we check our portfolio holdings
00:00:14.940 and see we've taken a hit on a stock or two or three.
00:00:18.732 There is, suppose, a silver lining.
00:00:20.190 That is, at least the tax rules allow us to use those losses
00:00:23.250 to offset other capital gains we might have.
00:00:25.500 Joining us to explain the rule, how to use it,
00:00:28.440 make the best of a bad situation, Scott Booth.
00:00:30.690 He joins us from TD Wealth, where he's an analyst with North American equities.
00:00:33.240 How are you?
00:00:34.000 Very good.
00:00:34.500 Thanks.
00:00:34.770 Yourself?
00:00:35.280 I'm OK.
00:00:36.862 I was looking at your list of some of the losers out there.
00:00:39.320 And unfortunately, I know some of these names a little too intimately right now.
00:00:42.653 But we're talking right now about tax loss selling.
00:00:46.260 And why are we talking about this now?
00:00:48.220 Well, I mean, it comes to the end of the year and everybody starts thinking about it now.
00:00:53.070 You've got to get those trades by, in Canada's case, December 23, in the States,
00:00:58.410 December 27.
00:00:59.910 And that's if you want to have losses that are recognized in 2016.
00:01:04.650 Right.
00:01:05.150 So you have to crystallize the loss this year in order to use it.
00:01:07.950 Let's just back up a little bit before we hit the dates.
00:01:09.800 And just, what is the rule?
00:01:10.924 How does it work?
00:01:11.795 Well, essentially, if you've got gains in your portfolio,
00:01:16.450 you're going to pay taxes on them when you realize those.
00:01:18.920 In non-registered accounts.
00:01:20.170 In non-registered accounts.
00:01:21.590 That's right.
00:01:22.200 So not in your TFSA or your RSP, etc.
00:01:25.146 Or your RIF.
00:01:25.645 Or anything like that.
00:01:26.561 Exactly.
00:01:27.810 But if you want to minimize those taxes that you're paying on the gains that you've made,
00:01:32.880 you can tax law sell and realize some losses and use
00:01:36.630 those to offset and reduce your tax bill.
00:01:38.820 And how long-- I know you've said.
00:01:40.320 If you have any gains in this year or for the last three years,
00:01:45.567 you can use those losses against them?
00:01:47.150 That's exactly-- you can go back three years.
00:01:49.024 And then you can use them this year and you can also carry them forward indefinitely.
00:01:52.850 So I mean, if you've got stuff that's down and, whether you want to hold it or sell it,
00:01:59.520 you can realize a loss on it and use that going forward.
00:02:03.990 And you said, in terms of realizing the loss, this comes down to just selling the stock
00:02:08.373 and selling it in time by the end of the year.
00:02:10.289 So give me the dates again, because I don't want...
00:02:12.120 because they're important.
00:02:13.869 I know people will sometimes call in a panic.
00:02:16.310 It's like, oh, I want to get them on December 29.
00:02:18.480 It's like, no.
00:02:19.181 Too late.
00:02:19.680 It's too late.
00:02:20.000 So what are the dates?
00:02:20.916 So in Canada, it is December 23.
00:02:22.790 If you're US stocks, there's a little different settlement process there,
00:02:26.050 so it's December 27 if you want to get-- but I mean,
00:02:29.120 you're better probably better served in looking after these things now.
00:02:33.810 If you're making it part of a broader portfolio review or rebalancing,
00:02:38.430 you can decide where you want to take some gains,
00:02:41.340 because certainly there's a lot of stocks that have done well this year.
00:02:44.430 And then as part of that tax management process, taking some losses,
00:02:48.570 whether you want to reallocate or just part ways for a short time
00:02:51.600 with a certain security.
00:02:54.300 There's lots of opportunities to do that.
00:02:56.340 You bring up a really good point.
00:02:57.962 Because this isn't just about a tax management.
00:02:59.920 This is about portfolio management and tax management at the same time.
00:03:02.878 So my question to you is, I've got some stocks.
00:03:05.820 They haven't done so well.
00:03:08.370 How do I decide that I do want to sell them?
00:03:10.861 Or how do I decide I'm going to hang on to them and keep on going?
00:03:13.610 Sure.
00:03:14.110 Well, you certainly don't want tax to be the primary motivator for those decisions.
