Tax-Loss Selling and Year-End Checklist

Just like last year, we are here to provide you with a checklist to ensure you get the most out of tax credits, deductions, and benefits. But first, we want to get more in depth about tax loss selling.

What is Tax-Loss Selling?

Tax-loss selling means selling an investment with accrued losses at year-end, allowing you to offset capital gains realized with other investments. Net capital losses can be carried back three years or carried forward indefinitely. Tax-loss selling therefore enables investors to mitigate the impact of capital gains taxes.

Superficial Loss Rules

When you sell an investment at a loss, if you, your spouse, your company, or a trust in which you have a major interest, purchase and still own an identical investment within 30 days of the sale, then the capital loss is added to the cost base of the purchase. This includes re-purchasing the same company or a fund tracking the same index. Professional advice may be needed to determine whether certain products are considered identical.

Foreign Currency Tax Loss Selling

Foreign currency fluctuations are another important consideration when tax-loss selling. The gain or loss will be different once the foreign exchange is taken into account. It is even possible that when calculating between two currencies, what appeared to be a loss may end up being a capital gain, and vice versa. Before selling to take losses, it is extremely important to calculate foreign currency exchange rates.

The Rest of the Year-End Checklist

While tax-loss selling can be an important tool, it is far from the only thing to consider before year-end. Here is a handy checklist with some other steps to take:

Pension income splitting — Those who receive a pension may be eligible to split up to 50% of eligible pension income with a spouse

Guaranteed income supplement — If you received the guaranteed income supplement or allowance benefits under the old age security program, you can renew the benefit by filing by the deadline.

Registered retirement savings plan (RRSP) — You have until December 31 of the year in which you turn 71 to contribute to your RRSPs.

Goods and services tax/harmonized sales tax (GST/HST) credit — You may be eligible for the GST/HST credit, a tax-free quarterly payment that helps offset all or part of the GST or HST you pay. To receive this credit, you must file an income tax and benefit return every year.

Medical expenses — You may be able to claim eligible medical expenses that you paid, provided the expenses were made over the 12-month period ending in 2018 and were not previously claimed. This can include amounts claimed for attendant care or care in an establishment.

Age amount — If you are 65 years of age or older on December 31, 2018, and if your net income was less than $83,000, you may be able to claim up to $7,125.

Public transit amount — You may be able to claim the cost of monthly or annual public transit passes for travel within Canada on public transit in 2018.

Pension income amount — You can claim up to $2,000 if you report eligible pension, or annuity payments on your tax return.

Registered disability savings plan (RDSP) — This savings plan can help families save for the financial security of a person who is eligible for the disability tax credit. RDSP contributions are not tax deductible and can be made until the end of the year in which the beneficiary turns 59.

Disability amount — If you, your spouse or a dependent have severe and prolonged impairments in physical or mental functions and meet certain conditions, you may be eligible for the disability tax credit (DTC).

Family caregiver amount — Those caring for a dependent with impairment in physical or mental functions may be able to claim up to $2,000 when calculating certain non-refundable tax credits.