3 tax-loss harvesting tips to remember

Updated Nov. 30, 2017

Tax-loss selling season is fast approaching.  Yes, it’s that special time of year when investors dump their losers in an effort to reduce their taxes.

Here are a few things to keep in mind when harvesting tax losses in taxable accounts.

1. Don’t procrastinate

First, don’t wait until the very end of the year to sell your stock because the official transfer of shares occurs on the settlement date, which happens three business days after a trade is executed.

For example, if an individual has a sell order filled on December 30, the shares won’t actually change hands until the new year in the eyes of the Canadian Revenue Agency (CRA).

Complicating matters, those who want to book losses this year should do so on, or before, December 24 due to the many holidays during the Christmas season. In addition, some markets close early on Dec. 24 and trading will likely be thin as people make last minute preparations for the holiday. That’s why it’s wise to sell earlier. (Confirm the dates with your broker because they may change depending on the security in question.)

2. Remember, a buy-back will cost you

Second, it’s important to remember that if you buy back the stock within 30 days of the settlement date of the sale, the CRA will consider it a “superficial loss” that can’t be used to offset capital gains.  The CRA also keeps an eye out for fancy footwork on this front.  So, don’t go trying to buy back the shares early in another account or indulging in some other tomfoolery.

3. Keep an eye out for value vultures

Third, there are value investors who circle the market like sharks at this time of year looking to take advantage of tax-loss sellers. Speaking as one of them, it is a concern. That’s why I prefer to do my tax-loss selling in May or June. That said, booking a loss this year–instead of next year–might still be a smart move depending on the level of expected tax savings.

A word of warning: many people have complicated tax profiles. So, be sure to consult your accountant to figure out the best approach for your individual circumstances.