00:03:18.270 But if you've bought something and the investment thesis hasn't played out,
00:03:22.470 the reasons why you own it come into question,
00:03:24.780 these are certainly good cues that it may be time to find a different solution.
00:03:28.775 And certainly those are probably candidates that go with the top of the list for things
00:03:32.400 to sell.
00:03:33.150 Obviously, looking at your portfolio or your statement
00:03:35.640 and seeing the ones that have big red numbers beside them or negative signs,
00:03:40.230 that's a good place to start.
00:03:43.000 But really, I mean, I think, like I said, you don't
00:03:46.050 have to part ways permanently with things.
00:03:47.970 There is a 30 days window after which, if you decide
00:03:52.500 you want to sell something and then repurchase it more than 30 days later,
00:03:55.950 you will get credit for that loss.
00:03:57.630 Right.
00:03:58.130 But you have to wait 30 days.
00:03:59.580 Absolutely.
00:04:00.210 And on either side of that.
00:04:01.710 So you can't purchase 30 days before you sell or 30 days after.
00:04:05.710 You bought it.
00:04:06.540 OK, that's important.
00:04:07.450 And this is the superficial loss rule.
00:04:09.276 Exactly.
00:04:09.950 If you don't want the CRA to come back to you and say that it is a superficial loss--
00:04:14.160 Did all that for nothing then.
00:04:15.840 Let me ask you about-- I saw a note here.
00:04:17.579 You said something about ETFs.
00:04:19.790 There's something interesting about some ETFs around superficial tax losses.
00:04:23.850 Sure.
00:04:24.390 Well, if you're swapping between two ETFs and they track the same index--
00:04:31.690 So it's one company's ETF versus another, but they're both, let's say, gold ETFs.
00:04:35.850 Exactly.
00:04:36.480 And if they track specifically the same underlying index,
00:04:40.740 then you can run afoul of the CRA--
00:04:42.346 So even though technically it's a different security, it's the same vague--
00:04:45.470 Same exposure, let's call it.
00:04:46.800 The CRA will say--
00:04:48.460 No thanks.
00:04:49.011 Interesting.
00:04:49.510 I did not know that.
00:04:50.520 That's really interesting.
00:04:51.420 You have a list attached to the report that you put out.
00:04:53.530 I said unfortunately I was a little too familiar with some of the names.
00:04:56.390 And again, I'm not picking on anybody here.
00:04:58.181 These are just some of the names-- Valeant is one of the stocks.
00:05:02.400 I think it's down year to date 79%.
00:05:06.240 Cameco, down about 37%.
00:05:09.120 Linamar, I know, was on the list, down about 28%.
00:05:11.974 I think we can bring them up here.
00:05:13.390 You've got a long, long list here.
00:05:14.806 And it's funny, because for lot of these-- there's the look right now.
00:05:18.157 A lot of these, the investment thesis has changed for many of these.
00:05:20.990 It has indeed, yes.
00:05:21.960 And there's a lot of oil and gas companies on here, too.
00:05:24.510 Probably more so before, but we're still seeing some now right now
00:05:27.390 in terms of what's going on.
00:05:30.060 Do you think-- are there any buying opportunities
00:05:32.102 that can happen at the end of the year, because of all this tax loss selling?
00:05:35.309 I think there certainly are.
00:05:36.630 I mean, it seems like people do leave it to the last minute.
00:05:38.640 And like I said, don't do that.
00:05:39.931 Go get your ducks in a row now.
00:05:41.400 But maybe you can look at other people and take advantage of them during--
00:05:43.860 And then when someone else is motivated to sell things in mid-December,
00:05:46.590 maybe there are some buying opportunities there.
00:05:48.660 One of the areas that I cover pretty closely is the preferred share market.
00:05:51.840 And it seems like there's a perennial weakness in the second week of December kind
00:05:56.710 of thing.
00:05:57.210 And in my view, that's probably a much better time to be a buyer than a seller.
00:06:01.110 Interesting insight, Scott.
00:06:02.245 Thanks so much.
00:06:02.870 Great.
00:06:03.160 Thanks for having me.
00:06:03.600 Scott Booth.
00:06:04.300 He's an analyst with North-- excuse me-- analyst
00:06:06.300 of North American equities with the portfolio advice and investment research
00:06:09.690 group at TD Wealth.
00:06:12.110
00:00:00.000
00:00:04.770 Well, we all know what's certain in life-- death, and taxes.
00:00:07.271 And so we're going to help you a little bit, hopefully, today,
00:00:09.853 talking about the tax side of things.
00:00:11.490 We've all had that sinking feeling when we check our portfolio holdings
00:00:14.940 and see we've taken a hit on a stock or two or three.
00:00:18.732 There is, suppose, a silver lining.
00:00:20.190 That is, at least the tax rules allow us to use those losses
00:00:23.250 to offset other capital gains we might have.
00:00:25.500 Joining us to explain the rule, how to use it,
00:00:28.440 make the best of a bad situation, Scott Booth.
00:00:30.690 He joins us from TD Wealth, where he's an analyst with North American equities.
00:00:33.240 How are you?
00:00:34.000 Very good.
00:00:34.500 Thanks.
00:00:34.770 Yourself?
00:00:35.280 I'm OK.
00:00:36.862 I was looking at your list of some of the losers out there.
00:00:39.320 And unfortunately, I know some of these names a little too intimately right now.
00:00:42.653 But we're talking right now about tax loss selling.
00:00:46.260 And why are we talking about this now?
00:00:48.220 Well, I mean, it comes to the end of the year and everybody starts thinking about it now.
00:00:53.070 You've got to get those trades by, in Canada's case, December 23, in the States,
00:00:58.410 December 27.
00:00:59.910 And that's if you want to have losses that are recognized in 2016.
00:01:04.650 Right.
00:01:05.150 So you have to crystallize the loss this year in order to use it.
00:01:07.950 Let's just back up a little bit before we hit the dates.
00:01:09.800 And just, what is the rule?
00:01:10.924 How does it work?
00:01:11.795 Well, essentially, if you've got gains in your portfolio,
00:01:16.450 you're going to pay taxes on them when you realize those.
00:01:18.920 In non-registered accounts.
00:01:20.170 In non-registered accounts.
00:01:21.590 That's right.
00:01:22.200 So not in your TFSA or your RSP, etc.
00:01:25.146 Or your RIF.
00:01:25.645 Or anything like that.
00:01:26.561 Exactly.
00:01:27.810 But if you want to minimize those taxes that you're paying on the gains that you've made,
00:01:32.880 you can tax law sell and realize some losses and use
00:01:36.630 those to offset and reduce your tax bill.
00:01:38.820 And how long-- I know you've said.
00:01:40.320 If you have any gains in this year or for the last three years,
00:01:45.567 you can use those losses against them?
00:01:47.150 That's exactly-- you can go back three years.
00:01:49.024 And then you can use them this year and you can also carry them forward indefinitely.
00:01:52.850 So I mean, if you've got stuff that's down and, whether you want to hold it or sell it,
00:01:59.520 you can realize a loss on it and use that going forward.
00:02:03.990 And you said, in terms of realizing the loss, this comes down to just selling the stock
00:02:08.373 and selling it in time by the end of the year.
00:02:10.289 So give me the dates again, because I don't want...
00:02:12.120 because they're important.
00:02:13.869 I know people will sometimes call in a panic.
00:02:16.310 It's like, oh, I want to get them on December 29.
00:02:18.480 It's like, no.
00:02:19.181 Too late.
00:02:19.680 It's too late.
00:02:20.000 So what are the dates?
00:02:20.916 So in Canada, it is December 23.
00:02:22.790 If you're US stocks, there's a little different settlement process there,
00:02:26.050 so it's December 27 if you want to get-- but I mean,
00:02:29.120 you're better probably better served in looking after these things now.
00:02:33.810 If you're making it part of a broader portfolio review or rebalancing,
00:02:38.430 you can decide where you want to take some gains,
00:02:41.340 because certainly there's a lot of stocks that have done well this year.
00:02:44.430 And then as part of that tax management process, taking some losses,
00:02:48.570 whether you want to reallocate or just part ways for a short time
00:02:51.600 with a certain security.
00:02:54.300 There's lots of opportunities to do that.
00:02:56.340 You bring up a really good point.
00:02:57.962 Because this isn't just about a tax management.
00:02:59.920 This is about portfolio management and tax management at the same time.
00:03:02.878 So my question to you is, I've got some stocks.
00:03:05.820 They haven't done so well.
00:03:08.370 How do I decide that I do want to sell them?
00:03:10.861 Or how do I decide I'm going to hang on to them and keep on going?
00:03:13.610 Sure.
00:03:14.110 Well, you certainly don't want tax to be the primary motivator for those decisions.
00:03:18.270 But if you've bought something and the investment thesis hasn't played out,
00:03:22.470 the reasons why you own it come into question,
00:03:24.780 these are certainly good cues that it may be time to find a different solution.
00:03:28.775 And certainly those are probably candidates that go with the top of the list for things
00:03:32.400 to sell.
00:03:33.150 Obviously, looking at your portfolio or your statement
00:03:35.640 and seeing the ones that have big red numbers beside them or negative signs,
00:03:40.230 that's a good place to start.
00:03:43.000 But really, I mean, I think, like I said, you don't
00:03:46.050 have to part ways permanently with things.
00:03:47.970 There is a 30 days window after which, if you decide
00:03:52.500 you want to sell something and then repurchase it more than 30 days later,
00:03:55.950 you will get credit for that loss.
00:03:57.630 Right.
00:03:58.130 But you have to wait 30 days.
00:03:59.580 Absolutely.
00:04:00.210 And on either side of that.
00:04:01.710 So you can't purchase 30 days before you sell or 30 days after.
00:04:05.710 You bought it.
00:04:06.540 OK, that's important.
00:04:07.450 And this is the superficial loss rule.
00:04:09.276 Exactly.
00:04:09.950 If you don't want the CRA to come back to you and say that it is a superficial loss--
00:04:14.160 Did all that for nothing then.
00:04:15.840 Let me ask you about-- I saw a note here.
00:04:17.579 You said something about ETFs.
00:04:19.790 There's something interesting about some ETFs around superficial tax losses.
00:04:23.850 Sure.
00:04:24.390 Well, if you're swapping between two ETFs and they track the same index--
00:04:31.690 So it's one company's ETF versus another, but they're both, let's say, gold ETFs.
00:04:35.850 Exactly.
00:04:36.480 And if they track specifically the same underlying index,
00:04:40.740 then you can run afoul of the CRA--
00:04:42.346 So even though technically it's a different security, it's the same vague--
00:04:45.470 Same exposure, let's call it.
00:04:46.800 The CRA will say--
00:04:48.460 No thanks.
00:04:49.011 Interesting.
00:04:49.510 I did not know that.
00:04:50.520 That's really interesting.
00:04:51.420 You have a list attached to the report that you put out.
00:04:53.530 I said unfortunately I was a little too familiar with some of the names.
00:04:56.390 And again, I'm not picking on anybody here.
00:04:58.181 These are just some of the names-- Valeant is one of the stocks.
00:05:02.400 I think it's down year to date 79%.
00:05:06.240 Cameco, down about 37%.
00:05:09.120 Linamar, I know, was on the list, down about 28%.
00:05:11.974 I think we can bring them up here.
00:05:13.390 You've got a long, long list here.
00:05:14.806 And it's funny, because for lot of these-- there's the look right now.
00:05:18.157 A lot of these, the investment thesis has changed for many of these.
00:05:20.990 It has indeed, yes.
00:05:21.960 And there's a lot of oil and gas companies on here, too.
00:05:24.510 Probably more so before, but we're still seeing some now right now
00:05:27.390 in terms of what's going on.
00:05:30.060 Do you think-- are there any buying opportunities
00:05:32.102 that can happen at the end of the year, because of all this tax loss selling?
00:05:35.309 I think there certainly are.
00:05:36.630 I mean, it seems like people do leave it to the last minute.
00:05:38.640 And like I said, don't do that.
00:05:39.931 Go get your ducks in a row now.
00:05:41.400 But maybe you can look at other people and take advantage of them during--
00:05:43.860 And then when someone else is motivated to sell things in mid-December,
00:05:46.590 maybe there are some buying opportunities there.
00:05:48.660 One of the areas that I cover pretty closely is the preferred share market.
00:05:51.840 And it seems like there's a perennial weakness in the second week of December kind
00:05:56.710 of thing.
00:05:57.210 And in my view, that's probably a much better time to be a buyer than a seller.
00:06:01.110 Interesting insight, Scott.
00:06:02.245 Thanks so much.
00:06:02.870 Great.
00:06:03.160 Thanks for having me.
00:06:03.600 Scott Booth.
00:06:04.300 He's an analyst with North-- excuse me-- analyst
00:06:06.300 of North American equities with the portfolio advice and investment research
00:06:09.690 group at TD Wealth.
00:06:12.110